Penang residential overhang mostly in higher-end segment

A high angle shot showing the major floods which hit Datuk Keramat in George Town, Penang. StarPic by :LIM BENG TATT/THE STAR/ 05 Nov 2017

PENANG’S residential overhang is concentrated in the higher-end market with properties priced from RM500,000 onwards in areas like Mount Erskine, Tanjung Tokong, Batu Ferringhi, Sungai Ara and Bayan Baru.

Raine & Horne Malaysia senior partner Michael Geh says the overhang in these locations does not come as a surprise because certain areas in Tanjung Tokong, Batu Ferringhi and Bayan Baru are prone to flooding. Some projects are near hillslopes.

In the final quarter of 2017, sales of properties near hillslopes and flood prone areas were badly hit when rain storms wreaked havoc in Penang.

“We predicted at that time that their sales would suffer as a consequence of the flooding,” he says.

According to the National Property Information Centre’s (Napic) latest report for January-March 2018, the number of unsold units in Penang totalled 4,092 worth RM3.44bil.

The North-East district, where most of the higher-end properties are located, has the most number of overhang units of 1,361 or 33.26%.

The National Property Information Centre defines a property overhang as units which have been issued with the certificate of fitness for occupation (CF) and which had been on the market for more than nine months but remained unsold.

The South-West district has 1,176 units, or 28.74%, while the Central Seberang Prai district has 1,085 units, or 26.52%.

The unsold units of residential properties priced from RM500,000 to RM1mil total 1,482 units, while the overhang of units priced RM1mil and above is 901 units.

According to Geh, the demand for properties priced from RM400,000 onwards in the country is still weak.

“A household would require at least RM10,000 income to purchase properties priced from RM400,000 and above. “The median monthly household income in Malaysia is currently about RM5,228,” he says.

The sub-sale price of high-rise properties on the island, depending on location and condition of the unit, has either stayed stagnant or contracted slightly by between 5% and 10%, since 2014.

In the North-East district for example, the present selling price in Tanjung Bungah is between RM720,000 and RM1mil, depending on the size and location of the properties.

In Batu Ferringhi, the selling price is between RM620,000 and RM820,000 for a high-rise unit, while the selling price of a detached landed property ranges from RM2mil to RM2.7mil, depending on the size and location of the properties. In Paya Terubong, a high-rise unit is transacted between RM230,000 and RM435,000.

In Jalan P. Ramlee, the selling price of a high-rise unit ranges between RM125,000 and RM405,000.

In the South-West district, the price of condominiums in Bayan Baru, for example, range between RM500,000 and RM650,000, reflecting a contraction of 5% from last year. Geh says with the zerorisation of GST, the sale of properties in Penang is expected to increase to 12,517 units compared to 12,090 in 2017, which is based on Raine & Horne’s research data and analysis.

“The value of residential property transactions projected for 2018 is expected to be RM5.21bil, a slight decrease from RM5.41bil in 2017, as the value of residential properties has softened,” he says.

Moving on, Geh says the proposal to implement essential components of the Penang Transport Master Plan (PTMP) such as the LRT and Pan Island Link will boost the value of properties near the routes.

On investments in island properties, Geh says there are analysts who argue that it is preferable to make investments in big cities as they have better return on investments.

“In Kuala Lumpur, the rental rates are much more attractive compared to Penang island.

“However, in a big city with ample supply of land, there will also be new property projects entering the market regularly, which tend to check the rapid appreciation of property value.

“On an island, although the rental returns are not attractive, the value of appreciation is faster.

“The sub-sale price of residential properties in Penang tends to increase faster than in Kuala Lumpur due the shortage of land for residential projects,” Geh adds.

Malaysian Institute of Estate Agents (MIEA) Penang chairman Mark Saw says market sentiment is still negative.

“There have been few launches so far this year. When developers decide to launch, they have to take into account the location of the project, its size, and pricing.

“The loan guidelines need to be relaxed to boost the property market. However, it must be done properly so that the market does not end up with a high number of defaulters,” he adds.

According to IJM Land Bhd senior general manager Datuk Toh Chin Leong, the overhang in residential properties is not surprising.

“The whole of last year and until GE14 in May 2018, the property market in the country slowed down. It impacted not just Penang but other states as well.

“We saw enquiries coming in since June so there has been an improvement. The price range between RM500,000 and RM700,000 is getting enquiries again.

“The pick-up is happening but it cannot return to normal overnight as many Malaysians are now turning their attention to cars in order to take advantage of the zerorisation of GST,” Toh says.

Due to an inactive market situation in 2017, IJM Land launched only the Waterside Residence at The Light project next to the Penang Bridge.

Although the pricing is between RM750,000 and RM1.2mil, the project is 68% sold.

Currently, the unsold units of our residential projects launched two years ago are at a manageable level, says Toh.

For 2018, IJM Land will launch the second phase of the Sanctuary Ridge soon. This is a scheme involving semi-detached units in Permatang Tinggi priced around RM780,000 each.

“We expect good response for this project,” he says. — By David Tan

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