HB Perspective 2021

MALAYSIA PROPERTY OUTLOOK 2021

FOREWORD GOODBYE TO A HEARTBREAKING 2020 AND WELCOME TO A BETTER 2021?

2

020 is a year which most Malaysians would want to forget, given the heartbreak, pain, fear and inconveniences that everyone had to endure when the country succumbed to the Covid-19 pandemic which swept the whole world and brought mighty powers like the USA and Europe on their knees. The situation was aggravated by the fall of a legally elected government which the people have voted for during the last general elections just two years ago. 2020 will nevertheless go down as the most devastating pandemic recorded in history as the number of infections worldwide have exceeded 101 million with 2.1 million deaths reported and still rising, as at the date of writing this editorial.

To curb the spread of the virus, the government imposed several phases of lockdowns under a Movement Control Order (MCO, CMCO, EMCO and RMCO) which saw most businesses suffer a significant drop in sales due to the requirement to close temporarily or comply with social distancing SOPs. With a third wave of the virus affecting the country, most parts of the country are currently placed under a MCO. The pandemic impacts not only the health and physical wellbeing of the people but their livelihoods and financial well-being as well. Large as well as small companies affected by the drastic decline in business had to resort to pay cuts and/or reduction of headcount to reduce operating costs and some companies, still unable to cope, had to close down unprofitable

outlets or their entire operations. The lack of job security during this difficult period affected consumer confidence and sentiments and consumer spending, including purchase of properties declined.

Although the property sector is not as badly affected as the tourism and retail sectors, developers still had a harrowing time trying to generate sales to keep their projects going especially with the restrictions imposed by the SOPs during the MCO and CMCO. The government did lend a hand as they introduced several measures to boost housing demand via the PENJANA and PRIHATIN stimulus packages as well as Budget 2021, with the latest fifth economic stimulus worth RM15

HB PERSPECTIVE 2021

1

FOREWORD

billion called PERMAI unveiled on 18 January 2021 following MCO 2.0’s implementation. The reintroduction of the Home Ownership Campaign (HOC) 2020-2021 provided a lifeline to developers as it proved to be effective in boosting sales of projects marketed under the HOC. As the HOC will run until 31 May 2021, developers will still have the first half of 2021 to try to clear as much stock as possible.

With the advent of the new year, there is renewed hope and optimism that things may turn around for the better, especially as vaccines from pharmaceutical manufacturers from several countries have started to roll out as part of programmes implemented by governments worldwide to prevent the further spread of the Coronavirus. The Malaysian government has announced that it has placed orders for large quantities of vaccine from various manufacturers and the first batch is due to be delivered in February. Although this has brought a sense of relief, there are nevertheless doubts on the efficacy of the vaccines as well as fears of possible side effects.

Nevertheless, with the changeover from the year of the metal rat to the year of the metal ox, there is cause to look forward to a change in fortunes as the energies brought by the sturdy ox will offer hope of stability. As the saying goes, hope springs eternal. Furthermore, there have also been reports of a possible cure for the Coronavirus having been discovered although there have been many false starts in the past which ended in disappointment.

If the vaccination programme is rolled out as scheduled by the government and is able to effectively curb the spread of the virus, it will raise hope that the economy will be able to recover speedily.

Businesses and life in general will then be able to return to as close to normal as possible but quite likely under slightly different conditions. Contact tracing, social distancing, sanitisation and work from home will probably become the new normal.

The property industry has witnessed a slowdown since 2015 with annual 2

HB PERSPECTIVE 2021

declines in the volume and value of transactions but this trend appeared to have been arrested in 2018 and a mild recovery was staged in 2019.

The pandemic in 2020 however put paid to all hopes of a full recovery.

With the development and rollout of vaccines to counter the Coronavirus, we will now enter the new year with renewed optimism and hope. Having learnt a painful lesson during the pandemic, developers have adapted to the new environment and adopted digital technologies to spearhead their marketing efforts. Virtual show units and virtual launches have become more common place and online marketing platforms have become an integral part of developers’ marketing arsenal. Mobile apps facilitating property sourcing, provision of project information, booking of units and customer loyalty programmes are now being developed and adopted by developers in the country. In a sense, the pandemic has caused industry players to realise that they cannot always just rely on traditional ways of doing business and sped up the adoption of AI and digital technologies.

With their new marketing capabilities, Malaysian developers would be in a better position to reach out to the international market.

It was projected in Budget 2021 that the Malaysian economy will recover in 2021 and will rebound with a growth of between 6.5 to 7.5%. This augurs well for the property industry as the multiplier effects will benefit the industry through an improvement in consumer and investor confidence and sentiments which will result in more people buying homes. Barring any fourth wave of Covid-19 or an unforeseen negative worldwide event, we could see the property market recovering in the second half of 2021 or early 2022. There is a caveat though. The current government needs to become more stable as its current slim majority puts it in a situation where it will face constant tests and attempts to bring it down. It is crucial that the government of the day puts aside politics and place all its attention to nursing the battered economy back to health and put it

Tang Chee Meng Chief Operating Officer

on a growth path again as well as ensuring that the people’s health and financial needs are attended to.

As it is, 2021 started with a heavy dose of drama as the government reimposed MCO in a bid to curb the alarming rise in Covid-19 positive cases. The drama intensified as immediately on the following day, the Prime Minister, with the accent of the Agong, declared a state of emergency for the country until 1 August 2021.

This unexpected announcement jolted the stock market and the KLCI came down as a result. What happens next will unfold over the next half a year or so and it will be good if the government can really use the breather granted by the emergency to bring the pandemic under control and nurse the battered economy and property market back to health again.

Finally, as a sign of change and renewal of the HENRY BUTCHER MALAYSIA group, we have decided to collate our thoughts and publish HB Perspective 2021 in place of our regular newsletter to provide a review of the property markets of various states in 2020 and our views on the outlook of these markets in 2021. We hope these reports will be helpful to our clients and readers and as always, we are open to all ideas and suggestions to improve our publication.

HAPPY NEW YEAR AND MAY 2021 BE A BETTER YEAR IN ALL ASPECTS

Table of

CONTENTS Recalibrating he Malaysian Property Powertrain in 2021

5

Kedah - Industrial Potential in 2021 13 Penang - Modest Pace in 2021 16 Perak - Easing But Stable in 2021 21 Klang Valley - Volatility Continues in 2021 24 Negeri Sembilan - Cautiously Optimistic in 2021 32 Melaka - Relatively Stable in 2021 35 Johor - Pining for Turnaround in 2021 39 Pahang - Subdued with Silver Lining in 2021

43

Terengganu - Generally Resilient in 2021 46 Kelantan - Caution in The Wind in 2021 49 Sabah - A Shifting Tide in 2021 52 Sarawak - Sustaining in 2021 56 Retail - Restrategise in 2021 59 Art Collection Showing Resilience To Pandemic 62

HB PERSPECTIVE 2021

3

“Our strength begins in your market and takes you anywhere in the world.”

HB Perspective 2021 is a Malaysian property market report published by Henry Butcher Malaysia Group of Companies.

HEADQUARTERS HENRY BUTCHER MALAYSIA SDN BHD Add: No. 25, Jalan Yap Ah Shak, Off Jalan Dang Wangi, 50300 Kuala Lumpur, Malaysia.

Tel: 603 - 2694 2212 / 2692 3437 Fax: 603 - 2694 5543 / 2694 3484 Email: hbmalaysia@henrybutcher.com.my Web: www.henrybutcher.com.my Henry Butcher Real Estate Sdn Bhd Add: No. 25, Jalan Yap Ah Shak, Off Jalan Dang Wangi, 50300 Kuala Lumpur, Malaysia.

Tel: 603 - 2694 0881 / 2694 0879 Fax: 603 - 2694 1261 Email: hbre@henrybutcher.com.my KEDAH Henry Butcher Malaysia (Kedah) Sdn Bhd Add: No. 169, Kompleks Alor Setar, Lebuhraya Darulaman, 05100 Alor Setar, Kedah, Malaysia.

Tel: 604 - 731 5525 / 731 5405 Fax: 604 - 731 5699 Email: hbkedah@henrybutcher.com.my Henry Butcher Malaysia (Kulim) Sdn Bhd Add: No. 239, Jalan Raya, 09000 Kulim, Kedah, Malaysia.

Tel: 604 - 491 2999 Fax: 604 - 491 2311 Email: hbkulim@henrybutcher.com.my PENANG Henry Butcher Malaysia (Penang) Sdn Bhd Add: No. 142 M, Jalan Burma, 10050 Penang, Malaysia.

Tel: 604 - 229 8999 Fax: 604 - 229 8666 Email: hbpenang@henrybutcher.com.my Web: www.henrybutcherpenang.com Henry Butcher Malaysia (Seberang Perai) Sdn Bhd Add: No. 2708, Chain Ferry Road, Kimsar Garden, 13700 Prai, Penang, Malaysia.

Tel: 604 - 397 5888 Fax: 604 - 398 8777 Email: hbperai@henrybutcher.com.my PERAK Henry Butcher Malaysia (Perak) Sdn Bhd Add: No. 29B, Persiaran Greentown 4, Greentown Business Centre, 30450 Ipoh, Perak, Malaysia.

Tel: 605 - 253 9933 / 253 3933 Fax: 605 - 254 9933 Email: hbperak@henrybutcher.com.my SELANGOR Henry Butcher Malaysia (Sel) Sdn Bhd Add: No. 36-1, 2 & 3, Jalan SS 15/4D, 47500 Subang Jaya, Selangor, Malaysia.

Tel: 603 - 5631 5555 Fax: 603 - 5632 7155 Email: hbselangor@henrybutcher.com.my Henry Butcher Malaysia Solutions Sdn Bhd Add: Level 4, No. 14, Jalan Yap Ah Shak, 50300 Kuala Lumpur, Malaysia.

Tel: 603 - 4270 2072 Fax: 603 - 4270 2082 Email: hbampang@henrybutcher.com.my

4

HB PERSPECTIVE 2021

NEGERI SEMBILAN Henry Butcher Malaysia (NS) Sdn Bhd Add: No. 11, Ground Floor, Jalan Tunku Hassan, 70000 Seremban, Negeri Sembilan, Malaysia.

Tel: 606 - 761 8681 Fax: 606 - 761 8687 Email: hbns@henrybutcher.com.my MELAKA Henry Butcher Malaysia (Malacca) Sdn Bhd Add: No. 324 A & B, Jalan Melaka Raya 1, Taman Melaka Raya, 75000 Melaka, Malaysia.

Tel: 606 - 281 2188 Fax: 606 - 281 2189 Email: hbmalacca@henrybutcher.com.my JOHOR Henry Butcher Malaysia (Johor) Sdn Bhd Add: No. 52, 52 A & B Jalan Padi 1, Bandar Baru UDA, 81200 Johor Bahru, Johor, Malaysia.

Tel: 607 - 236 8060 Fax: 607 - 235 3060 / 236 3060 Email: hbjohor@henrybutcher.com.my Henry Butcher Malaysia (Muar) Sdn Bhd Add: No. 134, 1st Floor, Jalan Meriam, 84000 Muar, Johor, Malaysia.

Tel: 606 - 955 5968 / 954 6639 Fax: 606 - 955 5967 Email: hbmuar@henrybutcher.com.my Henry Butcher Malaysia (Kluang) Sdn Bhd Add: No. 18, Tingkat 1, Jalan Haji Manan, 86000 Kluang, Johor, Malaysia.

Tel: 607 - 775 1500 Fax: 607 - 775 1501 Email: hbkluang@henrybutcher.com.my Henry Butcher Malaysia (Pontian) Sdn Bhd Add: No. 18-2, Jalan Delima 7, Pusat Perdagangan Pontian, 82000 Pontian, Johor, Malaysia.

Tel: 607 - 688 3060 / 686 3060 Fax: 607 - 688 2060 Email: hbpontian@henrybutcher.com.my PAHANG Henry Butcher Malaysia (Kuantan) Sdn Bhd Add: No. 11A, 1st & 2nd Floor (China Town), Jalan Putra Square 3, Putra Square, 25200 Kuantan, Pahang, Malaysia.

Tel: 609 - 512 4111 Fax: 609 - 512 4555 Email: hbkuantan@henrybutcher.com.my TERENGGANU Henry Butcher Malaysia (Terengganu) Sdn Bhd Add: No. 1118-D, Tingkat 1, Jalan Pejabat, 20200 Kuala Terengganu, Terengganu, Malaysia.

Tel: 609 - 620 3838 / 620 3839 Fax: 609 - 620 3828 Email: hbtrg@henrybutcher.com.my KELANTAN Henry Butcher Malaysia (Kelantan) Sdn Bhd Add. Lot PT 265, Tingkat 2, Wisma Nik Kob, Jalan Sultan Yahya Petra, 15200 Kota Bharu, Kelantan, Malaysia.

Tel: 609 - 747 4001 / 747 5002 Fax: 609 - 747 5003 Email: hbkelantan@henrybutcher.com.my SABAH Henry Butcher Malaysia (Sabah) Sdn Bhd Add: Suite 326, 3rd Floor, Wisma Sabah, 88000 Kota Kinabalu, Sabah, Malaysia.

Tel: 6088 - 255 000 / 257 000 Fax: 6088 - 257 333 Email: hbsabah@henrybutcher.com.my

Henry Butcher Malaysia (Tawau) Sdn Bhd Add: TB 314, 1st Floor, Block 37, Fajar Commercial Complex, 91000 Tawau, Sabah, Malaysia.

Tel: 6089 - 779 380 Fax: 6089 - 779 381 Email: hbsabah@henrybutcher.com.my Henry Butcher Malaysia (Sandakan) Sdn Bhd Add: Lot 15, 1st Floor, Block A3, Utama Place (Phase 2 & 5), 90000 Sandakan, Sabah, Malaysia.

Tel: 6089 - 223 833 Fax: 6089 - 223 822 Email: hbsabah@henrybutcher.com.my SARAWAK Henry Butcher Malaysia (Sarawak) Sdn Bhd Add: L4 14 & 15, DUBS Commercial / Office Centre, Lot 376, Section 54 KTLD; Jalan Petanak, 93100 Kuching, Sarawak, Malaysia.

Tel: 6082 - 423 300 / 231 032 / 231 037 Fax: 6082 - 231 036 Email: hbsarawak@henrybutcher.com.my Henry Butcher Malaysia (Miri) Sdn Bhd Add: Soon Hup Commercial Complex, 1st Floor, S/Lot 9 (906-1-9), Jalan Merbau, 98000 Miri, Sarawak, Malaysia.

Tel: 6085 - 442 800 / 442 898 / 442 899 Fax: 6085 - 429 699 Email: hbmiri@henrybutcher.com.my SPECIALIST SERVICES Henry Butcher Malaysia (Mont Kiara) Sdn Bhd Add: Unit D4-3-3 & 3A, Solaris Dutamas, No. 1, Jalan Dutamas 1, 50480 Kuala Lumpur.

Tel: 603 - 6205 3330 Fax: 603 - 6206 2543 Email: admin.assetmgmt@henrybutchermk.com Web: henrybutchermk.com Henry Butcher Art Auctioneers Sdn Bhd Add: No. 25, Jalan Yap Ah Shak, Off Jalan Dang Wangi, 50300 Kuala Lumpur, Malaysia.

Tel: 603 - 2691 3124 / 3095 Fax: 603 - 2691 3127 Email: artauction@henrybutcher.com.my / info@hbart.com.my Web: www.hbart.com.my Henry Butcher Shopping Centre Consultants Sdn Bhd Add: No. 43-1, Jalan Manis 3, Taman Segar, Cheras, 56100 Kuala Lumpur, Malaysia.

Tel: 603 - 9130 5550 / 9130 7550 Fax: 603 - 9130 4003 Email: tanhaihsin@yahoo.com Printed in Malaysia. © 2021 Henry Butcher Malaysia Sdn Bhd. All rights reserved.

No part of this publication may be reproduced in any form without the prior permission of or attributing credit to Henry Butcher Malaysia. To contact us, please email hbmalaysia@henrybutcher. com.my.

Publishing Agency Rightwiz Sdn Bhd

MALAYSIA OUTLOOK

RECALIBRATING THE MALAYSIAN PROPERTY POWERTRAIN IN 2021 A Malaysian property market outlook in 2021 by Henry Butcher Malaysia.

RESIDENTIAL - FACTORS TO WATCH IN 2021 ● Current low interest rates has reduced the cost of home financing. ● Continuation of HOC 2020-2021 bundled with incentives, rebates, attractive offers and promotions by participating developers will attract buyers and support the market. ● Availability of an effective Covid-19 vaccine will uplift confidence, boost economic activities, thus benefiting the property market. ● Opening of international borders once the pandemic is brought under control may bring back foreign property investors. ● Adoption of digital marketing programmes may help developers reach out to overseas buyers.

