In a survey by Knight Frank on the investment outlook for Malaysia, it points out that a majority of developers and lenders have existing exposure to the retail market as well as the hotel/leisure segments.
These sub-sectors have been hard-hit by the Covid-19 pandemic.
Amid the prolonged pandemic, Knight Frank Malaysia managing director Sarkunan Subramaniam says the hospitality industry continues to bleed due to international travel bans, interstate travel restrictions and cancellation of major events.
Similarly, he says the retail industry has also been badly impacted due to various phases of lockdowns and subdued consumer sentiment, while the future of offices continues to evolve as the work-from-home trend is the way to go.
“The severe disruptions to supply chains globally has revolutionised e-commerce services, driving the industrial property market and putting logistics assets at the forefront to capture growth opportunities.
“Also, the critical need for good medical and healthcare support amid the pandemic coupled with attractive tax incentives for new and expansion of private hospitals and ambulatory care centres, as well as for manufacturing of pharmaceutical products are expected to draw more investments into the healthcare segment,” he says in a research note.
Knight Frank’s annual survey consists of representatives in the senior management levels of the Malaysian commercial property industry. More than half (59%) are developers, followed by lenders (27%) and fund/Real Estate Investment Trust (REIT) managers (14%).
A total of 44% of the respondents are from the Klang Valley whilst Johor and Sabah comprised 20% and 24% respectively. Respondents from Penang consisted of 7%, while the remaining 2% were from other states.
Additionally, Sarkunan says the demand for senior living facilities is also expected to grow as Malaysia becomes an ageing population nation by 2030.
“Going forward, our respondents are optimistic about venturing into new growth areas which are logistics and healthcare, despite being still keen on the traditional sectors such as retail and office.
“As for the hospitality sector, accelerated vaccination deployment both locally and across the globe leading to gradual opening of more international borders, is key to travel and tourism recovery.”
In the near-term, Knight Frank says there will be lesser investment and funding in the retail and hotel/leisure segments by developers due to the prevailing challenging market conditions.
“As for the fund and REIT managers, their exposure is fairly distributed among all the key property sub-sectors such as office, retail and industrial/ ogistics.
“Lenders have expressed higher interest in funding the industrial/logistics sector since last year due to the accelerated growth in e-commerce, supported by technological advancements.”
Knight Frank adds that they are, however, expected to exercise more caution in providing financing for the hotel/leisure and institutional segments.
“The Covid-19 pandemic has had a severe impact on the travel and tourism segment as well as on higher education, as countries shut their borders and universities/ olleges closed their premises in response to lockdown measures.”
Stellar residential sector
In spite of the adverse impact of the pandemic, public-listed property developers still recorded stellar performances during the latest corporate earnings season.
With the residential sub-sector still being the main driver of the local property market, KAF Equities Sdn Bhd says sales are expected to pick-up by this month.
“We also expect the fourth quarter of 2021 to be the strongest as developers would likely be more aggressive in their launches in the fourth quarter of 2021.”
Additionally, with the Home Ownership Campaign (HOC) tentatively scheduled to end at the end of this year, KAF Equities believes there will be strong buying momentum in the final quarter of 2021 as people will be rushing to purchase their desired property while incentives are still available.
“Overall, we maintain our pre-sales target for developers under our coverage with an aggregate value of RM10bil in 2021. This is despite the six-month sales already making up around 56% of our year-end pre-sales target.”
Earlier this week, Melaka-based property developer Teladan Setia Group Bhd announced that it would be acquiring five parcels of land totalling 338.3 acres for RM117.9mil.
In a statement following the acquisition, managing director Richard Teo says the parcels of land are expected to be used for the development of gated and guarded townships.
“Due to the Covid-19 pandemic, people are spending significantly more time at home. Based on this, we believe landed properties with spacious living areas will continue to be highly-sought after for the foreseeable future.
“Moreover, consumer buying patterns have recently been shifting towards lifestyle living and security. As such, we are diverting our focus on developments such as gated and guarded townships to meet the needs of the consumers.”
With homebuyers incentivised by various government initiatives and favourable borrowing costs, as well as the expedited vaccination programme nationwide, Teo says the group is cautiously optimistic about the recovery of the property market for the remainder of 2021.
Meanwhile, Knight Frank, in its survey, says all sub-sectors with the exception of the hotel/leisure, office and retail segments, are anticipated to see a recovery by 2022.
“About half of the respondents (52%) anticipate the overall commercial property market to recover only by 2023 and beyond, although some 46% of them are more optimistic, expecting recovery next year.
“A deeper observation unveils that 42% of developers are comparatively more optimistic of recovery in 2022 compared with 37% of fund/REIT managers and 35% of lenders. A total of 28% of developers and 25% each of fund/REIT managers and lenders anticipate recovery to only set in by 2023.”
Knight Frank says the majority of respondents (more than 60%) believe that the logistics and healthcare-related sectors will continue to do well in the second half of 2021.
“The resurgence in the number of Covid-19 cases leading to the reimposition of various phases of the movement control order continues to disrupt supply chains leading to growth in the e-commerce market and higher demand for added healthcare facilities.”
In the retail sub-sector, Knight Frank says the percentage of respondents expecting recovery in 2022 or 2023 and beyond are fairly split at 45% and 46% respectively.
To support economic recovery and lift real estate sentiment, Knight Frank says respondents in its survey would like to see more tax reliefs under the upcoming Budget 2022, which will be tabled on Oct 29.
Knight Frank adds that respondents will also want to see the implementation of additional stimulus packages, resumption of the high speed rail project, acceleration of the vaccination programme, more incentives to attract foreign direct investments, extension of the HOC, reduction or waiver of the real property gains tax (RPGT) and revival of the Malaysia My Second Home (MM2H) programme.
Commenting on the new MM2H conditions, RHB Investment Bank, in a recent report, says the impact of the new rules will be neither positive nor negative.
“In our view, in order to stimulate the return of foreigners to the local property market, the government should consider introducing more targeted measures and incentives in the upcoming Budget 2022.
“In our view, the government can always introduce more targeted measures or incentives to attract the return of foreign investors to the local property market. Policies such as the RPGT can be relaxed as speculative buying of properties has been fairly minimal in recent years.”
More importantly, the research house says having better economic growth prospects, a stable political landscape and steady currency would help to spur foreigners’ interest over the longer term.