Property market expected to stabilise in the second half
AMID challenges in the local property sector, the Johor market still offers pockets of opportunity for developers to replenish their land bank in anticipation of a recovery in the medium term.
And with the build-up in uncertainties leading up to the elections back in May finally over, property consultants are expecting the Johor property market to stabilise in the second half of 2018.
Knight Frank Malaysia managing director Sarkunan Subramaniam says the economic region of Iskandar Malaysia remains on track to achieve its RM300bil investment target by 2018.
“As of the first quarter 2018, the region recorded cumulative investment of RM262.43bil,” he says in a recent statement.
In spite of the current slowdown in the market, Sarkunan says developers are actively seeking opportunities to replenish their land bank in anticipation of a recovery in the medium term.
“In the meantime, they continue to focus on demand for mass housing and landed residential products due to weakness in the high-rise residential segment.”
KGV Property Consultants executive director Samuel Tan says he expects the Johor property sector to stabilise towards the second half of 2018, underpinned by newfound confidence in the market following the general election on May 9.
“The smooth power transition and the generally pro-business, transparent and clean stance undertaken by the new government are seen as beneficial to the economy and property market in the long term.
Furthermore, due to the incremental effect of the goods and services tax (GST) at every stage of the transactional chain, Tan points out that GST used to assert higher cost pressure across the board compared with the sales and service tax (SST), which will be reintroduced on Sept 1.
“The replacement of GST with SST should lower the cost of raw materials and indirectly lower the gross development cost for new projects. Rightfully, this gives developers more leeway in terms of pricing new projects moving forward.”
He adds however that the property market could do with catalysts such as the confirmation date for the rail transit system (RTS) to commence construction and the revival of the Kuala Lumpur-Singapore high speed rail (HSR) projects, to have another wave of uplift.
“More practical and sound policies, coupled with effective and fair implementation and enforcement from the authorities are also pertinent in improving the overall property market,” he says.
Mega project factor
Meanwhile, Knight Frank in its Real Estate Highlights report for the first half of 2018, acknowledges that the newly elected Pakatan Harapan government had halted several mega projects due to concern on the country’s debt level.
“(For Johor) the affected rail infrastructure projects include the RTS and HSR. The uncertainties surrounding these high impact projects are expected to place the property market in a “wait-and-see mode” for the remainder of the year.
“Moving forward, housing developers are likely to continue focusing on popular mass market products, typically double-storey terraced houses to move sales,” it says, adding that the commercial office and industrial sub-sectors are expected to be stable.
Knight Frank notes that there were fewer residential launches in Johor during the first half of the year.
“Developers, however, remain cautiously optimistic on the current market situation and are gradually releasing their products albeit in smaller scale. SP Setia Bhd has launched three schemes offering a total of 378 units of double-storey terraced houses in different locations namely Bellina in Bukit Indah, Elata Nova in Setia Tropika and Vallaris in Eco Village 2 of Setia Eco Gardens.
“The review period also saw UEM Sunrise Bhd launching its double-storey terraced houses known as Serimbun in Bukit Indah 2. The newly launched double-storey terraced houses generally have built-up areas between 1,801 sq ft and 2,117 sq ft and are priced from RM630,000 onwards per unit depending on scheme, land area and other factors.”
Tan says the residential market was generally quiet in the first half.
“Having said that, landed properties in mature locations are still in high demand.”
Tan attributes the slower market to growing uncertainty as a result of the trade wars between the US and China and European Union; the “wait-and-see” attitude adopted by buyers for big-ticket items prior to the 14th General Election in May; as well as the adoption of a more prudent stance by financial institutions in providing loan financing.
He says there was also a fear of further price drops among the prospective buyers, in view of the high supply pipeline for the high-rise residential projects.
“Many of these high-rise properties remained unoccupied even after completion and sold. This compounded the fear of the difficulty to lease out the units.”
In general, Tan says, landed properties remain more marketable.
“Prices for landed properties have been holding well and certain areas may even witness reasonable modest appreciation. On the other hand, prices of high-rise units faced downward pressure in view of the high existing and future supply.