RESIDENTIAL BRIGHT SPOTS FOR 2021 ● Landed residential properties should remain in demand. ● More developers have re-focussed their attention on affordable homes priced under RM500,000 and this has increased the supply of such properties.

the once most powerful country in the world. This can only contribute positively as it improves investors’ sentiments.

Another is the American Presidency of Joe Biden, which was quickened in its confirmation by the Electoral College on 7 January 2021 as they painstakingly worked through the night to culminate in a tally of 306-232 to officially end outgoing President Donald Trump’s aggressive wish to overturn the election results. This came in the wake of an “insurrection” launched by pro-Trump supporters on Capitol Hill just a day before.

For the good of the world economy, the anticipated friendlier and more predictable Biden-led US policies are the necessary remedies to heal world trade.

T

of Europe. From here, the clouds of uncertainty will be blown away when government heads begin to recognise the new sovereign lines delineating

But amid the overcast spell, there may be silver linings in the brand new year. One of them is Brexit where the United Kingdom has finally left the EU on 31 December 2020. The departure marked a new global milestone of a changing world order with the UK now ironing out all trade relations and mobility liberty for the Brits and her European counterparts in and out

The Malaysian property sector will be undergoing a period of recalibration in 2021 as market factors are influenced by a host of factors such as the pandemic and the political situation in the country.

he year 2021 is a year where global citizens from every continent will be clamouring for a magnitude of change to reverse the stormy weather brought about by the infectious Covid-19. If everyone was caught off guard in 2020 by the tidal wave of the pandemic, the new norm of 2021 will see the survivors sailing through the choppy waters in hopes of navigating past the turbulence - economy, health, mortality, governance etc.

The successful vaccination against Covid-19 will also come as a boon now

HB PERSPECTIVE 2021

5

MALAYSIA OUTLOOK

that several vaccine frontrunners such as Pfizer and Oxford-AstraZeneca have been making their way into the markets globally. New York Times’ Coronavirus Vaccine Tracker also showed on its website that in total there are 93 vaccines in various stages of development globally with one already abandoned despite the potential lucrative market that awaits them.

In Malaysia’s context, success in the battle against this centennial pandemic occurrence hinges on the selection of the right vaccine or vaccines and the volume deployed to the 32.7 million Malaysians. The sooner this is administered, the quicker the combat against the virus and in tandem, restoration of the country on all fronts.

Not just a silver bullet against the contagion but the identification of a potent vaccine will be a tremendous boost that can dictate the pace of Malaysia’s economic engine which in turn will aid the recovery of the property sector, barring any sudden upheavals in the political arena.

But how severely hit was the Malaysian property market in 2020?

Admittedly, the first half of 2020 was very challenging as the strict Movement Control Order (MCO) imposed from 18 March 2020 to 12 May 2020 to curb the spread of Covid-19 halted all physical property activities including that of the signing of the Sales & Purchase Agreements and loan agreements to facilitate loan disbursements. It was through this time also that saw the Malaysian economy contracted by 0.7% and 17.1% in quarter one and quarter two respectively.

Residential: Realistic Although the residential market picked up after the Conditional MCO was eased to Recovery MCO from 10 June 2020, a drop in the volume and value of transactions is expected for the full year of 2020. This is not an unreasonable expectation as NAPIC’s data showed

6

HB PERSPECTIVE 2021

that the volume of property transactions declined by 27.9% or from 160,165 units in 1H 2019 to 115,476 units in 1H 2020 with the value of property transactions dropping 31.5% from RM68.53 billion to RM46.94 billion.

The trend continued into Q3 2020 when NAPIC’s report revealed that the total value of transactions slid to RM33.78 billion compared to RM34.62 billion in Q3 2019. There was however a surprise when the total volume of transactions recorded 89,245 units changing hands compared to 83,085 units in the corresponding quarter the year before.

It is probable that the dip in the value of transactions may be attributed to the lower priced houses sold in the same period while the volume of transactions forms part of the carry over effects of the Home Ownership Campaign 2019 (HOC2019) which was temporarily halted due to MCO.

The drastic measures imposed on businesses to close its doors except for essential goods and services during the first MCO period for about six weeks starting from 18 March 2020 affected the entire value chain in the economy including construction sites, property developers’ sales offices and galleries.

Save for bookings collected through online marketing programmes by some developers, it would not be far-fetched to say that this was the quietest three months ever in Malaysia’s property history, almost akin to a property winter, which resulted in a 24.6% drop in the volume of residential transactions and a 26.1% decline in the value of residential transactions in the first half of 2020.

The quiet months also impacted launching activities in 1H 2020 as it declined by almost half at 43.6% or only 13,294 units compared to the corresponding period in 2019. Sales

Volume of Residential Transactions in Malaysia

Q3 2018

78,776 83,085

Q3 2019

89,245

Q3 2020

70000

75000

80000

85000

90000

95000

Volume (unit) Source: NAPIC

Value of Residential Transactions in Malaysia Q3 2018

33.09 34.62

Q3 2019 33.78

Q3 2020

32.0

32.5

33.0

33.5

34.0

34.5

35.0

Value (RM, million) Source: NAPIC

performance contracted even more to only 3.3% in the first half of 2020 against 30.9% in 1H 2019. The sudden descent motivated property developers to offer discounts, rebates, freebies and easy payment schemes to boost sales with some developers turning their attention to the affordable homes category priced below RM500,000 to match market demand. Strategically the right move, it’s reflective of the market appetite where up to 50.1% of those launched in 1H 2020 were priced below RM300,000 with another 33.7% sold between RM300,000 to RM500,000.

As Malaysians have also long favoured landed homes, there were more such properties launched in 1H 2020, notably at 69.7% compared to 30.3% for stratified ones.

In the secondary market, a more realistic pricing is seen sweeping across the board and this has created a very attractive climate for investors and homebuyers as it bucked the trend of higher price tags more prevalent in the vibrant days some years ago.

In realising the depth of the problems faced by the economy, the government stepped in to extend the PRIHATIN and PENJANA stimulus packages, followed by several other measures introduced through Budget 2021: a. Full stamp duty exemption on the Memorandum of Transfer (MOT) and loan agreement for the first home purchased priced under RM500,000, applicable to SPA signed between January 2021 to December 2025; b. Extension of the stamp duty exemption on loan agreement and MOT given to rescue contractors/ developers and original buyers of abandoned houses for another five years.

Eligible contractors/developers are entitled to the exemption on loan agreements for financing the revival of the abandoned housing projects

and the MOT for land and houses in abandoned projects.

For the original purchasers of the abandoned projects, exemption is applicable on the loan agreement for additional financing and the MOT executed from January 2021 to December 2025. The abandoned housing projects must be certified by the Ministry of Housing and Local Government (KPKT); and c. A RM1.2 billion provision for the construction of comfortable and quality housing for low-income earners.

Retail: Reinvent The repercussions of the pandemic have

also left a huge dent on the retail subsector as shoppers stayed away from the malls after the stringent MCO was eased to CMCO and RMCO at different periods of the year and at different locations around the country. The reduction of 40% to 80% of the footfalls throughout 2020 led to poor turnovers by the retailers and this dragged occupancy down to 76.2% in 1H 2020 from 79.2% at the end of 2019. Like the volume of residential transactions, data for 3Q 2020 also saw occupancy bouncing back albeit marginally to 77.5% or 13,048.64mil sqm over 16,840.38mil sqm.

The triple whammy of Covid-19, variants of lockdown and online shopping experienced by the conventional

RETAIL - FACTORS TO WATCH FOR 2021 ● The second MCO starting from 13 January 2021 together with an emergency order will affect the retail market. ● A fourth wave of Covid-19 spread and beyond will hurt the entire retail industry. ● Foreign tourists have been an important contributor to Malaysia’s retail industry and it would be crucial to open the borders again even if it is to selected countries as it will contribute positively to retailers who are heavily dependent on tourism receipts. ● A broad-based economic recovery will boost retail spending as the spillover effects from more economic activities will induce higher take-home pay for ordinary Malaysians and in turn motivate increased purchases of retail goods and services. ● The uncertain political environment will reduce consumers confidence, dampening spending in the process.

RETAIL BRIGHT SPOTS FOR 2021 ● Malaysian consumers continued to shop ever since physical retail stores were allowed to open after the first CMCO but this was hampered by their reduced purchasing power, resulting in less purchases made. Nevertheless, Malaysians have not stopped shopping and have not stopped visiting shopping centres. ● It is imperative for retailers and F&B operators to embrace the omni-channel approach because to rely solely on physical stores to grow will no longer work. Retailers must utilise multiple channels to reach modern consumers and offer multi-channel distribution. The more financially sound retailers shall need to offer both physical and online stores. The objective is to facilitate convenience for the consumers to buy. ● In 2020, more than 30 overseas retailers from 11 countries opened their first outlets in Malaysia and more are expected to do the same in 2021 and these include Taco Bell, Tom Ford, Five Guys, David Rocco, Don Don Donki, etc.

HB PERSPECTIVE 2021

7

MALAYSIA OUTLOOK

Retail Nett Floor Area in Malaysia 15,968,218 16,425,184 16,840,379

Malaysia 3,111,497 3,132,673 3,131,431

Kuala Lumpur

Q3 2018

Q3 2019

Q3 2020

3,533,264 3,564,909 3,730,671

Selangor

2,074,059 2,343,116 2,469,646

Johor

0

5,000,000

10,000,000

15,000,000

20,000,000

Nett Floor Area (sqm) Source: NAPIC

Supply & Occupancy of Retail Malls in Malaysia 15,968,218 Q3 2018

12,631,700

16,425,184 Q3 2019 13,059,410

16,840,379 Q3 2020 13,048,640

0

5,000,000

10,000,000

15,000,000

20,000,000

Space (sqm) Existing Space (sqm)

Space Occupied (sqm)

retailers with physical shops is definitely a hard pill to swallow. Already caught between a rock and a hard place, the predicament was exacerbated with border closures preventing the lucrative tourists dollars from coming in.

Although assisted by the landlords with rental waivers (during MCO) for the non-essential retailers followed by rental rebates (CMCO from 13 May 2020), the damage was unfortunately already done. Business viability was put to the test and what’s worse was even financially stronger retailers and long standing flagships were not able to withstand the pressures. Robinsons for instance with 162 years under its belt

8

HB PERSPECTIVE 2021

Source: NAPIC

have had to shut both its Singaporean and Malaysian operations in October 2020 after having existed in the Republic since 1858 and was very much part of every Singaporean’s life. Suffice to say, the surviving retailers were more careful in their spending since then and instead of rolling out ambitious expansion plans, resources were ploughed in to go online.

With a general loan moratorium expired in September, less profitable outlets also began ceasing operations as brand owners scrambled in haste in an attempt to weather through the negative spillover effects. It goes without saying

that despite the rising footfalls towards the Christmas season and into the early part of 2021, it shall take some time for a full recovery to set in.

Office: Readjustment If retail experienced a bloodbath by the multi-factor assault, the office sector was unilaterally shown the door by dwindling demand, no thanks to deferred expansions, Work From Home (WFH), staff retrenchment and businesses calling it a day. But even before Covid-19, occupancy for purpose-built offices (PBO) had already softened from 82.4% in 2018 to 80.6% in 2019, and further declined to 74.3% in 1H 2020, and 74% in 3Q20 or 12,743.59mil sqm occupied over 17,215.75mil sqm.

The national rental index for PBOs surprisingly fared better in the first half 2020 as it rose by 0.2% from 130.6 to 130.9 with average rents rising from RM48.48 to RM48.59 per sqm, signalling perhaps that not all hopes are lost.

As of 1H 2020, there were 9,266,687 sqm of existing stock in PBO in Kuala Lumpur followed by 4,030,791 sqm in Selangor and 2,525,253 sqm in Putrajaya. The capital city of Kuala Lumpur will continue to usher in the highest incoming supply of 1,465,441 sqm followed by 244,290 sqm in Johor and 208,391 sqm in Selangor. It will be interesting to see how long it will take for the office space to be fully absorbed or at least tenanted to a reasonable level. In this sense, it could again rely on the availability of a proven vaccine before any significant economic movement occurs.

Industrial - Resilient With the commercial sub-sector hit the hardest in the first half of 2020 recording a 37.4% decline compared to industrial at 36.9%, agricultural at 32.8% and development land and others at 28.6%, there may be a glimmer of hope in the industrial sub-sector as businesses went and continue to go online,

Supply & Occupancy of Offices in Malaysia 16,240,540

Q3 2018

12,539,700 15,850,580

Q3 2019

12,700,090 17,215,750

Q3 2020

12,743,590

0

5,000,000

10,000,000

15,000,000

20,000,000

Space (sqm) Existing Space (sqm)

Space Occupied (sqm)

Source: NAPIC

OFFICE - FACTORS TO WATCH IN 2021 ● Until the Covid-19 pandemic is brought under control, companies are expected to continue a policy of partial WFH which means there is no necessity to maintain large offices. ● Post-pandemic, new office buildings will be adopting layouts and visitor registration procedures designed to cope with any new waves of the Covid-19 or any other new pandemics in the future.

OFFICE BRIGHT SPOTS IN 2021 ● The decline in demand for office space aggravated by the recent pandemic may lead some developers to shelve or defer new office development projects. This will help alleviate the oversupply of office spaces, especially in Kuala Lumpur.

coupled with the steep rise in demand for equipments and consumables to battle Covid-19.

Unlike the big ticket items such as housing, the hygienically cautious sentiment has kept manufacturers of gloves, face masks, sanitisers and PPEs (Personal Protective Equipments) busier than ever as they work round the clock to meet incremental orders for immediate and future consumptions. This is where companies with initially unrelated disciplines have seen itself leveraging the changing currents and ventured into glove making like in the case of property developers Mah Sing Group Bhd and Aspen Group. A travel agent with sound backing has also entered this market towards the end of 2020 with pictures of factory floor

inspection seen on the proprietor’s facebook account.

Another benefactor is the logistics industry where online shopping has spurred more ferrying of goods from one door to another and sometimes

to multiple locations with just a single order to circumvent the MCOs, not forgetting taking advantage of the cost effective promotions dished out by the courier companies. The positive trajectories in these niche sectors have somewhat cushioned the fall in demand for industrial properties caused initially by the contractions of businesses due to the 2019 Novel Coronavirus or also known as SARS Cov-2.

NAPIC’s data for the first nine months of 2020 nevertheless unveiled a 29% decline in volume of transactions compared to 2019 and 19% compared to 2018. Value of transactions also went down by 11% against 2019 and 17% against 2018. When compared on a quarterly basis between Q3 2020 and Q3 2019, the industrial sub-sector recorded a 15.5% decline or 1,323 units in volume of transactions but conversely it registered an increase of 15.4% or RM3.62 billion in value of transactions. This is hardly a surprise as the industrial category was the best performing sub-sector in 2019 and as such, the positive trend in its value of transactions may have prevailed moving into 2020 with higher priced units or at least before the pandemic affected business sentiments. The promising value of transactions was however overshadowed by the curtailment of business due to the various restricted movements throughout the year although the sub-sector was supported by the sporadic rise in certain industry

INDUSTRIAL - FACTORS TO WATCH IN 2021 ● Increased demand for warehousing due to the changing landscape for e-commerce. ● Matured and sought-after areas will remain a popular location for manufacturers or warehouse operators. ● Continued political instability and a resurgence of the Covid-19 pandemic may deter foreign as well as local investors to set up/expand their businesses in Malaysia.

INDUSTRIAL BRIGHT SPOTS IN 2021 ● The RM1 billion allocated for Industrial Digital Transformation Scheme under Budget 2021 to encourage SMEs and businesses to digitalise the operations and trade channels will encourage upgrading of companies’ digital capabilities and prepare them for future growth.

HB PERSPECTIVE 2021

9

MALAYSIA OUTLOOK

Volume of Industrial Transactions in Malaysia (Jan-Sep 2018, 2019 & 2020)

Jan-Sep 2018

month of the year brought a respite as the PMI rose to a four month high at 49.1. Meanwhile, Malaysia’s industrial production index (IPI), which declined in October after three months of positive growth, is expected to continue its downtrend for the rest of 2020 due to the tightening of restrictions under the CMCO.

