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Dato’ KK Chua’s 2019 Market Outlook

With the new year rolling in, Dato’ KK Chua,Property Insight’s Editor-in-Chief, takes a look into the recent past to try and preview the future, as well as answer some of your most pressing questions about the property industry and investing in property. Here’s a sneak peek into the mind of the man behind Malaysia’s largest property magazine.

What are your thoughts on the current property market?

From my perspective, the largest market movement has come from the residential sector. As you know, Malaysia is experiencing an issue with overhang properties. There is a glut in the supply of residential homes, and the key question we should ask ourselves is, how can we speed up the property digestion process and reduce the supply in the market.

For the industrial sector, there has been not much movement from what I have observed. The industrial sector has never been very vibrant relative to some other industries, but the transaction rates have been consistent. I did notice a slow increase in demand for industrial space due to the influx of online trading platforms. The logistics and warehousing industry is currently experiencing a good and healthy spurt of growth, and they need factory spaces to conduct their businesses.

The issue of overhang office spaces has been going on for years, with the typical pessimistic sentiment repeated over and over like a broken record player. Nothing much can be said for this segment, but I would like to comment on the new commercial projects rolling into the market.

From my experience, these new Grade A offices with their new facilities are going strong in this industry. It is the old offices that lack refurbishments and repairs that are experiencing issues, and the data and statistics reflects that.

Shoplots in general are doing okay in the current market, but only for those on the ground floor. The challenge is in the upper levels of the 2 or 3 storey buildings. These units are much more difficult to rent out, especially with the emergence of co-working spaces. My advice would be to change the entire concept and layout, and rent it out room by room.

There is a trend of people converting the upper floors into accommodation for workers and employees. Some buy out the entire building and convert it into a budget hotel. These ideas can work really well, but don’t get your hopes up if you were to rent the space out as it is.

The market in which I see the most movement is in the retail stores in shopping malls. Online shopping has largely disrupted the market, that is why we see a shift in tenant mix and occupancy. You can see shopping malls now focusing heavily on food and beverages, large fashion retailers and jewelry. Smaller industry players like family-owned businesses have all migrated online. The only businesses that remain are huge corporations and franchises.

Developers have recently made a push towards the sub-RM500,000 market & affordable housing. Do you see this as a necessary adjustment for the industry’s survival? And is it sustainable?

I see this shift towards affordable housing as a government initiative to help the B40 and M40 group to own their very own house. There are plenty of houses are priced below RM300k, but even if the property prices are at RM150k, many of the B40 group are unable to secure a loan to afford these houses.

On the contrary, if the affordable housing policies are not controlled well enough, it might invite investors from the M40 group to come in and purchase these affordable housing instead. This this will somewhat defeat the purpose of having a affordable housing policy. In my opinion, the shift to focus on affordable housing is but a temporary trend, because the entire market is heading towards that direction.

The RM400k to RM600k price range is where property transactions and prices remain sustainable.The M40 group is a red ocean market. The majority of developers are building houses priced between RM500k to RM600k, to cater to the mass market. When most developers are targeting the same demographic, heavy competition is bound to happen and some developers will fail. Hence, a good positioning and differentiation is needed to stand out from the competition, even at the RM500k range. It can be a better layout, better amenities, better location, or even an award or two, as long as the developers are able to justify their pricing.

What are the influences that have resulted in the current market move towards this trend?

I feel that the biggest influence to the current market would be the mismatch between the supply and demand.

People say that property is all about location. Behind that statement, what they truly mean is that property is all about population. This is a universal truth that cannot be changed. In a new township, if they do not have the population to back it up, it is very difficult to justify selling it at a high price. What you see is what you get. Places like Bukit Bintang are so highly dense that it is actually hard to fail if you do things correctly.

In the past, old time developers would say “build, and the people will come.” But this is a chicken or egg statement, and I prefer to not be that optimistic. If very few people work and live in a certain area, no matter how many projects is being built. That is how we end up with the current property overhang issue.

On the contrary, build the right property at the right location at the right time, the people will definitely come. I urge newer developers to take a look and reflect on their current plans. Study the demographics and psychographics of the population, do your due diligence, observe if the area has a strong demand, an under supply issue and if the population has the financial strength to afford these houses.

Many home buyers are angry at the banks for not providing them the finances for home purchases. To them I say, don’t blame the banks. They are in the business of lending money, and they have many factors that they have to take into consideration when issuing a loan. If you are eligible, there is nothing for you to be afraid of.

There is also a debt service ratio standard that banks need to uphold. Thus in a way, banks are trying to help you, and make sure you are able to survive the monthly payment. It does not make sense for banks to issue loans that the people are unable to afford to pay it off.

The government should take the initiative by offering sensible policies through government-linked banks like Bank Rakyat and BSN. Set an example, only then will the private banks follow.

What is your market outlook on the real estate market in 2019?

I would to state up front that I do not know for sure what is going to happen in the property market. But from my understanding, we should see more vibrancy in the market in the second half of 2019. Up until February this year, despite many initiatives from the government and new concepts like P2P lending, there has not been much market movement as of yet. People say that we are in recovery mode right now, but we have been stuck in this mode for the longest time.

We need to see prices dropping before it can go back up, and we have not seen the dive yet. Yes, the market is slowing down, not because buyers lack the money, but because most of them are waiting… waiting for the dive to happen, so that they can capitalize during the
changing market.

What actions do you recommend the government take in order to curb the issues in the market?

As mentioned earlier, the government’s focus is directed at the B40 group of people, with the first time homebuyer policy, RUMAHWIP program etc. However, affordability is the main issue for B40 groups, and the government should focus on increasing the nation’s productivity as a whole.

Our income is the biggest obstacle right now. There are so many RM500k homes in the market, but it would require a family with a monthly income of RM8,000 to comfortably afford it. Who is able to fork out such a sum? That does not include maintenance fees, utility bills, existing car loans, etc. The reality is, the rakyat needs to be more productive in order to afford good housing, and the government should direct their attention towards that instead.

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