It never rains but it pours

  • Business
  • Saturday, 14 Mar 2020

AS governments around the world grapple with tracking those infected with the coronavirus (Covid-19) and containment, it is clear that a global market meltdown is inevitable.

What started out as a China-centric health issue has morphed into a global pandemic, upending stock markets from New York to Singapore to Shanghai, disrupting supply chains, holiday plans, manufacturing sectors and different aspects and segments of the real estate industry.

For some years now, the Malaysia property market has struggled along. The Real Estate and Housing Developers Association (Rehda) has a membership of about 1,000. Together with those who are non-Rehda members, this means Malaysia has more than 1,000 developers, some of whom who have bitten the bullet and launched to showcase their latest offering after years of tepid growth in order to generate revenue.

Whatever channel they choose to promote their properties and with real estate being a big ticket item, a buyer needs to be familiar with the surrounding area of the property on sale.

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Which explains why developers invest in show units as close to the site as possible.

With mass gatherings now discouraged, how does one go about selling unless developers take on an even more personal approach, which results in high costs.

The property market is divided broadly into residential, industrial and commercial segments, which is further sub-divided into office, mall and hotel and hospitality.

Among the first to be hit was the hotel sector which relates directly to tourism.

Malaysian Association of Hotels (MAH) CEO Yap Lip Seng says between Jan 22 and March 9 this year, a period of less than 50 days, the hotel industry recorded room cancellations totalling RM67.49mil.

“The impact (of the virus) is quite substantial for the immediate period, but we are more concerned of the coming period where demand has dropped significantly, ” Yap told an English daily.

Malaysians are also cancelling their holiday plans. Hotels, like airlines have cut prices to entice more travellers but the response is poor.

With total global infections climbing to 120,000 as of press time with 4,300 deaths, fear and anxiety have put the brakes on consumption.

Property and education fairs, usually held in convention centres, have grounded to a halt. Venue providers report up to 30% of postponements.

The Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia seminar scheduled for late February at the Sunway Resort Hotel & Spa was postponed, likewise the Malaysian International Furniture Fair scheduled for early March at the World Trade Centre, KL, previously the Putra World Trade Centre.

Spending curtailed

Private consumption is expected to be impacted as people stay home. Fake news and the second wave of the Covid-19 attack which emerged in late February are expected to discourage mall visits.

Says Henry Butcher Retail managing director Tan Hai Hsin: “Retailers who are dependent on foreign tourists have been (more) severely affected compared with small town malls and those in residential areas.”

That means retailers operating in the KL Convention Centre, Bukit Bintang, Chinatown, resort islands like Penang, Langkawi, Sabah islands and theme parks, Tan says. Similarly, international airports.

“Some of these retailers have reported drop in sales of as much as 80%, ” he says.

Overall, without specifying community or larger regional malls, Tan says footfall have dropped between 10% and 30%, which is “not significant.”

Given the over supply of mall space, the drop in economic activities will add further pressure on the sector.

Between Pusat Bandar Damansara and Kwasa Damansara MRT stations, there are about 10 malls or large integrated commercial centres the likes of 1Utama, Mutiara Damansara’s Curve, Kota Damansara’s Sunway Giza, Sunway Nexis, The Strand, 3 Damansara and NSK Trade City.

New ones include Tropicana Gardens and Emporis which opened a couple of months ago.

Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan does not expect to see growth in the first and second quarters.

“At most, it will be flat. We hope that the virus and political situation will be resolved by June, ” he says.

Black swans

Overall, Rahim & Co International Sdn Bhd real estate agency chief executive officer Siva Shanker calls the current market situation as a “confluence of two black swans” and it is difficult to say how the residential market will pan out.

“The market is currently experiencing a phenomena that no one would have predicted, namely the (Covid-19) virus and the political turmoil.

“We thought 2020 would be the year where we’d see good volume and value growth, ” Siva says, adding that he expects the first two quarters to perform poorly.

“Unless things improve in the second quarter, any pick-up in the housing market in the second half (third and fourth quarters) will not be enough to turn the market around, ” he says.

With some developers indirectly dropping prices up to a third during the 2019 Home Ownership Campaign, an analyst who declined to be named says the longer the Covid-19 situation persists, the worse it will get.

Whether developers will drop prices further and the quantum depend on how much they need to improve their cash flow.

The more-heavily geared ones will be more aggressive in their attempts to clear stock. He expects isolated cases of dumping at deep discounts.

The falling number of visitors at developers sales galleries have not been lost on Real Estate and Housing Developers’ Association (Rehda) president Datuk Soam Heng Choon.

Since January, developers’ sales galleries have been very quiet.

At that time, he reckoned potential buyers were taking a long pre- and post-Chinese New Year break. Covid-19 blew up in China just before the Lunar New Year.

Click here for related story: Industry sector deemed the ‘golden child’

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