4,083

Jan-Sep 2019

4,704

Jan-Sep 2020

3,303

0

2000

4000

6000

Hospitality - Recession What was to be a Visit Malaysia 2020 in the fifth instalment of the Visit Malaysia Year series beginning 1990 was officially called off as the infectious rate of Covid-19 prevented international tourists from arriving. The target of 30 million tourists spending RM100 billion in Malaysia attending to more than 100 programmes organised chiefly by the Ministry of Tourism, Arts and Culture literally went up in smoke with only 4.299 million arrivals from January to September 2020, registering a glaring drop of 78.6% compared to the 20.1 million tourists in the same period the year before. Tourism receipts also fell

Volume (unit) Source: NAPIC

Volume of Industrial Transactions in Malaysia (Q3 2018, 2019 & 2020) Jan-Sep 2018

1,569

Jan-Sep 2019

1,566

Jan-Sep 2020

1,323

0

500

1000

1500

2000

Volume (unit) Source: NAPIC

sectors as mentioned above and the occasional enquiries from Singaporean business owners as a move to manage cost and expand both market and logistical reach.

Sentiments among purchasing managers of manufacturing plants as reported by Edge Markets on 1 December 2020 from the IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) are consistent with NAPIC’s data seeing that the PMI declined five consecutive months, down from 48.5 in October to 48.4 in November. This indicated a further moderation of the manufacturing sector although the decline was considerably less marked than the period hit by the first wave of the pandemic in the first and second quarters of 2020. A resurgence of Covid-19 infections in key markets like India and elsewhere in Europe also affected exports but the final

10

HB PERSPECTIVE 2021

Value of Industrial Transactions in Malaysia (Jan-Sep 2018, 2019 & 2020) Jan-Sep 2018

10,945.69

Jan-Sep 2019

10,155.67

Jan-Sep 2020

9,029.11

0

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

Value (RM, million) Source: NAPIC

Value of Industrial Transactions in Malaysia (Q3 2018, 2019 & 2020) Jan-Sep 2018

3,536.40

Jan-Sep 2019

3,137.73

Jan-Sep 2020

2800

3,620.96

3000

3200

3400

3600

3800

Value (RM, million) Source: NAPIC

HOSPITALITY - FACTORS TO WATCH IN 2021 ● Improvement in the domestic tourism industry with attractive holiday packages from hoteliers/tour operators. ● The availability of the Covid-19 vaccine will improve overall confidence and boost domestic travel. ● Opening up of the borders for green zone countries will help bring back foreign tourists.

HOSPITALITY BRIGHT SPOTS IN 2021 ● With proper SOPs in place, tourists will feel safer to travel domestically. ● The Budget allocations by the Government to boost domestic tourism will greatly help this sector.

Tourists Arrival & Spending in Malaysia

80

Arrival (million)

Spending (RM, million)

60 40 20 0

H1 2019

H1 2020 Source: NAPIC

to RM12.6 billion in the same period, 80.9% lower than the RM66.1 billion in the corresponding period in 2019.

The plunging numbers of 2020 had the Malaysian Association of Hotels (MAH) expecting the average occupancy rate of hotels in the country to average at only 25% for the full year.

Agriculture, Development Land & Others In the agricultural land category, it recorded a 19.4% or 20,764 rise in Q3 2020 compared to Q3 2019. In terms of value of transactions, the percentage rise was much higher at 42.5% or RM3.88 billion. Worthy to note is that in the face of the softer market conditions coupled with the stronger demand for houses priced below RM500,000, some housing developers especially those without suitable landbank for the affordable range embarked on acquiring land banks in locations and at prices that will allow them to build such

houses.

The landbanking exercise form part of the reasons that contributed to the 20.6% or 5,661 units growth in volume of transactions in 3Q 2020 compared to the corresponding period in 2019 under the development land & others category. But even with the positive number, its value of transactions

declined by 28.5% or RM1.98 billion compared to Q3 2019. This could be due to the price pressure from the macroeconomic conditions as landowners were more eager to unlock land value. For the record, transactions recorded here also included developers offloading some of their non-core landbank in order to improve their financial standing and cash flow position.

Bright Sparks Although 2020 has been erratic, there were positive takeaways like the mass digitalisation adoption by property players to help bridge the absence of physical administration at the sales galleries to finalising the purchase by keen buyers and investors. To that end, to be fronted by a functional website is already a given and what’s more important now is for property developers to have a better understanding of the profile of their target market to facilitate the right utilisation of the media channels and its accompanying messaging so the overall strategy is a cost effective one.

Be that as it may, Malaysian buyers are still more accustomed to physical visits at the galleries so they can unearth all that is required to know about the project before making the final call.

Digital marketing campaigns should therefore be treated as a vehicle to attract prospects for further enquiries.

Volume of Development Land Transactions in Malaysia

4,792

Q3 2018 Q3 2019

4,695

Q3 2020

5,661

0

2000

4000

6000

Volume (unit) Source: NAPIC

HB PERSPECTIVE 2021

11

MALAYSIA OUTLOOK

Value of Development Land Transactions in Malaysia

3373.26

Q3 2018 2777.1

Q3 2019 1,984.77

Q3 2020

0

1000.00

2000.00

3000.00

4000.00

Value (RM, million) Source: NAPIC

Thus far, the reports that have come out about employment and production volume have not been rosy, and given that the property ecosystem would still require committed buyers, investors, tenants and financiers to form part of the equation, it would be highly commendable if the government could step in to bring about a reduction or waiver of compliance costs such as statutory contributions, fees and premiums so that these savings will trickle down the chain to benefit the buyers and investors. The City Hall of Kuala Lumpur (DBKL) has rolled out such an assistance with 50% discount on development charges for projects commencing 1 June 2020 to 31 May 2021 to spur developments during the pandemic hit period.

What will come to be in 2021? The factors are many but in order of importance are the availability of an effective vaccine against Covid-19, the stability of Malaysia’s political climate with a strong majority in the ruling government, the infectious Covid-19 cases coming under control with no further outbreaks and a more friendly international trade environment. But one of the most helpful factors from these would be the staging of the 15th General Elections in the country to resolve the political quagmire once and for all so the ruling government can objectively govern the country and strengthen its economy.

12

HB PERSPECTIVE 2021

Should these factors translate into reality, we can expect a positive market trajectory in all property sub-sectors from as early as the third quarter of 2021 or early 2022, which is consistent with the Malaysian Budget 2021’s projection of a 6.5% to 7.5% growth for the full year of 2021. The multiplier effects from this growth will be the powertrain that can drive the property industry forward again with house purchasers returning confidently to buy homes as their income earning capacity is leveled up by a robust economy that offers employment, and both the local and foreign property investors having

the opportunity to find the right assets to invest into. These tangible actions on the ground shall contribute to rebalancing the property equilibrium back to its healthy levels seen between the mid-2000’s to early 2010’s.

But luck has it that the country has again been stifled with another round of MCO which started on 13 January 2021. But before MCO 2.0 can even properly commence, the Agong had assented to a State of Emergency as announced on 12 January 2021 which will be effective until 1 August 2021.

The back-to-back news have had the KLCI tumbling, hurt the value of the Ringgit and sent a large wave of uncertainties to the market.

With these new spanners now suddenly thrown in the works, the Malaysian property market has again been shaken from what was to be a positive route to recovery albeit a slower one. With all things measured and weighed, it is imperative that the property economy will be grinding a little longer than expected and this time, instead of witnessing a lift off in the second half of 2021, it could likely see recovery happening only in 2022.

Malaysia’s future depends on the stability of the government and this calls for one that rules with a comfortable majority.

KEDAH OUTLOOK

KEDAH - INDUSTRIAL POTENTIAL IN 2021

Kedah’s capital city is set to inherit any growth that may come from the mega projects initiated by the State Government.

T

he moniker as the “rice bowl” of Malaysia may soon be overshadowed by the ambitious plans of the Kedah State Government if they all come to fruition as laid out in the plan. From the proposed Kedah Aerotropolis to the various industrial parks, Kedah has the makings of an industrialised destiny if only there are equally enterprising entrepreneurs that can dream up big ideas and morph them into workable reality. The opportunity is there, it’s up for the takers; just as how Kedah birthed two prime ministers of Malaysia.

Residential Review and Outlook The residential property market in Kedah registered a decline of about 5% in the volume of transactions in the first nine months of 2020 compared to the same period in 2019 whilst the value of the transactions went up by 3%.

This could be due to more properties being transacted in the higher priced categories compared to the same period in 2019.

In terms of pricing, the house price index for the state registered an increase to 183.6 as at the halfway mark in 2020 compared to 176.3 as at the second half of 2019. The average house price nudged up slightly from RM229,151 to RM238,635. Most of the residential properties transacted in the past three years were between

RM100,001 to RM300,000, and there was a higher interest for landed residential properties with terrace houses being the most popular.

In the overhang properties category, defined as completed properties but remained unsold after nine months, there were 1,341 units or only 4.2%

FACTORS TO WATCH IN 2021 ● Continuation of low interest rates to help spur the residential market transactions and overall investments. ● Improvement in the industrial sector with the support of government initiatives.

BRIGHT SPOTS FOR 2021 ● Through Kedah’s State Budget 2021, the State Government has identified 4 pillars to support the economy and boost people’s overall income: ● implement high impact projects such as the Kulim International Airport; ● introduce Prosperous Rice (Beras Sejahtera) programme to provide basic food to Kedah’s residents; ● develop education, sports and community initiatives; and ● strengthen public services delivery and digitalisation of Kedah’s civil service.

HB PERSPECTIVE 2021

13

KEDAH OUTLOOK

Volume & Value of Residential Transactions in Kedah (Q1-Q3 2018 to 2020)

10,000

9,157

8,947

2018

8,704

2019

2020

8,000 6,000 4,000 1,747.63

2,000 0

1,957.36

2,020.44

Value (RM million)

Volume

Source: NAPIC

Value of Residential Transactions By Price Range in Kedah (Q1-Q3 2018 to 2020) 2018

2019

2020

600.00 500.00 RM, million

400.00

200.00 100.00 0 - 100,000 100,001 200,000

200,001 300,000

300,001 400,000

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above

In 2021, Kedah’s residential subsector is expected to remain subdued seeing that the continuation of the pandemic will result in lower consumer confidence, thus affecting the volume of transactions.

Industrial Review and Outlook The volume and value of industrial property transactions in Kedah peaked in 2019 with 161 properties changing hands worth a total of RM307.89 million. This represents a big jump compared to 2018 which registered 145 units and RM141.82 million in volume and value respectively. In this regard it was noted that the Kedah state government announced several major projects back in 2019 which involved an estimated cost of more than RM3 billion. These included the development of manufacturing industries and a logistics hub in Sidam near Kulim and a petrochemical industrial park in Gurun. The Bukit Kayu Hitam Special Border Economic Zone (SBEZ) also contributed to improved overall industrial development activity in the state.

Office Review and Outlook Over in the office sub-sector, the supply of purpose-built offices in Kedah have remained stagnant over

The momentum was however not sustained as both the volume and value of transactions came down in 2020. The volume and value of

Source: NAPIC

out of a national total of 31,661 units of overhang properties. As for unsold units, Kedah ranks amongst the lowest in the country with 1,367 units which were still under construction as at the first half of 2020 or only 1.8% compared to the national total of 74,230 units.

It is hardly a surprise that the Covid-19 pandemic has had an impact on property sales in Kedah. Just as the country was being affected from early 2020 which then led to a series of lockdowns imposed by the government under the various phases of the Movement Control Order (MCO) beginning 18 March 2020, sales activities took a hit and ground to a halt. To resuscitate the market, the government reinstated the Home Ownership Campaign (HOC) from June 2020 to May 2021. Supported also

14

With most Kedah businesses operating from shop-houses type of premises, winds of change may be beginning to blow as Kedah-based property developer Imperio Group announced plans to undertake an integrated commercial development on a 3.7-acre plot of land in Simpang Kuala in Alor Setar comprising retail, hotel, office, co-working spaces and residential components.

Moving into 2021, the purpose-built office market will remain stable as occupancy rates seemed unperturbed due to limited new supply.

300.00

0.00

the years with no new projects being undertaken and only increased by about 2% from 2018 to 2019. As there was very little new supply coming onto the market, there was a noticeable trend of improving occupancy rates as reflected by the 7% improvement from 84.5% in 2018 to 90.8% in the first half of 2020.

HB PERSPECTIVE 2021

by the low interest rate regime, the mechanism generated buying interest from the public especially when the government began loosening travel movement under the Recovery MCO phase. Situation in the secondary market was nevertheless sluggish, probably due to the lack of incentives to motivate purchase and job security of the workforce was put on the line.

industrial property transactions recorded for the first nine months of 2020 saw a decline of 3% and 40% respectively compared to the same period in 2019. The decline could be due to the implementation of the Movement Control Order (MCO) in the first half of 2020 which affected economic activities everywhere including Kedah. The majority of industrial property transactions over the past three years were of the RM1,000,001 and above category followed by those between RM500,001 and RM1 million.

In spite of the pandemic disruption, the Kedah State Government had in the second half of 2020 announced that they were working closely with the Northern Corridor Implementation

Authority (NCIA) to roll out more human capital and high-impact infrastructure projects that were already approved by the Northern Corridor Economic Region (NCER) Strategic Development Plan 2021– 2025. This will likely lead to more investments into Kedah and increase job opportunities for the state.

Another positive development is the first dedicated Rubber Industrial Park in the country dubbed The Kedah Rubber City (KRC), hailed as the biggest contributor to the state’s investments from the manufacturing sector. Phase 1 of KRC comprising foundation and infrastructure works commenced in December 2019 and was completed at the end of 2020.

Operations as such is expected to

Volume & Value of Industrial Transaction in Kedah (Q1-Q3 2018 to 2020) 2018

350

2019

2020

307.89

300 250 200 150

145

161

156

184.40 141.82

100 50 0

Value (RM million)

Volume

Source: NAPIC

Value of Industrial Transactions By Price Range in Kedah (Q1-Q3 2018 to 2020) 2018

300.00

2019

2020

RM, million

250.00 200.00

begin in the first quarter of 2022. A notable transaction in KRC in 2020 was the acquisition of 105 acres by Hong Seng Consolidated Bhd for RM46 million to set up their nitrile butadiene latex plant. It is also worth noting that after manufacturing, logistics and the bio-agriculture industries are the second and third largest contributors to Kedah’s investments.

The much talked about Kulim International Airport (KXP) project or Kedah Aerotropolis shall help facilitate logistics and industrial development in the state, and boost the socioeconomic development of the region should the project take off successfully. It is also estimated that KXP alone will create 15,000 new jobs on a development site exceeding 4,600 acres.

Complementing KXP nearby is the Sidam Logistics, Aerospace and Manufacturing Hub (SLAM) which is yet another mega project that focuses on high-value industries such as logistics, aerospace and manufacturing. SLAM has the potential to attract over RM18 billion and create close to 25,000 new jobs once it is fully completed by 2050.

Another project that will further enhance the state’s economic status is the Kedah Science and Technology Park (KSTP) located in the Bukit Kayu Hitam SBEZ, designed to be a modern industrial park catering to global research centres which focuses on agriculture, agroscience, information, communication and technology (ICT) and green technology.

150.00 100.00 50.00 0.00

0 - 100,000 100,001 200,000

200,001 300,000

300,001 400,000

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

Given the scale of the industrial projects as announced by the Kedah State Government and its potential for a state-wide socioeconomic impact, Kedah’s industrial sub-sector may see growth in 2021.

HB PERSPECTIVE 2021

15

PENANG OUTLOOK

PENANG - MODEST PACE IN 2021

Although strong fundamentally, 2021 may see Penang moving at a modest pace.

Along the way, these niche areas have also motivated the logistics sector to rise as demand for warehouses and

16

HB PERSPECTIVE 2021

last mile connectivity to complete the ecosystem are emerging to be more important. But because of the undersupply situation of such facilities in Penang, demand should continue to exist in the coming future. The same is seen over on the mainland in Seberang Perai with more courier related companies taking up new commercial units to meet the surging online demand.

The industrial sub-sector in Seberang Perai has also held itself well and seemed undisrupted by the pandemic as prices are still at the pre-MCO level

and in fact has charted growth in 1H 2020. As such, it is expected to remain active moving into 2021 with potential hotspots in Taman Perindustrian Bukit Minyak, Penang Science Park and Batu Kawan Industrial Park. Both the total volume and value of transactions are expected to increase slightly in 2021.