“There may be isolated cases of distressed sale for some high-rise units, but we note that the prices of high-rise residential properties are not crashing. Many buyers are able to hold and some opt to lease out their units on a short-term basis as home-stay via popular online platforms like Airbnb and booking.com.”
Tan adds that the trend is likely to continue this year.
“Developers have generally stopped dishing out high-rise properties since last year. In general, prices of landed properties should see gradual appreciation while prices for high-rise properties should stabilised moving forth.”
Knight Frank meanwhile says the occupancy and rental rates of purpose-built office space remained stable during the first half of 2018.
“Monthly asking rentals in the city centre range between RM2.30 per sq ft and RM3 per sq ft. New office buildings with modern design, better specifications, green building features or are MSC compliant in the newer suburb of Iskandar Puteri, command higher rentals of about RM4 per sq ft to RM5 per sq ft per month.
“There are no notable incoming supply of office space. However, there are some notable new launches of shop-offices,” it says, adding that the industrial sector was less active during the first half of the year.
As for the retail segment, Knight Frank says the market in Johor is seen to be more competitive with the recent completions and high supply pipeline.
“The total retail space in Johor Baru stood at 15.85 million sq ft as of the first quarter of 2018 following the completion of around 1.61 million sq ft of space with overall occupancy rate at 75.6%, a significant drop from 84.6% in 2017.”
It notes that Paradigm Mall, the largest shopping centre in the state which opened last November with 1.3 million sq ft, has more than 93% of its lettable space occupied.
“Southkey Mid Valley Megamall in Iskandar, slated to open by the fourth quarter of 2018 with around 1.5 million sq ft, has to date achieved committed occupancy of above 70%.”
Tan says the retail sector’s occupancy rate will face pressure in view of the high supply coming on stream.
“Consequently, retail rental is expected to face downward pressure. There are at least five newly-completed shopping malls and four new malls in the pipeline.”
With this, he says that there is an oversupply of retail space in Johor.
“The competition will be very intense with the completion of these new malls. As the consumer catchment market remains largely stable, older malls that are not well managed will be adversely affected as retailers and shoppers have more options. Shoppers will naturally opt for newer malls with better concepts and tenant-mix.
“In future, the shopping malls would not be a venue for buying stuff. Instead, the shopping malls should be the location for visitors to have an experience. Therefore, retail malls should be a place offering good experience for dining, entertaining, playing, testing, mingling and buying.”
Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan says despite the oversupply of retail space, new malls like Paradigm Mall and Southkey Mid Valley Megamall are still able to boast high occupancy rates because they are managed well.
“The success of a mall depends on whether you’ve done your homework, who is developing it and how you manage it. This is why Paradigm and Southkey are thriving.”
Higher number of unsold units
According to the National Property Information Centre (Napic), the Johor property market saw a total of 38,839 transactions valued at RM18.61bil last year.
Of that, there were 4,376 overhang units valued at RM2.86bil – the highest in the state over a five-year period.
Tan says that the level of overhang in Johor is not as serious as some might perceive.
“Some of these overhang units are located in less desirable locations, namely places where there is poor accessibility or the location is incompatible due to issues such as pollution or squatters.
“ Some may have other problems like inferior construction quality or design fault that are not easily rectified. All these inherent problems, compounded, make it difficulty to sell these properties.
“In other words, these properties will remain unsold regardless of the market sentiment and condition.”
Tan also says that most of the overhang units comprise homes that are priced at RM500,000 and above.
“This is a mismatch of price between the supply and demand. This has become a structural socio-economic issue when the buyers’ income has not been catching up with the house price appreciation or capital growth.
“Therefore, the advocate for affordable housing has gathered traction in recent years, especially to plug the gap of the urban poor”.
As such, the high level of overhang will unfortunately continue to be an issue, says Tan.
“However, it is not a simplistic case of bad market conditions causing the problems. To arrest the problem, the public and private sectors have to work hand-in-hand in areas like data transparency and timeliness, policy practicality, effective implementation and proper law enforcement.”
“All of this will also ensure better developer credibility and awareness with regards to the market viability in terms of price vis-à-vis competitive projects.”