THE Penang property market, over the short to medium term, is expected to be challenging as a result of strong incoming supply of new units.
At the end of 2018, the incoming supply of housing rose to 49,543 units versus 44,046 units in 2017, an increase of 12.5%.
The National Information Property Centre (Napic) defines incoming supply as projects currently undergoing construction.
Rehda Penang chairman Datuk Toh Chin Leong says 40% to 50% of the incoming units have already been sold, which makes the incoming supply less alarming.
Developers would usually start construction only when they have sold 40% to 50% of the project, says Toh.
“However, we must remember that there are also those units classified under the planned supply category. These are projects with building plan approvals but have yet to commence work,” he says.
There are three main stages of development:
> Existing inventory, or completed units,
> Incoming supply which refers to those being constructed, and
> Planned supply, which have yet to commence construction.
“Developers with the financial muscle to delay construction will probably not launch the project until market conditions improve. Those who have already paid hefty infrastructure and development charges to the local government will not hesitate to launch,” he adds.
According to Napic, there are 23,422 units being planned. These units should enter the market in the near future and will add to the the incoming supply figure.
“The annual residential transactions in Penang hover around 10,000 to 12,000 units. In 2018, there were 12,551 residential property transactions with a value of RM5.47bil.
“Assuming consumption stays constant at around 10,000 to 12,000 per annum, it will take about three years to absorb the remaining 40% to 50% of the incoming supply which are currently under construction. This has not taken into consideration the 23,422 units being planned,” he says.
The good news is that Penang’s unsold housing has decreased to 3,502 units in 2018 from 3,916 units in 2017.
According to Napic, Penang ranks fifth in Malaysia with an overhang of 3,716 units worth RM3.39bil, comprising residential, commercial, and industrial properties, after Johor (16,031 units), Selangor (7,110 units), Perak (5,793 units), and the Federal Territories (4,876 units).
Toh says the overhang has put a brake on rapidly escalating prices.
“We can expect Penang property prices to remain stable in the years to come. Due to the choice for properties in the market, the pricing of the incoming supply will be very competitive.
“Property developers with a large land bank will be able to deliver a variety of creatively designed properties within integrated schemes to suit the needs of the market. Bank interest rates, however, will need to be maintained at a low level to stimulate interest,” he says.
Meanwhile, MNP Auctioneers managing director Stephen Soon says the number of properties auctioned by banks in Penang has dropped this year.
“Banks prefer to recover the default loans by negotiating with the borrowers. Banks will usually withdraw the auction notices after loan defaulters come forward to negotiate for a settlement.
“In 2017 and 2018, an established local bank will probably auction 10 to 20 Penang properties that do not have strata titles in a month, or about 100 units a year. Since January 2019, the figure has dropped by about 50%,” Soon says.
Raine & Horne Malaysia senior partner Michael Geh also concurs that the short and medium-term prospects appear challenging.
“The excess supply has prompted residential property prices to slide over the past three years. Our research shows that the contraction is about 2% per annum,” Geh says.
In the south-west district, a condominium priced at around RM620,000 in 2016, is now selling for about RM582,000 in the sub-sale market.
“Over a three-year period, the contraction is more than 6%, or around 2% annually. However, we believe the decline would have been more if not for the cash incentives developers are offering to buyers.
“Many developers advertised such schemes to promote sales. Sales packaged with cash incentives distort the market,” Geh says.
“We believe the Penang Transport Master Plan with the LRT and other expressways will enhance the connectivity on the island and boost the demand and retail space,” he adds.
According to the Penang Master Builders & Building Materials Dealers Association (PMBBMDA), the Penang South Reclamation (PSR) projects to create three man-made islands are likely to generate about RM60bil worth of construction and renovation work over a 20-year period.
PMBBMDA adviser Datuk Lim Kai Seng says this is based on the sales of the reclaimed land at about RM200 per sq ft and on the utilisation of 70% to 75% of the land for development.
“Based on these figures, the gross development value of the projects on the three islands would be around RM100bil, of which about 40% will be for construction and 20% for renovation.
“This would mean the PSR development scheme will generate about RM3bil a year over a 20-year period. This is good news for Penang’s construction industry,” he says.
On the 23,000 units with building approvals but have yet to be tendered to contractors, he says given the soft market, it is unlikely all the projects with building approvals will be launched.
“We expect a certain percentage of the projects with building approvals to be delayed. For this reason, the implementation of the PSR scheme is important to stimulate the local construction industry, which is a key driver of the local economy.
“Our association comprises not just contractors but also raw building material suppliers, who will also benefit from the healthy local construction industry. Engineers, architects and surveyors will similarly benefit,” he says.
Mah Sing Group Bhd chief operating officer Everlyn Khaw says it is impossible to draw conclusions on future demand based on incoming supply data. “There are other factors contributing to the take-up rate,” Khaw says.
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