The interesting development in the industrial sub-sector coupled with NAPIC’s data on the residential market have kept Penang from being jolted more than it is necessary although the full year performance may expect an overall 15% decline in total volume of transactions compared to the 17,118

40,000

16,000

35,000

14,000

30,000

12,000

25,000

10000

20,000

8,000

15,000

6,000

10,000

4,000

5,000

2,000

0

2011

2012

2013

2014

2015

2016

2017

2018

2019

Q3 2020

0

Source: HB Research/NAPIC

RM million

Total Volume & Value of Property Transactions in Penang (2011-Q3 2020)

Units

L

ike the rest of the country, Penang’s property market was adversely affected in 2020 caused by the common enemy of the Covid-19 pandemic. Every property sub-sector has experienced a sudden shift in momentum and is forced to adjust and adapt to the changing sentiments. But Penang’s appeal as a strong manufacturing hub especially in the electronics and electrical space continued to be supported by its competitive costs, established infrastructure and readily available talent pool. Factors such as these have helped Penang Island hold its ground despite the onslaught of the Covid-19 pandemic. In particular, with rising demand for medical and pharmaceutical products and equipment, the manufacturing sector has experienced a favourable market movement in 2020 as some E&E players have sniffed out opportunities to capitalise on transitioning into the medical equipment and devices industries.

units transacted in 2019. But the positive sentiments on the ground in the final quarter of 2020 are good indicators of a modest market going into 2021 with recovery expected in the second half of the year while in Seberang Perai, the market is expected to remain firm in 2021. However, with the announcement of the reinstatement of the Movement Control Order (MCO) again beginning 13 January 2021, any expectancy of a recovery is to be pushed further into the horizon by at least another six to twelve months, pending again on the progress in containing Covid-19 and the stability of the country’s political situation.

Residential Review 2020 According to NAPIC’s data for January to September in 2020, Penang recorded a total of 10,521 property transactions with a value of RM5.4 billion. The residential sub-sector recorded the highest level of activity at 73% in terms of total volume of transactions and 55% in total value of transactions despite being cornered during the MCO. The commanding position witnessed an increase of 6.35% (206 units) of transactions in Q3 2020 to a total of 3,446 residential properties compared to 3,240 units in Q3 2019. In terms of value of transactions, it went up by RM82 million to RM1.297 billion in Q3 2020 compared to RM1.215 billion in the corresponding period in Q3 2019.

It is likely that part of the statistics here were purchases generated during the muted activity period of the MCO but could only be registered in Q3 2020.

Generally, more newly-launched units were sold in Seberang Perai compared to Penang Island given the more affordable prices offered by developers. Although the numbers were encouraging state-wide in Q3 2020, total volume of residential transactions declined 29.68% in 1H 2020 (with 2,346 units on the mainland) from 3,336 units transacted in the corresponding period in 1H 2019. Total value of transactions also dropped by 26.16% to RM731

FACTORS TO WATCH IN 2021 ● A new trend of work from home (WFH) and online purchases seem to be the rigueur nowadays, not forgetting meetings via Zoom, Microsoft Teams and other online platforms particularly for the young millennials have become more popular. Baby boomers are still learning and adapting to these changes while the millennials and the younger Zoomers (Gen-Z) are considered digital natives. ● Volume of investments in 2020 declined year-on-year, a reflection of border closures and inter-state travels. Most property sellers were also holding on to pre-Covid-19 prices in hopes of a quick market rebound. ● Many corporations (MNCs, SMEs, SMIs) have large amounts of capital tied up in real estate that can be leveraged upon to provide ready cash with a sizable of them looking into it to generate working capital and some have divested through the sale-and-leaseback transactions allowing companies to adopt asset-light business models which offer more efficient uses of corporate capital. ● Investors are rotating capital away from mainstream asset classes facing cyclical headwinds (eg. office, retail, hotels) to those providing reliable income in a down-trending market (eg. logistics, last mile warehouses, pharmaceutical, healthcare related outlets). ● Asset values have been supported by a combination of transient factors including government support programmes, bank policies and healthy corporate balance sheets etc., but there is a growing concern among investors about the inevitable market corrections. ● Hotels followed by the experiential retail were the hardest hit since tourism business and leisure travel were banned in light of Covid-19. Travel bans prevented investors from physically visiting prospective purchases and have had the greatest impact in markets with a high proportion of international investors.

BRIGHT SPOTS FOR 2021 ● Due to Penang’s strong manufacturing base, logistics became a favourite among investors. It’s the sole asset class with fundamentals improved during the pandemic given online retail’s surging demand. ● A trend of pricing standoff exists, pending further market clarity with buyers underwriting lower values and higher cap rates on the back of lower or no growth assumptions, and expectations of declining rents. Generally owners are financially sound and it precludes the “forced sales” option, leading to steady pricing for core assets as they hold out anticipating early pandemic and economic turnarounds. ● Demand will likely remain strong for the right assets particularly with long term appeal given that loan financing is still available selectively. ● While the downside is not expected to be severe, investors are looking at relatively stable asset prices in 2021.

million in 1H 2020 compared to RM995m in 1H 2019.

This increase could be due to the good response received for properties under construction during the Home Ownership Campaign (HOC) 2020-2021.

Although operating under a challenging climate, creative solutions deployed through innovative technology and attractive incentives from the developers were well received and boosted sales.

Buyers in that regard were also not hesitant to buy virtually from reputable

HB PERSPECTIVE 2021

17

PENANG OUTLOOK

Volume & Value of Residential Property Transactions in Penang Volume

3500

2020 to 841 units in Q2 2020 before dropping slightly more to 746 units in Q3 2020. Most of the overhang properties are located in the North East District of Penang Island with a record of 1,818 units of condominium/ apartments. Prices of some stratified properties in inferior locations on the southern part of the island have also dropped slightly owing to an oversupply situation, poorer occupancy and take-up rates.

RM million

1297.36

3450

Units

3400 3350 3300

3446

1215.54

3250 3200

3240

3150 3100

Q3 2019

Q3 2020

The compound average growth rate (CAGR) of the prices of condominiums/apartments, semidetached and detached houses for the past ten years from 2010 to Q3 2020 performed better compared to the past 10 years ending 2019. Perennial favourite terraced houses used to be the best performing sub-sector but it however declined in 2020.

Source: HB Research/NAPIC

Residential Property Price Index by Types in Penang (2010-Q3 2020)

(Weight 2010 = 100)

250 200 150 100

Although the residential sub-sector has experienced a period of inactivity during the MCO, it will nevertheless continue to be the powerhouse to sustain Penang’s property market due to the support from the government such as the HOC 2020-2021 and the stamp duty exemptions. A modest pace of recovery hence could be on the cards for Penang in 2021 whereas in Seberang Perai, residential property transactions are expected to improve in 2021 with prices holding level as 2020.

50 Source: HB Research/NAPIC

2011

2012

2013

2014

Condominium / Apartment

and trustworthy developers.

Notable ongoing residential developments which enjoyed some level of success amid the pandemic are Sinaran @ Utropolis by Paramount Property Development Sdn Bhd; Vivo Executive Apartment and Viluxe

by Aspen Group; Havana Beach Residences, Imperial Grande, The Amarene and Queens Residence by Ideal Property Group; Glisten Hill

by TKS Group; Metropol by Ramana Property Sdn Bhd; Eco-Bloom, EcoHorizon, Eco-Camdon by Eco World Development Group Bhd and Palm Garden, Begonia Villa and Aster Villa

by Tambun Indah Land Bhd. The increased sales volume however did not contribute much to the lowering of the overall overhang properties as the unsold 18

HB PERSPECTIVE 2021

2015

2016

Terraced

2017

2018

2019 Q3 2020

Semi-Detached

Detached

condominium/apartment shot up from 2,180 units in Q1 2020 to 2,946 units in Q2 2020 and before settling at 2,968 in Q3 2020. In contrast, overhang landed properties declined marginally from 857 units in Q1

Volume of Overhang Residential Units by Type in Penang Landed Houses

Condominium / Apartment

3500 2946

3000 2500

Units

0

2968

2180

2000 1500 1000

857

841

746

500 0

Q1 2020

Q2 2020

Q3 2020 Source: HB Research/NAPIC

RM1.30 to RM2.00 per sq ft per month while outside the CBA range from RM1.30 to RM2.00 per sq ft per month.

Many tenants across the region are planning to reduce office space requirements as soon as the existing tenancies expire and any significant decline in demand would create a double-whammy for landlords who are already saddled with large amounts of vacant space and uncollected rents.

As such, the future demand for prime office space is thrown into question by a number of competing influences – physical distancing, WFH trend, staff retrenchment and the need to cut costs.

A reduced consumer demand caused by global recession will inevitably

Penang’s tourism especially along the stretches of pre-war shophouses in George Town has seen better days.

Purpose-Built Office Review Over in the purpose-built office (PBO) sub-sector, the cumulative existing supply was 1,107,000 sqm in Q3 2020 with an incoming supply of 4,590 sqm (about 50,000 sq ft) on Penang Island.

Occupancy rate dropped 2.8% from 82.2% in 2019 to 79.4% in Q3 2020.

The estimated gross rentals for prime office accommodation within and outside the Central Banking Area (CBA) at Lebuh Pantai are in the range of RM2.00 to RM3.00 per sq ft per month and RM1.80 to RM3.50 per sq ft per month respectively. As for the secondary office accommodation, gross rentals within the CBA range from

Existing & Incoming Supply of Purpose-Built Office in Penang as at Q3 2020

1400 1200

sqm

1000 800 600 400 200 0

2011

2012

2013

20142

015

2016

2017

2018

2019 Q3 2020

Source: HB Research/NAPIC

Occupancy Rate of Office Space in Penang

Percentage (%)

Before the second round of the MCO, there were possibilities of new launches occurring in 2H 2021 or early 2022 if the market inclines positively but this could now be shelved a little longer.

Either way, any new launches in the market in this era shall be executed on a smaller scale as a way to gauge the market’s appetite. Potential hotspots on the mainland remains pointed to Batu Kawan given its appeal as a relatively new township but already count Ikea, Penang Design Village, some MNCs, university and college as neighbours.

85 84 83 82 81 80 79 78 77 76 75 75

Occupancy rate (%)

2011

2012

2013

2014

2015

2016

2017

2018

2019

Q3 2020

Source: HB Research/NAPIC

HB PERSPECTIVE 2021

19

PENANG OUTLOOK

translate to lower demand for space, increased vacancy rates and jitters among investors as they become uncertain about the depth and length of the slowdown. There are however different schools of thought when it comes to workplace solutions but those in the design and technology sectors have shown favour to remote working concepts.

Industrial Showing favour to Penang are also seven international players that have come to set up their respective plants in the disruptive year of 2020. Choosing to establish their base in the Free Industrial Zone of Penang are Keysight Technologies Inc., a leading technology company to deliver accredited electromagnetic compatibility (EMC) testing services for manufacturers of electronic devices and mission-critical industries, and B. Braun, one of the largest medical technology companies in the world.

Setting up their base in Batu Kawan are global supplier of innovative wafer fabrication equipment and services to the semiconductor industry Lam Research Corporation, leading

global supplier of technology and services Bosch, 160 years old British global medical technology company Smith+Nephew, Nasdaq listed global leader in continuous glucose monitoring for diabetic patients DexCom, and leading developer and supplier of critical subsystems, ultra-high purity cleaning and analytical services for the semiconductor industry Ultra Clean Holdings Inc. Together, these companies are occupying more than 3.25 million sq ft and creating more than 9,800 jobs in the state.

The Penang government had also in June 2020 unveiled “Linear Waterfront”, a 60-hectare reclamation project off the Free Industrial Zone (FIZ) in Bayan Baru with an estimated gross development value of RM1 billion. The project will extend FIZ’s electronics-dominated industrial zone and complemented by a new world-class township complete with fishermen’s wharves, a waterfront resort made up of hotels, restaurants, medical, commercial and mixed development.

According to the Penang Economic Outlook 2021 by Penang Institute, it is heartening to know that Bayan Lepas International Airport had again handled

Batu Kawan presents one of the most interesting propositions for property investors with Ikea already established its furniture store before the entire township is fully developed.

20

HB PERSPECTIVE 2021

the highest export value in Malaysia and among its cargos were machinery and transport equipment from medium and high-tech industries, that include aerospace, automation, medical devices etc. This is also consistent with Penang’s quick rebound in the manufacturing industry as a direct beneficiary from the persistent USChina trade conflict in 2020. If not bright, Penang’s industrial economy certainly looks like an interesting watch in 2021.

Hospitality & Retail The dynamic duo that used to anchor Penang tourism have seen better days than 2020. With the absence of tourists and fallen occupancy, some hotels and retail outlets have little choice but to surrender to the pressure and cease operating. Hotel Equatorial Penang is one casualty and its management had announced on 25 January 2021 about the possibility of ceasing operation before 31 March 2021 due to the adverse market condition. Even a cafe housed in a 4-star hotel in the traditionally non-touristy Seberang Perai has closed for business after the MCO period.

Although there were positive movements in November when the inter-state travel ban was lifted, it is not expected to restore Penang’s tourism back to its glorious days anytime soon, not when the current third wave of the Covid-19 has not seen tangible results for safe travel but has instead been met with the reinstatement of the MCO early in January 2021.

Nevertheless, the Penang State Government had on 11 January 2021 announced its intention to resume the Bukit Bendera cable car project with the private sector which was cancelled in April 2020. The revival will contribute positively to Penang’s tourism as it will help ease congestion at the popular destination especially during peak hours.

PERAK OUTLOOK

PERAK - EASING BUT STABLE IN 2021

Improvement to the demand for residential estates in Ipoh can be expected in 2021 and one of the contributing factors is its close proximity to the North South Expressway.

O

nce heralded as the tin mining capital of the world, the silver state of Perak has a heritage of industrialised beginnings which can be traced closely to the economic progress of the country. In fact, tin was the reason why many credited Perak as the place where initial millionaires of Malaya first resided; it’s where they first minted their wealth as the state’s natural supply kept pace with global demand especially from Europe and US in the late 1800’s to the early 1900’s.

The tin business however eroded with time as more competing suppliers joined in the race to serve global customers and at the same time,

RESIDENTIAL - FACTORS TO WATCH IN 2021 ● Low interest rates would be a boost for consumers looking to purchase properties. ● Reinstatement of the Home Ownership Campaign (HOC) 2020-2021 would boost demand.

BRIGHT SPOTS FOR 2021 ● The Perak State Government will be building more affordable housing whilst developers have also taken note of the interest in affordable housing in the state. Upcoming developments will be focused on the affordable segment rather than high-end houses or high-rise residences. ● Towns along the West Coast Expressway such as Hutan Melintang, Teluk Intan, Manjung, Lumut, Taiping will benefit from the opening up of the highway and the better accessibility that the highway provides. ● In Ipoh, locations such as Bandar Seri Botani, Bandar Meru Raya, Klebang, Tambun and the surrounding of the above may see an improvement in demand.

HB PERSPECTIVE 2021

21

PERAK OUTLOOK

Volume & Value of Residential Transactions in Perak Q1-Q3 2018 to 2020

20,000

2018

16,066

15,000

15,532

2019

2020

16,360

10,000 5,000 0

3,171.05

3,148.44

3,596.45

Value (RM million)

Volume

Source: NAPIC

Residential Transactions Volume by price range in Perak Q1-Q3 2018 to 2020

6000

2018

2019

2020

5000 4000 3000 2000 1000 0

0 - 100,000 100,001 200,000

200,001 300,000

300,001 400,000

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

challenged by advanced technological innovations that have powered other emerging industries to the forefront.

These have eclipsed tin as an important economic commodity.

History may have its way again if the efforts of the Perak State Government proves to be on point as they court foreign direct investments and the brains for innovation to her industrial parks. The road to success may be a long one as many around the world are also adopting the same strategy but as the state grows in prospect, no matter the quantum it can amass, so shall her state economy and the property sector, which will inherit some success, if not restoring the appeal it once had back a century ago. In the same breadth, the state is also looking at oil palm and eco-tourism as another potential economic contributor to the state.

22

HB PERSPECTIVE 2021

Residential - Review 2020 In the residential property sub-sector, Perak recorded the third highest number of property transactions in Malaysia during the first half of 2020 with a total of 14,266 transactions, contributing 12.4% of the total number of transactions in the country.

Nevertheless, the residential property market was already experiencing a slowdown even before the implementation of the Movement Control Order (MCO) in March 2020.

During the first nine months of 2020, Perak’s volume and value of residential property transactions registered a 5% and 14% increase respectively compared to the same period in 2019.

This is somewhat surprising as the lockdown imposed during the MCO was anticipated to result in a slowdown in sales activities as experienced in the

other states. Moreover, the statistics show that there was a 3% reduction in the volume and a marginal 0.7% drop in the value of residential property transactions during the first nine months of 2019 compared to the same period in 2018. This anomaly is likely due to the time lag of about six months in the capture of transaction data by NAPIC. Almost 80% of the residential properties transacted in Perak in the first nine months of 2020 were those priced below RM300,000 whilst those priced under RM200,000 alone made up more than 53%.

In terms of overhang properties, NAPIC’s data showed that Perak had the third highest number in Malaysia with 4,644 units. Overall, prices seemed to have eased due to the oversupply while most of the unsold properties were high-rise and high-end landed houses.

