PARIS: The Malaysian property market needs foreign buyers to return, and the sooner they do so, the better it will be for property players whose margins are being squeezed.
Gone are the days when it was easier for developers to hit their sales targets, and margins were more attractive.
A veteran property man said that domestic demand alone cannot fuel a sustained growth for the local developers, especially considering that the demand is increasingly skewed towards lower-margin houses priced below RM500,000.
S P Setia Bhd deputy president and chief operating officer Datuk Seri Koe Peng Kang said that the government should encourage foreign purchases of local properties, particularly in the high-end segment.
For this to happen, specially programmes such as the Malaysia My Second Home (MM2H) need to be made simpler and less stringent.
“The government must think about how to make Malaysia a better place to stay and retire (for foreigners).
“Then you have more rich people to spend (on real estate).
“Look at the Melbourne property market. The demand wouldn’t be as robust if not for foreign buyers from Malaysia, Singapore and China.
“The government needs to make up its mind on what it wants. If it wants the property market to grow, you cannot depend on local buyers alone,” he said.
Koe pointed out that the current minimum monthly income threshold of RM40,000 for MM2H applicants is too high.
It is noteworthy that many quarters have also raised concerns about the RM40,000 threshold, which was merely RM10,000 prior to revision.
Last month, the Malaysia My Second Home Consultants Association said only 28 applications out of 44 submissions succeeded between October 2021 and April 8 this year.
Its president Anthony Liew said the number of applications had severely dropped following the Covid-19 pandemic and the government’s revision of the programme’s conditions.
“Prior to the current guidelines and pandemic, we had up to 6,000 successful applications yearly,” he said.
Acknowledging challenges in the market, Koe said it may take a while for the market to fully recover.
“Banks have also tightened the loan requirements so it is not as easy as last time.
“I think the market will adjust itself. Nowadays, there is lesser supply in the market, so it will slow down.
“The salaries of Malaysians have to catch up. The disparity between prices and salaries is big,” he said.
Koe, however, noted that such a disparity is not exclusive to Malaysia alone.
He said Australia, China and Hong Kong, among others, also struggle with the same problem.
Koe, who is also the president of the International Real Estate Federation (FIABCI) Malaysia Chapter, urged local developers to venture abroad in pursuit of a bigger market.
He pointed out that there are many opportunities available for Malaysian property companies in foreign soil.
With many property companies eyeing the same pie in Malaysia, Koe said that a foreign presence, especially in developing markets, will provide the companies more room to grow.
“As the president of FIABCI Malaysia, I want to cultivate the pioneering spirit among Malaysian companies,” he added.
He also said that S P Setia will continue to be on the lookout for opportunities abroad.
“But we won’t go in a big way like in the Battersea project, maybe in a smaller way,” according to Koe.
Located in central London, the 42-acre Battersea Power Station (BPS) development involves the transformation of a former coal-fired power station to a mixed-development project of residential, retail and office units.
The BPS site is owned by a consortium of Malaysian investors comprising S P Setia, Sime Darby Property, the Employees’ Provident Fund and Permodalan Nasional Bhd.
The power station itself will open for the first time to the public from September 2022.
Looking ahead, in order to attain a property landscape with sustainable growth, Koe urged the government to help developers deal with the high compliance and contribution costs.
He said that such costs, including the payments to Tenaga Nasional Bhd and water operators, have “gone too high” - up to 25% to 30% of total costs.
This has resulted in the developers struggling with their profit margins, at a time when raw material costs have surged.
“Developers also face strict borrowing rules, slower population growth and higher costs,” he said.
In the case of S P Setia, Koe said the company is not revising its product prices, in view of the higher costs.
In order to avoid hiking its prices, the company has been absorbing some of the additional costs.
It is also optimising its operations to save costs. This includes enhancing the efficiency of product designs and negotiating a better bulk pricing with vendors.
“When your profit margin drops, it means you have to sell a higher percentage of your units before you exit the risky position.
“When you launch new products, your margin may not be as attractive as last time. This is a fact that you have to accept, part of the market change,” he said.
Koe opined that the property market has returned to how it was pre-2010 property boom.
“But we don’t have to see the market change negatively. Good projects with good pricing and good concepts are still selling well.
“For developers, if you have a good concept, you buy the land at a reasonable price, and if you are still efficient, you will still be alright in manoeuvring market challenges,” he said.