Residential Outlook 2021 The ongoing pandemic with the recent rise in positive cases during the third wave of the virus infections continues to bear down on consumer sentiments and this has affected demand in the residential property market. The outlook for the residential property sub-sector appears to be stable in terms of prices including rental although the start of the vaccination programme could inject a sense of confidence back to the market and the market may see a recovery in the second half of the year or early next year.

Office, Retail & Industrial - Review 2020 The office market in Perak was flat but stable as supply of purpose-built offices (PBO) is limited. Companies which have benefitted from an increase in business during the Covid-19 pandemic such as those in the courier business have increased their presence in the commercial shop offices with some

moving into larger warehouses. There is however about a 10% reduction in occupancy attributed to the pandemic.

In light of the Fourth Industrial Revolution (IR 4.0) where global markets both from the developed and developing nations are continuously churning out new innovation to contribute to a variety of industries and with that, to their respective domestic economies, the Perak State Government has stepped up efforts to encourage foreign direct investments to venture into this exciting space. The effort has borne fruit and seen rising investments in sectors such as solar farming, glove manufacturing and the

setting up of automotive hubs. In spite of the positive interest, the volume and value of industrial property transactions in Perak have registered declines in both volume and value of transactions over the past three years.

Specifically, there was a 30.7% drop in the number of industrial property transactions and a 42% reduction in the value of transactions for the first nine months of 2019 compared to the corresponding period in 2018. The decline continued in 2020 due to the pandemic as the volume and value of industrial property transactions in the first nine months of the year came down by 21% and 22% respectively.

Volume & Value of Industrial Transactions in Perak Q1-Q3 2018 to 2020 2018

500

2019

2020

486.38

465

400

322

300

281.04

254

218.46

200 100 0

Volume

Value (RM million) Source: NAPIC

Volume of Industrial Transactions in Perak Q1-Q3 2018 to 2020 2018

2019

100 80

94 77

81

75

60 40

59

51 42

43 34

26

20 0

2020

0 - 100,000 100,001 200,000

49

74

66 54 52

44

36

19

18

200,001 300,000

300,001 400,000

25

The bulk of the transactions were of properties priced above RM1 million, followed by those between RM500,001 and RM1 million.

Office, Retail & Industrial Outlook 2021 The office market is expected to remain flattish and stable but the industrial sub-sector should see an improvement due to the government’s push for more projects and investments in the state such as the Perak Heavy Industrial Park and Silver Valley Technology Park which will create new jobs and improve the overall local economy.

OFFICE, RETAIL & INDUSTRIAL FACTORS TO WATCH IN 2021 ● Shop offices will remain as a source of office space due to limited supply of purpose-built office buildings. ● Improvement in the industrial market due to the government’s efforts to improve FDI in the state. ● The start of the Covid-19 vaccination programme could improve consumer confidence. ● Any lengthy extension of the MCO would have a drastic impact on businesses and ultimately affect the property market.

OFFICE, RETAIL & INDUSTRIAL BRIGHT SPOTS FOR 2021 ● More investments in the state will result in an improved local economy that will make the state a preferred destination for investment for industrial developments.

22

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

HB PERSPECTIVE 2021

23

KLANG VALLEY OUTLOOK

KLANG VALLEY - VOLATILITY CONTINUES IN 2021 from launching new projects as news of the Novel Coronavirus 2019 was first detected in Malaysia on 26 January 2020. The unsettling atmosphere threw everyone off balance and it is no surprise that the entire property machinery was halted in its tracks when the situation worsened.

F

rom New York, London, Paris, Tokyo to Sydney, coping with the Covid-19 cases is a tough balancing act between keeping people safe and opening the doors to the economy. Which do you prioritise as the infectious virus keeps rearing its ugly head after rounds of affirmative actions like Movement Control Order (MCO), Standard Operating Procedures (SOP) and state of emergencies? It’s a tough call and there will be casualties when SOPs or people’s discipline are weakened by flimsy enforcement and questionable agendas.

In Klang Valley, the resurgence of Covid-19 cases since the Sabah State Election on 26 September has left the medical system reeling to its knees. Into its third wave now, the capital city of Kuala Lumpur and the Selangor state that form Klang Valley have been the epicenter of the outbreak after cases in Sabah were more contained. The challenge is

24

HB PERSPECTIVE 2021

more pronounced here because it is the country’s most populous and her most important commercial hub. With these characteristics, it is also where urbanisation goes full steam with most pioneering businesses, real estate and lifestyle factors all come into play here before they are expanded nationwide.

And so with the estimated 8 million people living in Klang Valley, the acute need for housing and its supporting structures of amenities and facilities came under pressure when the unannounced threat of Covid-19 made its silent entry in 2020. So how did the Klang Valley property market fare during the pandemic year?

Residential - Review 2020 The Covid-19 pandemic clearly had an adverse impact on the residential property market as property developers were forced to close sales galleries and show houses during the Movement Control Order (MCO) starting from 18 March 2020. The unfavourable conditions prevented many developers

The startling truth however emerged from the subdued market when the MCO was relaxed in May 2020. Several new launches that made their way to the market surprised everyone with its commendable take-up rate that these well located and reasonably priced projects managed to achieve.

Quite a few new projects launched in the second half of 2020 including Artoca @ Setia Alam by SP Setia Bhd, Elmina Green by Sime Darby Property Bhd, M Luna by Mah Sing Group Bhd and Miyu by Tropicana Corporation Bhd have reported very good sales responses. Potential buyers for a new condominium launched in the popular and much sought-after Desa ParkCity queued overnight to increase the chances of securing a unit of their choice, reminiscing the good old days before Covid-19. But the story is not quite the same in the secondary market because buyers, especially those buying for the first time, prefer the primary market to take advantage of the attractive discounts, freebies as well as the easy entry schemes offered by developers including the stamp duty savings extended by the government.

But even with the unexpected good news, there was a drop in both the volume and value of residential transactions in the first nine months of 2020. Both Selangor and Kuala Lumpur followed the national trend with Selangor recording a 19% drop in the volume of transactions and a 17%

Volume of Residential Transactions

decline in the value of the transactions whereas Kuala Lumpur, which was also not spared, dipped in volume and value of transactions at 11.5% and 10% respectively.

Serviced apartments meanwhile saw the number of overhang units increasing from 21,683 units valued at RM18.64 billion in Q2 2020 to 24,267 units valued at RM21.33 billion in Q3 2020 nationwide. Kuala Lumpur was a major contributor to the stock of unsold serviced apartments with 18.3%, behind Johor’s 67.1%.

On the whole, the year is still expected to end with a reduced volume and value of transactions compared to 2019 due to the three months loss of sales activities.

Residential Outlook 2021 While the uncertainty surrounding Covid-19 had initially caused alarm in the market, data from NAPIC showed improvement in Klang Valley’s residential sub-sector after MCO was lifted in May and the HOC reintroduced. These supporting factors should see the second half of 2020 outperforming the first half of the year although the overall scorecard for 2020 is expected to decline compared to

Jan - Sept 2020

144,132

150,000

131,174

120,000 Units

In terms of the overhang residential properties, Selangor contributed 15.2% whilst Kuala Lumpur accounted for 10.1% of the overall stock in the country, which stood at 30,926 units worth RM19.99 billion in Q3 2020.

This is slightly less than the previous quarter’s overhang stock in Q2 2020 which went up to 31,661 units valued at RM20.03 billion in the first two quarters of the year and of these, 45.1% were priced above RM500,000 while 29.5% were under RM300,000. The reduction moving into the third quarter was boosted by the sales recorded after the Home Ownership Campaign (HOC) was reinstated for 2020 to 2021 from June 2021 onwards as part of the PENJANA stimulus by the government.

Jan - Sept 2019

90,000 60,000 30,000 0

36,966 8,204

29,937

7,253

Kuala Lumpur

Selangor

Malaysia Source: NAPIC

2019 due to the muted activities during MCO and the cautious sentiments arising from the weakened economy and job insecurities.

again in the country. The market will nevertheless take some time before it can regain the kind of pace and momentum seen before the pandemic.

As the world’s economies are also reliant on an effective Covid-19 vaccine becoming available, the news of Malaysia receiving it in early 2021 shall help to mitigate the cases and with it restoring investors confidence once

Another vital factor is the country’s political uncertainty which may have dampened investor sentiments as reflected by Fitch’s downgrade of Malaysia’s ratings. If the government is able to nurse the battered economy

RESIDENTIAL - FACTORS TO WATCH IN 2021 ● Buyers may take advantage of the current low interest rates to buy their dream homes. ● HOC 2020-2021 will help sustain demand for residential properties. ● Foreign investors may return once international borders are lifted. ● Developers will be making use of online marketing programmes to reach out to overseas markets. ● The MCO 2.0 and emergency order will affect property sales and cause a delay in the recovery of the market.

RESIDENTIAL BRIGHT SPOTS FOR 2021 ● Landed residential properties should remain in demand. ● More developers have re-focussed their attention on affordable homes priced under RM500,000 and this has increased the supply of such properties. ● EKVE (East Klang Valley Expressway), scheduled for completion in Q3 2021, will boost demand for properties located near the interchanges of the highway. ● Developer of Bandar Malaysia announced the commencement of Phase 1 construction in 2021. ● DBKL is offering a 50% discount on development charges for projects commencing between 1 June 2020 and 31 May 2021 to spur development during the pandemic.

HB PERSPECTIVE 2021

25

KLANG VALLEY OUTLOOK

Value of Residential Transactions

which will significantly add to the stock when completed.

Jan - Sept 2019

49,432.79

RM million

50,000

Jan - Sept 2020

45,012.42

40,000 30,000 17,814.85

20,000 10,000 0

6,301.76

14,723.72

5,652.72

Kuala Lumpur

Selangor

Malaysia Source: NAPIC

back on track to a healthy growth path, we should see the residential property market recover in the second half of 2021 provided no new wave of Covid-19 is reported domestically and the pandemic is brought under control in major international economies like the US, Europe, China and Japan.

Unfortunately, the beginning of 2021 inherited a spillover of the third wave of Covid-19 sweeping the country, resulting in a rise of positive cases as well as deaths to record highs.

To combat this, the Prime Minister re-imposed MCO (MCO 2.0) on six states including Kuala Lumpur and Selangor, and immediately the day after, the Prime Minister also received assent of the Agong and declared an emergency order over the whole nation until 1 August 2021. This unexpected development resulted in the crash of the KLCI as well as a softening of the Ringgit. As MCO 2.0 will restrict interstate and inter-district travel including stifling business operations, this second coming will inevitably result in the loss of income and additional business closures, ultimately affecting investors’ confidence.

Property developers are also not allowed to open their sales galleries under MCO 2.0 and sales volume will undoubtedly be affected.

26

HB PERSPECTIVE 2021

Depending on how long MCO 2.0 and the emergency order will run, the residential market recovery could likely be delayed to 2022 with 2021 looking flattish.

Purpose-Built Office Overview The supply of purpose-built office space (PBO) in Klang Valley (both government and privately owned buildings) increased to 170.3 million sq ft (15.8225 million sqm) at the end of 2019 with Kuala Lumpur’s stock increased to approximately 100 million sq ft (9.266 million sqm) and anticipating an incoming supply of 15.77 million sq ft (1.465 million sqm)

The administrative capital of Putrajaya which has 27.2 million sq ft (2.525 million sqm) will add another 816,000 sq ft (75,816 sqm) whilst the state of Selangor will be contributing approximately 2.24 million sq ft (208,391 sqm) to the existing stock of 43.4 million sq ft (4.03 million sqm).

The bulk of the existing supply of the privately owned PBO (79%) is located within Kuala Lumpur city centre.

A look at the Klang Valley’s city skyline will reveal that there are a number of new office building projects currently under construction and due for completion in 2020 and beyond. In addition to that, a number of proposed office developments have also been announced which if launched and completed, will dramatically add to the future supply of office space in Kuala Lumpur. Some of these are redevelopment projects where the existing buildings have been or will soon be torn down. But in view of the slowdown in the economy, poor demand for office space especially after businesses have been badly hit by the pandemic, and the current oversupply situation, it is likely some of these projects will not be launched in the

Without the slow traffic crawls like before in the city, can productivity hold up in the new normal?

occupancy rate is lower than Kuala Lumpur at 69.8%, down from 73.1% in Q2 2019.

OFFICE - FACTORS TO WATCH IN 2021 ● The completion of a number of mega office projects currently being built

by GLCs eg. Merdeka 118 by PNB and a few other private developments will substantially add to the supply of office space in Kuala Lumpur, putting additional pressure on overall occupancy and rental rates. ● Companies are not expected to immediately discontinue their work from home (WFH) practices especially if the Covid-19 virus has not been totally eliminated. The demand for office space is therefore not expected to increase significantly. ● The government’s economic recovery programmes may spur business activities and generate additional demand for office space.

city centre have a marginally lower occupancy of 70.1%.

Although there is concern pertaining to the oversupply of office space and the consequential decline in occupancy rates, NAPIC’s PBO rental index did not show any drastic changes. Nevertheless, Henry Butcher has been made aware of landlords offering improved rental terms to tenants who were able to renew their leases and extending the same to new tenants. Further, with most businesses adopting WFH practices and putting off expansion plans, demand for office space is expected to be curtailed, especially with increased business closures and staff layoffs resultant from the economic slowdown.

For the privately owned PBOs in Putrajaya, occupancy is only 39.1% (the majority of the office buildings in Putrajaya are owned and occupied by government departments). In Selangor,

The marked increase in office space over the past few years is expected to worsen with the big jump in supply as completion of a number of mega office projects undertaken by several GLCs

OFFICE BRIGHT SPOTS FOR 2021 ● The increase in vacancy rates of office buildings in Klang Valley may lead to developers shelving or deferring office developments and this will ease the pressure on the oversupply situation. immediate future or will be deferred to a time when market conditions become more benign.

In terms of occupancy, privately owned PBOs within KL city centre recorded 77.3% as at Q2 2020, down from 81.5% in Q2 2019. PBOs located outside the

Supply & Occupancy Rates of Privately Owned Office Buildings in Kuala Lumpur (2005 to Q2 2020) Total Supplied (sqm)

10,000,000 9,000,000 Total (000 s.m)

8,000,000

83.2%

83.1% 81.9% 81.8%

82.4%

Total Occupied (sqm)

Occupied (%)

83.2% 80.8%

7,000,000

81.2% 80.4%

6,000,000

80.9% 79.7%

79%

5,000,000

77.9%

4,000,000

78.3% 77.2%

76.1%

3,000,000 2,000,000 1,000,000 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: NAPIC

Q2 2020

Existing Supply of Office Space (Government & Privately Owned Buildings) in Kuala Lumpur & Selangor as at end-2019 State

Existing supply (sqm)

Completion (sqm)

Incoming Supply (sqm)

Planned Supply (sqm)

New Planned Supply (sqm)

KL

9,266,687

22,296

1,465,441

216,593

0

Putrajaya

2,525,253

249,430

75,186

31,545

0

Selangor

4,030,791

0

208,391

364,481

354,205

Total

15,822,731

271,726

1,749,018

612,619

354,205 Source: NAPIC

HB PERSPECTIVE 2021

27

KLANG VALLEY OUTLOOK

Supply & Occupancy Rates of Privately Owned Office Buildings in Selangor (2005 to Q2 2020) Total Supplied (sqm)

4,000,000 3,500,000 Total (000 s.m)

83.1%

81.9% 81.8%

3,000,000

83.2% 82.4%

Total Occupied (sqm)

Occupied (%)

83.2% 80.4%

80.8%

2,500,000

81.2% 79%

77.9%

76.1%

75.5%

2,000,000

74.1% 71.6% 71.4%

1,500,000 1,000,000 500,000 0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: NAPIC

Purpose Built Office Rental Index Q2 2020 Q2 2019

Q2 2020 P

139.0

140.1

RM53.64

RM54.10

Yearly Change (%)

Kuala Lumpur Index Average Rent (p.s.m)

0.8

City Centre (CC) Index Rent (p.s.m)

139.3

140.9

RM55.25

RM55.89

1.1

Outside City Centre (OCC) Index Average Rent (p.s.m)

138.0

137.7

RM48.92

RM48.71

125.2

125.2

RM46.11

RM46.11

129.0

130.4

RM48.68

RM49.22

121.5

120.0

RM45.60

RM45.01

125.0

125.2

-0.2

Selangor Index Average Rent (p.s.m)

0

Petaling Jaya (PJ/SJ) Index Average Rent (p.s.m)

1.1

Shah Alam (SA) Index Average Rent (p.s.m)

-1.2

Seri Kembangan (SK) Index

0.2 Source: NAPIC

loom closer. This massive addition is anticipated to exert downward pressure on occupancy rates and consequently affect rental rates going forward (see Overall Range of Office Rentals (2020)).

28

HB PERSPECTIVE 2021

Office Outlook 2021 The multi-pronged impact of Covid-19 on the office sub-sector has created a wave of ripple effects that is not going to dissipate anytime soon. Firstly, the

Q2 2020

fright of the pandemic has forced most companies to lower operating costs by either deferring expansion plans, reducing headcount or winding up their businesses if they were severely hit.

Secondly, as companies comply with the SOP to WFH, demand for office space has dwindled, shooting vacancy rates up, more so in older buildings which may not have upgraded their technical infrastructure or are inferior when compared to the newer ones. With the completion and commissioning of newer buildings equipped with more sophisticated specifications, it is not uncommon for tenants to be attracted and relocate. This flight to quality for the equal or better rental terms will reduce occupancy rates in older premises unless building owners are able to upgrade and/ or offer even more attractive terms to retain tenants.

Thirdly, the completion of the GLC/GLICowned mega office building projects in the next few years is expected to reduce the overall occupancy rates and put pressure on rental rates. To avert the perfect storm, the country’s economic health must head for a recovery in 2021 as projected so it can spur business activities and prevent further erosion of occupancy and rents, setting the stage for a proper recovery in the office subsector, provided also that the economic

recoveries of the world and Malaysia are sustained.

Again, the key factor rests in the availability of an effective and massproduced vaccine for the Malaysian public so that risks of getting infected can be substantially mitigated if not eliminated altogether. This shall pave the way for life and business to revert Overall Range of Office Rentals (2020) Location

Rental Range (RM psf per month)

KLCC / GT Grade A+

9.00 – 14.00

Grade A

7.00 – 9.50

Grade B

4.00 – 6.50

CBD Grade A

5.50 – 7.00

Grade B

3.50 – 4.50

WCC

3.50 – 9.00

Suburbs

4.00 – 7.00 Source: HB Research/NAPIC

RETAIL - FACTORS TO WATCH IN 2021 ● New shopping centres will face challenges in filling up space and some may defer opening if they are unable to open at satisfactory level of occupancy. ● The retail sector in Klang Valley will continue to see a shakeout where the poorly designed and inferiorly located malls will be forced to close or be converted to some other alternative uses.

RETAIL BRIGHT SPOTS FOR 2021 ● New malls with foreign retailers making their debut in Malaysia will offer shoppers new choices and different shopping experiences which will help draw customers. ● Some of the new retailers/ restaurants opening in Kuala Lumpur are Taco Bell (Cyberjaya), Tom Ford (KLCC), Five Guys (Genting Highlands), David Rocco (Suria KLCC), Don Don Donki (Lot 10) etc.

to some sense of normalcy and giving businesses the opportunity to once again grow. A domino effect will ensue should this happen where rising demand, stability in occupancy and robust rental will all occur to shape up for an office sub-sector recovery.

Supposed however the vaccine is yet to be found, the only saving grace is that as time passes, there is already experience accumulated in the workforce in the way workspaces can be managed safely amid the pandemic. This shall birth new ideas in workstations layout and office operations, and perhaps with roomier space to observe physical distancing regulations while safeguarding everyone including business productivity. A hybrid model between on-site and WFH may also be adopted since companies are unlikely to extend the WFH-measure permanently post-pandemic.

Another model to control cost is for companies to adopt a hub and spoke concept whereby the size of the head office for the core team located within the more expensive and prime city centre locations can be reduced and one or several sub-offices outside the city and closer to where the staff live can be acquired for the rest of the team. Trends such as these will unquestionably have an impact on future demand for office space, not forgetting designs for office buildings and floor layouts.

Retail Overview Klang Valley has the largest number of shopping centres in Malaysia supporting the retail demand of the metropolitan city folks. They range from mass market neighbourhood malls, hypermarkets, big box retail to large scale multi-mix shopping centres complete with F&B, entertainment, fitness and sometimes flanked by new and old wing adjoining premises as well as listed in the public stocks exchange in a Real Estate Investment Trusts (REITs).

The various lockdown measures imposed in 2020 have unintentionally affected occupancy rates of many shopping

centres and as a result, the average rental income dropped by about 30%. It’s safe to say that aside from retailers in the essential goods businesses such as grocery stores and pharmacies who enjoyed brisk business, the rest have fallen victim to Covid-19 with muted sales and when reopened struggled to find a footing.

Retail Outlook 2021 As the construction of malls and retail outlets big and small are no overnight endeavours, the ones planned and already underway before the pandemic have continued to lay the bricks and erect the walls. As such, when SOPs were being rolled out around the country, more testing and disinfecting have also been carried out at sites detected with Covid-19.

In 2021, at least seven new shopping centres and two mall extensions are scheduled to open. With a total nett floor area of 5.5 million sq ft, some of the major malls earmarked for opening include Mitsui Shopping Park Lalaport, Pavilion Bukit Jalil, KSL Esplanade Mall, Setia City Mall Phase 2 and IOI City Mall Phase 2.

This new supply will put more pressure on the occupancy and rental rates of existing shopping centres.

As have been seen in 2020, the future of the Klang Valley shopping centre market is highly dependent on the development and availability of the Covid-19 vaccines so malls can once again be a safe haven for shoppers to return to. The Malaysian government policies on lockdown and physical distancing guidelines are also equally important so the retailers are not overburdened with reduced footfalls which directly impacts their bottomline.

Industrial Overview in 2020 The volume of industrial property transactions in Selangor for the first nine months of 2020 dropped 18% compared to the corresponding period in 2018 and 32% against the same period in 2019.

The decline was higher for Kuala Lumpur at 42% and 44% against 2018 and 2019 respectively.

HB PERSPECTIVE 2021

29

KLANG VALLEY OUTLOOK

Volume of Industrial Transactions (Quarterly, 2018-2020) Malaysia

Selangor

Kuala Lumpur

Q3 2019

Q1 2020

Q2 2020

Johor

2000 1800 1600 Units

1400 1200 1000 800 600 400 200 0

Q1 2018

Q2 2018

Q3 2018

Q1 2019

Q2 2019

Q3 2020 Source: NAPIC

Value of Industrial Transactions (Quarterly, 2018-2020) Malaysia

Selangor

Kuala Lumpur

Johor

5000 4500

RM million

4000 3500 3000 2500 2000 1500 1000 500 0

Q1 2018

Q2 2018

Q3 2018

Q1 2019

Q2 2019

Q3 2019

Q1 2020

Q2 2020

Q3 2020 Source: NAPIC

Popular areas where industrial properties are still much sought after such as Shah Alam, Subang and Port Klang, as they continued to attract interest for either

30

HB PERSPECTIVE 2021

industrial land or warehousing. However, the lack of supply to suit specific business requirements of the end users still remains a challenge and resulted in escalation of prices for industrial land

and warehouses in these preferred areas in spite of the pandemic.

Thanks to the heightened e-commerce activities, rentals for warehousing have registered an increase and besides

Volume of Industrial Transactions by Type in Selangor (2018 to Q1-Q3 2020)

1000 900 800 700 600 500 400 300 200 100 0

2018

2019

Jan - Sept 2020

Units

In terms of value, Selangor slid 18% compared to 2018 and a marginal 0.3% compared to 2019 whilst the decline for Kuala Lumpur were 30% (against 2018) and 42% (against 2019). It has to be pointed out however that the number of industrial property transactions in Kuala Lumpur is insignificant because Selangor has a far larger number of industrial grade properties like warehouses and factories. In Selangor, most of the transacted properties were terraced factories/warehouses followed by semidetached factories/warehouses and vacant industrial plots.

Semi Detached Vacant Plot Terraced Factory/ Detached Factory / Warehouse Factory / Warehouse Warehouse

Industrial Industrial Complex Unit

Others

Source: NAPIC

Klang Valley, areas such as Johor and Penang are still popular and very much sought after as well.

Several large industrial developments that have recently been developed or are being developed in Klang Valley include AREA’s logistics facility in Ampang, Galaxy Logistics Hub in Kuala Selangor, Hap Seng Industrial Hub in Shah Alam, Ikea Distribution Centre in Pulau Indah and the KLIA Aeropolis Digital Free Trade Zone.

Although the market has not returned to pre-Covid-19 levels, the e-commerce sector has nevertheless galloped away to raise demand for warehousing and sorting facilities. The relaxation of mobility under the CMCO (Conditional MCO) has granted most manufacturing businesses the opportunity to carry on operations towards the second half of 2020. As such, demand for industrial properties in the near term will still remain stable especially for companies requiring specific industrial properties to match with their business needs.

Industrial Outlook for 2021 As vaccination against Covid-19 has commenced in several countries since late last year and in Malaysia targeted for early 2021, the hope is that the pandemic will come under control so that the world economy can begin its recovery process.

This will be a much needed shot in the arm for Malaysia’s manufacturing sector and those involved in the export business because a recovering economy can reinstill confidence back to the consumers which in turn will improve market demand for crude oil, manufactured goods and drive towards the projected 7% growth in the manufacturing sector in 2021 after a 3% drop in 2020.

Singling out the positive influence of the vaccine, a strong and sustained economic recovery is on the cards and this augurs well for the industrial sub-sector that continues to see rising demand to support expansionary business activities. With the industrial sub-sector holding strong, an economic recovery will be imminent.

Hospitality Overview in 2020 Most hotels, except those which were designated as quarantine centres for overseas returnees, had to temporarily shut down operations during the MCO. The affected hotels continued to close for most of the year as some also permanently shut its doors due to the deplorable state of touristy activities.

Based on the records of the Companies Commission of Malaysia (SSM), a growing number of hotels have closed since March 2020 and some of the major ones which have closed are as follows: ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

GTower Hotel Kuala Lumpur Swiss-Inn Chinatown Kuala Lumpur Kinta Riverfront Hotel & Suites Ipoh Tower Regency Hotel Ipoh Jazz Hotel Penang Penaga Hotel Penang Jerejak Island Resort Penang Holiday-Inn Resort Penang Ramada Plaza Melaka Berjaya Tioman Resort Tioman Swiss-Garden Resort Damai Laut Swiss-Inn Sungai Petani Four Points by Sheraton Sandakan Hotel Equatorial Penang Silka Maytower Kuala Lumpur

Hospitality Outlook for 2021 The lifting of inter-district and interstate travel under the latest phase of CMCO in December 2020 has increased domestic tourism since the locals were unable to travel outside the country but attracted by the heavy discounts offered by the hotels and attractions. These domestic travellers have taken the opportunity to travel within the country to satisfy their vacation aspirations and popular destinations like Penang and Langkawi had somewhat shown streaks of its past glory. Some hotels have also innovatively introduced staycation and work-from-hotel packages to generate cash flow to keep the hotels afloat.

Under Budget 2021’s Tourism Recovery Plan, the government has allocated a sum of RM50 million for training

and placements for 8,000 employees of airline companies who would be made redundant, RM50 million for maintenance and repair of tourism facilities, RM20 million to improve the infrastructure in cultural villages and RM20 million for the conservation of national heritage buildings. The local medical tourism industry also received an allocated budget of RM35 million to promote this sector while companies in the tourism sector will receive Human Resource Development Fund (HRDF) levy exemptions for six months beginning January 2021.

From the Ministry of Tourism, Arts and Culture (MoTAC), it has announced a detailed recovery plan to revive the Malaysian tourism industry in 2021 and the ministry will be working with airlines, travel-related companies and travelrelated associations to offer vouchers, discounts and cash rebates to encourage the locals to travel in a bid to improve domestic tourism activities. To that end, MoTAC is exploring the travel bubble arrangements with several adjacent countries and to reopen cross-border tourism activities to small groups such as for golf, diving, bird watching, hiking etc.

In September 2020, the government had also launched a Holiday Special Package for the civil servants to encourage them to travel domestically. This is on top of the PENJANA stimulus package released in June 2020 which also extended a personal tax relief of up to RM1,000 for any Malaysian travelling in the country.

With the relaxation of movement and travel under the latest phase of CMCO including the various initiatives undertaken by the government, the hospitality sector was set to see improvements in the near term only to be barred again with the reinstatement of the MCO to curb the rising cases.

Recovery of the tourism sector will acrimoniously be affected and this time, it will take longer for the sub-sector to regain its glorious years.

HB PERSPECTIVE 2021

31

NEGERI SEMBILAN OUTLOOK

Images: wonderfulmalaysia.com

NEGERI SEMBILAN CAUTIOUSLY OPTIMISTIC IN 2021

G

eographically, Negeri Sembilan is just right next to Klang Valley and it takes only about an hour’s drive or slightly more via the KTM Komuter to go from one capital to another - Seremban to Kuala Lumpur.

The convenience makes it an ideal place for many Negeri Sembilan folks to continue living here but attend to their daily professional work in Kuala Lumpur or elsewhere in Selangor. The short distance to the Kuala Lumpur International Airport, located nearer to the border of Negeri Sembilan, has also positioned it as one of the best candidates for corporate relocations looking to expand operations but without incurring the hefty cost of the city centre. This alone has created

32

HB PERSPECTIVE 2021

many job opportunities in the state, with international companies such as Coca-Cola, AkzoNobel, Philip Morris International, just to name a few, headlining their multinational presence in the state.

Although there was to be a catalyst that could have spurred the value and development potential of Negeri Sembilan further through the East Coast Rail Link (ECRL) with stations in Nilai and Kuala Klawang, of which the former

FACTORS TO WATCH IN 2021 ● Availability of a proven vaccine which will spur the country’s economy and consequently Negeri Sembilan’s property market. ● Interesting properties entering the market as a consequence of the Covid-19 pandemic.

BRIGHT SPOTS FOR 2021 ● 16.82km road linking Nilai to Bandar Enstek, enhancing accessibility to Gadong, Labu and the Malaysia Vision Valley 2.0. ● Restoration of inter-state travel post-MCO will improve traffic flow into Negeri Sembilan and its economy.

Volume of Residential Transactions (Q3, 2018-2020)

9,273

Q3 2018

9,539

Q3 2019 7,099

Q3 2020

0

2,000

4,000

6,000

8,000

10,000

12,000

Volume Source: NAPIC

Value of Residential Transactions (Q3, 2018-2020)

2,721.38

Q3 2018 Q3 2019

2,606.13

Q3 2020

2,063.30

0

500

1000

1500

2000

2500

3000

Value (RM, million)

as landed residential, development lands and industrial properties are still not adversely affected. Investors, property buyers and developers are generally still cautious on the overall battle against the pandemic.

Negeri Sembilan’s market in 2021 will depend largely on the efficacy of the Covid-19 vaccines which at present are also facing mutating strains as part of the risks. If the vaccines are proven to be effective, then the positive market sentiment should possess enough firepower to elevate the country’s economy. And assuming it does trend that way, the Malaysian economy will gradually recover from the vaccination efforts and a property market recovery can be expected in Negeri Sembilan. As such, there will be some good picks on the horizon, and property developers, purchasers and investors should continue to keep an eye for them. But with the second Movement Control Order (MCO) rolled out from 13 January 2021 and the Emergency order valid until 1 August 2021, one can only be a little more cautiously optimistic about the market.

Source: NAPIC

has been earmarked as a full fledged transportation hub, the realignment of the rail line by the Perikatan Nasional government has dashed all hopes through the removal of the two planned stations. A compensation of sorts would now come in the form of a highway linking to three potential growth areas that will drive the western side of Negeri Sembilan’s urbanisation plan forward for the next 20 to 30 years.

Coming to completion in July 2021, the subject of interest is a 16.82km dual carriageway that links Nilai from the North-South Expressway to Bandar Enstek in Labu. The RM415 million linkage featuring three major junctions and six bridges will greatly improve accessibility to Gadong, Labu and the Malaysia Vision Valley 2.0 (MVV 2.0)

development. Aside from adding to Negeri Sembilan’s development stock and potential, it will also compete head on with newer townships not too far away in the Selangor territory since the 379,087-acre MVV2.0 also forms part of the Greater Kuala Lumpur ambition to ease saturation in the Kuala Lumpur metropolis. This is yet another reason why many in Negeri Sembilan will never really have to uproot to other states for the work-life balance between handsome commercial opportunities just within the doorstep and the more manageable cost of living compared to Kuala Lumpur.

Owing to the Covid-19 pandemic, 2020 was not the year for good buys.

However, contrary to popular belief, prices of certain market segments such

Residential - Review 2020 Following the nationwide trend, Negeri Sembilan’s property market started to recover in the third quarter of 2020 after the MCO was implemented from 18 March 2020. There was however a reprieve subsequently with the different MCOs such as the Recovery MCO and Conditional MCO, enabling the resumption of production and trade activity. This led to a slight improvement in market conditions and private sector expenditure.

Up to Q3 2020, the number of residential transactions according to NAPIC have fallen by 25.58% to 7,099 units in 2020 from 9,539 units in the corresponding period in 2019. The total value of transactions too declined by 20.83% to RM2.063 billion from RM2.606 billion in the same intervals over 2020 and 2019 respectively.

Thus far, although market sentiments seem challenging, there has not been

HB PERSPECTIVE 2021

33

overbearing news or movement in rental market and rental rates, and there were no significant increase in foreclosures taking place in 2020.

However, despite the “new normal” of working from home, it did not translate into an increase in purchases of bigger residential units. While some developers attempted to persuade potential buyers to secure larger residential homes to cater to WFH, the persuasion did not materialise due to various reasons and chief among them is the weak buyers’ sentiments and prevailing tight credit criteria.

Residential Outlook 2021 Generally, developers in Negeri Sembilan are expected to continue launching landed properties in the affordable price range of RM200,000 to RM500,000. It is possible that higher priced properties such as semidetached houses at RM600,000 to RM1.2 million would also be making their way to the market but these are believed to be experimental launches

Commercial Review & Outlook In the commercial sub-sector, NAPIC’s preliminary data for Q3 2020 revealed that the market appears to be fairly stable with a marginal drop to 213 transactions compared to 217 in the corresponding period in 2019.

The local tourism sector has also taken a hit despite not being a major tourist hotspot. Unlike Malacca, Negeri Sembilan is not famous for its tourism activities but due to fewer interstate travel opportunities, many hotels in Port Dickson and Seremban are experiencing low occupancy rates and as a consequence, affecting their room rates.

In terms of tenancy, there was already a steady drop in previously tenanted units since 2018. If anything, the global pandemic merely exacerbated the vacancy rate but this did not transpire into a sudden drop of rental in the market, thanks to emergence of food, courier and logistics operators in recent months, making the situation less dire.

The trend is expected to continue into the near future as market forces naturally create new demand for such operators to adequately meet the needs associated with the new normal and fanned with the rapid growth of online shopping as well as food delivery services.

One of the top notch resorts that previously fetched more than RM1,000 in Port Dickson are now only charging less than that (about 35% discount) while budget hotels in Seremban are noted to be going at less than RM100 per night, suggesting that business is no longer as usual and should any of the stringent policies of MCO, physical distancing and quarantine are implemented at extended lengths, and a new wave of Covid-19 sweeps across Malaysia, hotels of all classes and relevant tourism service providers will be challenged to stay afloat in 2021 and beyond.

and in smaller quantities to gauge the market’s appetite.

Volume of Residential & Commercial Transactions (Selected Quarters) 3,392 Q3 2018

217 1,493

Q3 2019

123 2,984

Q3 2020 P

213

0

500

1000

1500

2000

2500

3000

3500

Source: NAPIC

34

HB PERSPECTIVE 2021

MELAKA OUTLOOK

MELAKA - RELATIVELY STABLE IN 2021

Industrial properties are expected to rise in the touristy Melaka, which has also identified ecotourism and heritage tourism as new drivers of the state.

M

elaka has a special place in the history books and it also has a special place in the tourists’ hearts. It’s a historical city that is as charming and friendly as its glorious past. Today, instead of tradesmen from continents coming to do business, it is usually filled with tourists from both domestically and internationally on the weekends. The sights of bright lights, travellers, and touristy retail buzzing with life is common, up until the Covid-19 pandemic that struck in 2020.

It has returned to be a quiet town all over again.

Melaka’s property market has been subdued due to the same reason of the pandemic and overall, the state’s property market softened in 2020. This was reflected in the volume and value of transactions registered in 1H 2020 where a total of 5,589 transactions were recorded during this period, indicating a significant drop of 27.94% compared to the same period in 2019 with 7,703 transactions and a drop of 26.96% with 7,651 transactions compared to 2H 2019.

FACTORS TO WATCH IN 2021 ● Melaka State Government’s termination of the RM43 billion Melaka Gateway project due to the expiry of the sea reclamation agreement and after long delays in the implementation of the project may dampen foreign investors’ perception of the state since the project had attracted some foreign investments. Confidence to invest in the future will be shaken if the matter is not handled properly and investors’ interests are not safeguarded. ● Once the vaccination programme is rolled out and the pandemic is brought under control with tourists also returning to visit the state, the economy will be able to recover and this will provide a boost to the property market. ● The commercial and high-rise residential sub-sectors will remain subdued due to the pandemic whilst the landed residential and industrial sub-sectors will stage a slow recovery or remain stagnant subject to their location. ● There may be a rise in foreclosure properties from Q2 2021 onwards especially for commercial units and high-rise residences. ● New developments will likely be put on hold in view of the sluggish demand as the general public is more concerned about their daily living expenses rather than making further financial commitments. ● Take-up rate for commercial lots will remain low unless landlords offer lower rentals.

BRIGHT SPOTS FOR 2021 ● A slow recovery for selected property sectors could kick in by end of Q3 2021 and a foreseeable increase in transaction volume for landed residential properties due to limited new launches for this category. ● Melaka has limited industrial zones and there are no new planned ones.

With the growth in online businesses, demand for industrial properties is expected to rise for warehousing and as distribution centres for logistics companies.

HB PERSPECTIVE 2021

35

MELAKA OUTLOOK

Volume & Value of Residential Transaction (Q1-Q3 2019-2020) Volume

3000

2,738

Units

2500

2,323

2,117 1,616

1500 724.98

632.52

623.63

555.38

Q1 2019

Q2 2019

Q3 2019

Q1 2020

500 0

Value (RM, million)

2,498

2,449

2000

1000

sluggish especially during the MCO as well as the period immediately during the Conditional MCO. Buyers were still cautious on spending on big ticket items as buying sentiments have been affected by the economic uncertainty and job insecurity arising from the pandemic.

412.25 Q2 2020

600.22

Based on the latest available statistics from NAPIC, a total of 6,231 residential property transactions were recorded for the first nine months of 2020, worth a total of RM1.57 billion.

This represents a 17.03% decline in the volume of transactions and a 20.9% drop in value of transactions compared to the same period in 2019. The majority of the transactions were between RM100,001 to RM200,000 followed by those within the RM200,001 to RM300,000 price range and then those under RM100,000.

Q3 2020 Source: NAPIC

In terms of transaction value, 1H 2020 saw properties worth RM1.86 billion changing hands, registering a 25.5% decline compared to the corresponding period in 2019 and a further 31.65% drop compared to the second half of 2019.

There was hope however in the industrial sub-sector with activities taking place even before the pandemic hit. Although numbers have been pushed down since, the demand for industrial space will predictably hold up due to the scarcity factor, and as the world continues to conduct commerce online.

Another positive news that had consumers in Melaka looking up is the arrival of a vaccine against Covid-19 in early 2021. This has given the public a reason to smile, as did the relaxation of restrictions under the Conditional Movement Control Order (CMCO) after the strict lockdown of the MCO in March 2020.

Prices of sought-after properties such as landed houses have remained stable but for high-rise residences, prices have been dampened due to the slowdown in sales during the pandemic as well as concern over the oversupply situation for such properties.

Residential - Review 2020 In the residential sub-sector, demand remained fairly strong for homes priced under RM500,000, particularly from those who were buying for their own occupation. However, the take-up rate for high-rise residences have been

Residential Volume by Type & Price Range Below RM500,000 (1H 2020) Landed

250

234 200

Units

200

176

150

0

181 158 121

100 50

Highrise

86

70

47

RM0 - 100,000

28 RM100,001 200,000

RM200,001 300,000

RM300,001 400,000

RM400,001 500,000 Source: NAPIC

36

HB PERSPECTIVE 2021

The rental market for residential properties was fairly stable and foreclosure cases remained low due to the six-months moratorium allowed by Bank Negara and a further extension of six months after that as a form of relief to those whose livelihoods and incomes were affected by the pandemic. The situation may however change on the expiry of the moratorium as the number of defaults by borrowers is expected to pick up, particularly by borrowers who took up loans to purchase high-rise service residences and shops offices. There will also be more foreclosed units of high-rise residences being put up for auction in the year ahead.

In terms of new projects, developers have been focusing on cheaper land located slightly away from the city centre to build larger houses within better natural environments but sold at more affordable prices.

This is due to the limited and more expensive development land available in the city centre. The new residential developments that have mushroomed are around the new townships in Cheng, Krubong, Bukit Katil, Ayer Panas, Tanjung Minyak and Paya Rumput. These projects have come with newer designs and larger built-ups.

Small bungalows with affordable prices have also been in trend since 2018.

Residential Outlook 2021 With the current situation in Melaka, no new high-rise development order applications have been submitted to the relevant authorities. New submissions for landed developments have also seen a decline compared to 2019. For approved development orders, the launch of new planned developments have been delayed to the second quarter of 2021 onwards.

In 2021, a stable market is foreseeable including the take-up rate for landed residential properties but on the flip side, there will be more foreclosures of high-rise properties. especially those bought for investment and homestay purposes.

In general, house buyers will still be cautious as the number of Covid-19 cases have recently spiked during the third wave of the virus infections although developers will have more confidence to launch their projects but only in selective areas and mainly for landed residences where they are confident of securing a good response.

Moving forward, property developers will need to adapt to the new norm where events are to be conducted digitally equipped with online viewings and bookings. As ongoing pandemic

Shopping Complex Space & Occupancy (Half Yearly, 2019-1H 2020) Existing Space (sqm)

600000 Space (sqm)

500000

Space Occupied (sqm)

596,070

596,070

596,070

418,430

418,430

402,180

H1 2019

H2 2019

H1 2020

400000 300000 200000 100000 0

Source: NAPIC

has caused jitters among the consumers, developers will need to address this situation through digital means.

Commercial Office & Retail - Review 2020 The retail market was soft as the shift to online shopping became more apparent due to the mobility restrictions imposed during the MCO, CMCO and also due to the lack of travelers visiting Melaka. Occupancy rates of retail properties were affected and remained low especially for newly completed schemes located in areas targeted at tourists.

The purpose-built office (PBO) sub-sector was stable with no new completions and demand for office space was low as companies adopted the work from home practice during the pandemic.

Commercial Office & Retail Outlook 2021 For commercial properties, the vacancy rate for shops cum offices is expected to rise with more businesses closing down due to poor business as a result of the pandemic. Office rentals should nevertheless remain stable.

Industrial - Review 2020 Over in the industrial sector, there was a 13% increase in the volume and 58% increase in the value of industrial transactions in Melaka in 2019 compared to the year before. This could be an indication that the state is becoming an attractive investment destination which has then led to an increase in demand for industrial properties. The momentum however appeared to have been halted in 2020 where the first nine months saw a reduction of 38% in volume and 57% in value of transactions and this can be attributed to the slowdown in economic activities during the lockdown periods under the MCO and CMCO. In any case, most of the industrial property transactions

HB PERSPECTIVE 2021

37

MELAKA OUTLOOK

were at the higher value range of above RM1 million followed by those between RM500,001 to RM1 million.

In view of the rapid growth in e-commerce, the logistics sector has also experienced some upward movement. However, not many shops cum offices or industrial warehouses have been taken up for such purposes as most of the logistics companies already have their existing collection and distribution centres in Melaka.

As for a future catalyst, the government’s focus will be on the halal industry and high technology segment. The Melaka Waterfront Economic Zone (M-WEZ) for example which comprises ports and areas

dedicated to tourism, tax-free status and the Fourth Industrial Revolution (IR 4.0) industries among others is a grand project designed to encourage industrial growth in Melaka and the state’s economic well-being.

such have been identified as the key drivers and the state government hopes investors will be attracted to the proposition and bring popular brands into Melaka with outlets opened for the public and also organise and participate in MICE (Meeting, Incentives, Conferencing and Exhibitions) activities.

Industrial Outlook 2021 The industrial sector will remain stable for 2021 as there are limited industrial properties available in Melaka and no new industrial zones have been developed in the state as yet.

The local tourism industry has picked up since the relaxation of the inter-state travel ban in December, which led to hotels achieving higher occupancy rates in the same month.

Short-term rental properties have also seen improved occupancy rates during this period. Property values and rental rates are expected to remain stable for popular areas.

Hospitality Overview & Outlook The Melaka State Government has taken note that tourism is an important sector to the state which will bring in more investments.

Ecotourism and heritage tourism as

Volume & Value of Industrial Transactions in Melaka (Q1-Q3 2018-2020) 2018

300

299

2019

2020

296.04

265

250 200

184

187.82

150

126.25

100 50 0

Value (RM Million)

Volume

Source: NAPIC

Value of Industrial Transactions By Price (Q1-Q3 2018-2020) 2018

250.00

2019

2020

Price (RM)

200.00 150.00 100.00 50.00 0.00

0 - 100,000 100,001 200,000

200,001 300,000

300,001 400,000

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

38

HB PERSPECTIVE 2021

JOHOR OUTLOOK

JOHOR - PINING FOR TURNAROUND IN 2021 to 2019. Its volume of transactions has in fact risen 8% in 2018 and 7.5% in 2019 while the value of transactions increased albeit marginally at 1.5% in 2018 but shot up by 15.9% in 2019.

The symbiotic relationship between Johor and Singapore must be restored with borders reopened freely so economy can begin moving at a normal pace again.

J

ohor’s property market has a symbiotic relationship with neighbour Singapore. From the weekend short drive to those finding opportunity to lower their cost of operations, Johor presents a positive story when analysed from the right perspectives. The natural distance bestowed upon the two gives it the natural advantage to tap into each other’s resources. For one, Johor exemplifies a hotspot for better cost for almost everything including talent, food on the table, groceries and even big ticket items like property. Another is the vast space at a fraction of Singapore’s cost. Does it then not make sense for suitable Singapore enterprises to have an office in Johor or even run a branch there?

Surely the numbers would stack up if business owners were to spend some time tabulating the pros and cons.

But with Covid-19 having caused the biggest disruptions in modern times like this, it gets trickier simply just to welcome its nearest neighbour, much less to set up a commercial presence to spearhead their corporate mission.

In this brief report, we take a look at how the market has fared and why Johor remains integrated with Singapore’s demand and supply. To this, we also know full well that when the cherry is ripe for the picking, there will be foreign participants coming to take-up Johor’s properties. That is how appealing Johor properties is to the foreign investors which includes those from China.

Residential - Review 2020 The volume and value of residential property transactions in Johor have been climbing rather steadily from 2017

The Movement Control Order (MCO) imposed by the government to curb the Covid-19 pandemic starting 18 March 2020 coupled with the huge overhang of completed but unsold properties have unfortunately reversed the uptrend, with the volume of transactions declining 23.8% to 16,451 units and the value of transactions eroding 24.4% to RM 5.7 billion in the first nine months of 2020 compared to the same period in 2019.

The burden for this southern Peninsular Malaysia state is also that it is perched right at the top of the overhang properties chart in the country. It contributes 19.5% of overhang residential properties and 73.7% of the overhang service apartments/sohos in Malaysia. In terms of units, there were 6,166 residential overhangs and 16,334 overhang service apartments/sohos, registering a whopping increase of 28% from 12,710 units in 2019. Of these, approximately 34% of the overhang service apartments/sohos are priced over RM1 million which were believed

Volume & Value of Residential Transactions in Johor (2017-2019, Jan-Sep 2020) Volume

40,000 30,000

28,904

26,885

24,886

20,000 10,000 0

Value (RM million)

16,451 8,643.11

2017

8,771.39

2018

10,166.66 5,708.85 2019

Q3 2020 Source: NAPIC

HB PERSPECTIVE 2021

39

JOHOR OUTLOOK

Overhang & Unsold SOHO & Serviced Apartments in Johor (2018 to H1 2020)

40,000

Under Construction

Overhang

Units

30,000 20,000

8,204 12,710

16,334

11,579

9,055

10,000 18,357

0

2018

2019

Q3 2020 Source: NAPIC

to have been designed specifically for foreign investors from Singapore and China since Johor has been a familiar ground with these investors in the past.

But as international borders are still very much closed or restricted for travelling, it has adversely affected property sales take-up in the state.

Prices of landed residences in Johor Bahru have remained fairly stable although some new launches have seen developers raising prices by about 10% to 15%. The same however cannot be said with the condominiums as prices have trended downwards due to the over built situation, specifically the high-end condominiums. But by and large, developers have become more pragmatic and begun pricing more reasonably to avoid having to carry excessive inventory to circumvent the slow sales in a sluggish market.

Residential Outlook 2021 The recent revival of the Johor BahruSingapore Rapid Transit System (RTS) has given the property industry a reason to cheer as it will add positively to the buying sentiments in Johor especially for properties located closer to the RTS station even if a tangible impact on property prices will not be felt immediately. Market sentiments will also enjoy another boost when the borders are open completely to traffic from Singapore again but the rising numbers of the infectious Covid-19 cases has posed a dilemma to immigration checkpoints as both sides of the divide seek to safeguard their respective

40

HB PERSPECTIVE 2021

territories. Given the latest imposition of the MCO which began on 13 January 2021, a recovery of the residential market which would originally been predicted for the second half of 2021 may now see it delaying to early or some time in 2022.

Going forward, the residential subsector is expected to remain the key driver of Johor’s property market.

Landed terraced houses can safely be singled out as the segment that will see the state through the pandemic era seeing that it had performed well in the past few years.

For the service apartments/sohos category, it will take some time for the market to absorb the overhang stock to a reasonable level, more so when international travel is still a challenge. All things considered, the reintroduction of the Home Ownership Campaign (HOC)

2020-2021 will offer the market some semblance of hope to stir market interest again.

Office Overview Unlike Klang Valley, Grade A offices are not easily available in Johor and this may be amongst the reasons which has deterred multinational companies, particularly those from Singapore, to set up offices or relocate although operations costs are much lower. Further, the lack of demand drivers has also not been helpful in raising demand but things may begin to turn around with the upcoming Grade A office towers being built in Medini 10 under the Iskandar Malaysia project. The successful completion of these offices may help change the storyline and attract more foreign companies to set up a base in Johor.

As of 1H 2020, the supply of purposebuilt office (PBO) space in Johor remained unchanged but in terms of occupancy, it has improved by 3.5% compared to 2019.

Economic pressures arising from Covid-19 have however compromised any further interest to take up additional space or to expand existing operations. And like the rest of the country, demand for office has also declined thanks to the Work From Home (WFH) culture that has now become part of the new normal. Faced with a shrinking and more competitive landscape, business owners became more preoccupied with rethinking office

RESIDENTIAL - FACTORS TO WATCH IN 2021 ● Current low interest rates have brought down the cost of home financing. ● Continuation of HOC 2020-2021. ● Policies to attract foreign investors to Johor will boost economic activities. ● Opening up of the borders between Johor and Singapore once the pandemic is contained may increase sales take-up for housing in Johor. ● Digitalising property transactions/viewings may be the new normal. ● The consent given to the RTS project will boost buying interest from Singaporeans.

RESIDENTIAL BRIGHT SPOTS FOR 2021 ● The availability of an effective Covid-19 vaccine will improve overall confidence and boost economic activities, thus benefiting the property market. ● Selected properties such as terraced houses in Johor will remain in demand. ● Attractive promotions and rebates from developers will attract buyers.

Supply & Occupancy Rate for Purpose-Built Offices in Johor Bahru (2017 to 1H 2020) Total Existing Supply (sqm)

1,050,000

79.1%

1,016,703

1,000,000

1,016,703

73.0%

950,000 900,000

Occupancy Rate (%)

936,107

71.5% 68.0%

877,393

850,000 800,000

2017

2018

2019

H1 2020 Source: NAPIC

spaces as they strive to survive between increasing productivity and cutting costs. And so the last thing on their minds would be acquiring the best office space that money can buy or rent. Such ambition will have to hold for now.

In terms of office rental, Johor Bahru City Centre is currently letting offices from about RM2.50 to RM3.50 per sq ft whilst those in the city fringes are between RM2.50 and RM3.00 per sq ft. Offices in Iskandar Puteri which are more modern and possess upto-date specifications including M&E infrastructure are fetching higher rents of about RM3.50 to RM4.00 per sq ft.

Office Outlook 2021 With a weakened economy due to the Covid-19 pandemic, the office subsector in Johor is expected to face a challenging period until businesses begin recovering once the vaccines to prevent Covid-19 become widely available in the country. Until that happens, the office market in Johor will remain subdued for 2021 unless there are incentives for companies to expand their footprint into Johor.

For existing office tenants due for lease renewals, they may negotiate to reduce the rental rates so as to lower their expenses in a winded economy. While negotiations take place, the market could also see a higher rate of vacancy

should more companies operate on a WFH basis.

The completion of a number of better quality office buildings in 2021 including the future RTS may help to change foreign investors’ perception and draw companies from Singapore and elsewhere to set up offices in Johor.

Retail - Review 2020 Generally, the retail sub-sector is expected to remain soft this year with Johor the most affected due to its reliance on regional tourism and in particular Singaporean shoppers.

According to the July 2020 Malaysia Retail Industry Report, results for Q2 2020 were better than the -18.8% estimate made in April but suffice to say, 2020 has been the worst period for retailers since 1987.

In better times, the geographical proximity between Johor and Singapore meant Johor’s retail market had reasons to thrive when the borders were open to free flow traffic.

Singaporeans could make Johor their closest getaway for a weekend holiday or to just unwind sampling Malaysian shopping at cheaper prices. But these were totally absent during MCO and many retailers in Johor Bahru experienced a massive 70% drop in business compared to the previous year. In light of the loss of income, mall owners have compassionately

extended rental discounts of more than 50% during MCO (when shops were closed) and between 15% to 30% during the Recovery MCO (depending on the sector). But prior to the Covid-19 season, Johor’s retail market was already laden with an oversupply of retail space and the lockdown imposed through MCO just worsened the situation further, with city centres shopping centres aggravated more than the neighbourhood malls in the residential areas.

It is expected that the retail industry in Johor will remain stagnant until the border with Singapore fully reopens. In the meantime, with border restrictions still in place, most retailers are experiencing a very lean season as they struggle to make ends meet.

This has also led them to consider cost-cutting measures which include factors such as rental rates, workforce and supplier cost readjustments, not forgetting the inevitable push to go online, undertaking digital marketing and exploring e-commerce.

Retail Outlook 2021 The announcement of Budget 2021 which made provisions for tax incentive extension, confirmation and continuation of construction, and improvement of the transportation system to the region will have a positive impact on the property market in Johor and help boost demand again after being hampered by the MCO. Shopping centres targeting to open doors in 2021 will however face an uphill task to fill up the vacant lots in the malls and to attract permanent tenants, landlords will have to lower their rental rates and/or offer a longer rent-free period. Simultaneously, retail landlords will also need to seek temporary tenants to fill up empty lots especially those located in prime locations.

As the world has already congregated in cyberspace when Covid-19 began hitting almost every nation on earth, HB PERSPECTIVE 2021

41

JOHOR OUTLOOK

Volume of Industrial Transactions in Johor (Q1-Q3, 2018-2020)

retailers may have to think out of the box, and think fast too, about how to get online and at the same time entice customers to visit their physical stores.

Industrial Outlook 2021 Budget 2021 announced that a sum of RM85 million will be allocated for the Causeway and Second Link to alleviate traffic congestions at the two checkpoints. This traffic solver would be a boon to not only Johor’s retail but also benefit the industrial

Selangor

Kuala Lumpur

Johor

2,000

Units

1,500 1,000 500 0

Q1 2018 Q2 2018 Q3 2018 Q1 2019 Q2 2019 Q3 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

Value of Industrial Transactions in Johor (Q3, 2018-2020) Malaysia

Selangor

Kuala Lumpur

Johor

5000 4000

RM million

Industrial - Review 2020 The volume of industrial property transactions in Johor registered nearly 26% decline for the first nine months of 2020 compared to the same period in 2018 and nearly 42% compared to 2019. The drop in value of the transactions nevertheless was much lower with only a 5.9% and 5.7% decline compared to the corresponding period in 2018 and 2019 respectively, indicating that the average value of the transactions was more substantial.

Malaysia

3000 2000 1000 0

Q1 2018 Q2 2018 Q3 2018 Q1 2019 Q2 2019 Q3 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

OFFICE & RETAIL - FACTORS TO WATCH IN 2021 ● A fourth-wave pandemic and additional movement restrictions will hurt the entire retail industry and office market. ● Foreign tourists, especially Singaporeans in the case of Johor, have been an important contributor to Malaysia’s retail industry. The reopening of Johor’s border with Singapore early next year is critical for many in the local retail businesses. ● A broad-based economic recovery shall boost retail spending and more economic activities will lead to higher take-home pay for ordinary Malaysians. This in turn will generate a higher income range and lead to more purchases of retail goods and services. A sustained improvement in business also helps generate an increased demand for both retail and office spaces. ● The uncertain political environment will reduce consumers’ confidence and in turn lead to lower spending.

OFFICE & RETAIL BRIGHT SPOTS FOR 2021 ● Key governmental policies to attract overseas companies to set up base in Johor will boost demand for office space. ● The RTS project may make it more attractive for Singaporean companies to set up offices in Johor Bahru. ● KIDEX (Kulai Iskandar Data Exchange) is set to attract RM17.5 billion and become an alternative data hub for Singapore and the Southeast Asia region.

42

HB PERSPECTIVE 2021

sub-sectors. The reduced time stuck in traffic congestion for transporters and shoppers from Singapore will only encourage more investors to invest in Johor in sectors such as manufacturing, retail and F&B services.

And if the Rapid Transit System (RTS) linking Singapore with Johor Bahru will also commence work, it shall boost economic activities in the state and benefit the manufacturing sector in return.

Another exciting development is the Kulai Iskandar Data Exchange or KIDEX. From an announcement made in October 2020, the the 301-hectare data driven industry will be served by dark fibre connection to Singapore and presents itself as a perfect alternative data hub in Southeast Asia. It is set to attract RM17.5 billion of investment and create 1,600 job opportunities.

PAHANG OUTLOOK

PAHANG - SUBDUED WITH SILVER LINING IN 2021

Pahang certainly has more to offer but in the mean time, 2021 may remain a subdued year until some of the large scale projects take shape for the future.

F

rom the mountain tops of Genting Highlands and Cameron Highlands to the dense rainforest of Taman Negara, the sandy beach at Cherating and also the touristy island of Pulau Tioman, Pahang is not short of international audience when it comes to tourism. With each segment of tourists looking for a different kind of experience, one could say Pahang has it almost at its feet, except maybe the glitzy lights and congested atmosphere like that of Kuala Lumpur, but that would be a different kind of tourism madness altogether.

As the turbulent times have dictated the pace of Malaysia’s economy, and it got worse when the Covid-19 pandemic did not dissipate after the several permutations of the Movement Control Order (MCO) imposed since

18 March 2020, Pahang’s property market was not spared either although some potential might emerge over the course of time when the mega projects go beyond groundbreaking ceremonies to actually delivering promises as planned.

Residential - Review 2020 Over in the property market, the residential sub-sector in Pahang has remained soft in 2020 despite the cautious optimism towards the nation’s projected gradual economic recovery with the resumption of market activity

FACTORS TO WATCH IN 2021 ● A prolonged pandemic would put further downward pressure on house prices especially for high-rise properties near touristy areas like the Cameron Highlands and Genting Highlands. ● Low interest rates may boost demand for housing especially for landed houses.

BRIGHT SPOTS FOR 2021 ● Encouragement of investment especially in infrastructure development in Kuantan would spur economic growth and improve investors confidence. ● Manufacturing and logistics companies may be more inclined to invest in the state as the ECRL will create a transit-oriented hub and the expansion of Kuantan Port will enable more cargo and vessels to dock at the port.

HB PERSPECTIVE 2021

43

PAHANG OUTLOOK

Volume & Value of Residential Transactions in Pahang (Q1-Q3 2018 to 2020)

10000

2018

2019

2020

8,293

8000

7,231

7,308

6000 4000 1,675.72

2000 0

1,902.64

1,572.15

Value (RM Million)

Volume

Source: NAPIC

Supply & Occupancy of Purpose-Built Office in Pahang (2018-H1 2020) Total Space (sqm)

Space Occupied (sqm)

Occupancy Rates (%)

Space (Sq. M.)

450,000 430,000

420,221

92.4%

420,374

420,570

410,000 388,192

390,000

378,853 90.1%

370,000 350,000

2018

2019

377,792 89.8% H1 2020 Source: NAPIC

under the Recovery MCO and the proposed stimuli such as the PRIHATIN, PENJANA and more recently PERMAI. Overall, the volume and value of residential property transactions were down by 11.8% and 17.4% respectively in the first nine months of 2020 compared to the same period in 2019. The figures for 2019 were also higher than that recorded in 2018 and this could be due to the boost given to home sales under the Home Ownership Campaign (HOC) 2019.

It is worthy to note that most of the transactions in Pahang have come from between RM100,001 to RM300,000.

Like most of the Malaysian property buyers, the majority of purchasers in Pahang still prefer landed over high-

44

HB PERSPECTIVE 2021

rise residences. And in realising this trend, the Pahang State Government has boldly decided not to build more affordable housing comprising flats or apartments for the market anymore.

Sales of high-rise residential units in the Bentong district for example which is situated closer to hotspots such as Genting Highlands and Cameron Highlands have also taken a step back in 2020 in view of the travel distance limitations and inter-state travel ban under MCO. Over the course of the year, these mobility restrictions have curtailed any liberty to travel whenever a rise in numbers of the infectious cases were reported, more so when clusters were discovered that led to the imposition of barb-wire fencing

under Enhanced MCO (EMCO). The random and alternating occurrence between MCO and EMCO have made it inconvenient and as such, a significant fall in the number of visitors has been felt throughout the year.

Residential Outlook 2021 Performance of the residential subsector in Pahang will remain subdued in the first half of 2021 as the economic uncertainty coupled with the lingering Covid-19 pandemic will affect investor confidence and result in consumers putting off purchasers of big-ticket items. Developers in the state will also remain cautious on any future project launching and would likely do so only if they have a better grasp of the market, and are more confident of getting a good response.

Office & Industrial Review and Outlook The office market in Pahang remained stable in 2020 as there is a limited supply of purpose-built office (PBO) buildings in the state. Even in the capital city of Kuantan, there are only three mid-rise (15-20 storeys) PBOs serving the office market, they are Menara Zenith, Komplek Teruntum and Wisma CDO. Other PBOs or low-rise office buildings (5-12 storeys) are Menara HSBC, Menara CIMB and Bangunan BSN. The average office rental rates are between RM2.00 to RM3.00 per sq ft whilst occupancy is between 50% to 70% except for owner-occupied buildings such as HSBC, CIMB and BSN which hovers higher around 80%.

Like the residential sub-sector, the industrial sub-sector in Pahang was also subdued in 2020 as volume of transactions in the first nine months of 2020 declined by 41% while the value of the transactions came down by 53%. The drastic drop was due to the Covid-19 pandemic which affected production as well as investors’ confidence.

With the downturn also in the oil and gas sector, popular heavy industrial areas such as Gebeng have not seen any new development activities of late. The slowed market movement was however given a lifeline through the e-commerce boom which raised warehousing activities to meet demands of online shopping. Such factors are lending weight to the otherwise lacklustre industrial subsector.

Kuantan Port are however welcomed components to the state as it will form the all important backbone connectivity for the industrial and logistics sectors. In the medium to long term, the Kuantan International Industrial Park will also be developed near to the existing Kuantan Port and this will spruce up potential industrial and manufacturing activities for Pahang.

supply of PBOs in the state. Activities in the industrial sub-sector on the other hand may pick up as the development of ECRL and the expansion of Kuantan Port could attract more investments into Pahang especially in the logistics sector. The development of the Malaysia-China Kuantan Industrial Park (MCKIP) is also expected to further attract companies from China including those from Malaysia as well as other parts of the world to consider setting up their manufacturing and logistics operations.

As to how the market will perform in 2021, the office market is expected to remain stable due to the limited

New mega projects such as the East Coast Rail Link (ECRL) and the

Volume & Value of Industrial Transactions in Pahang (Q1-Q3 2018 to 2020) 2018

298.65

300

2019

2020

291.52

250 200 150

136.21

133

128

100

78

50 0

Value (RM Million)

Volume

Source: NAPIC

Volume of Industrial Transactions By Price Range in Pahang (Q1-Q3 2018 to 2020)

60

Units

50

2018

2019

2020

48

40

20 10 0

30

29

30 16

14 7

0 0 - 100,000 100,001 200,000

11

15 6

200,001 300,000

11

22 24

18

16 10

300,001 400,000

8

21 14

14

5

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

HB PERSPECTIVE 2021

45

TERENGGANU OUTLOOK

TERENGGANU - EASING BUT RESILIENT IN 2021

Easing on rental in Terengganu’s commercial lots is expected due to the Covid-19 pandemic.

T

he property market in Terengganu has experienced significant price expansion over the past ten years with prices in several districts increased at higher rates. The current Covid-19 pandemic has however induced downward pressure on prices and rental especially in the urban areas.

But with the on-going East Coast Rail Link (ECRL), currently under early state of construction and which will connect the east coast states to the Klang Valley when completed, will spur a new wave of development to realise the socioeconomic potential for Terengganu.

Conventionally known as one of the major oil producing states, Terengganu has taken a step forward to defray the risks of its over reliance on just one economic anchor. In doing so, the state has launched the Terengganu State Farm Year 2021 with a focus on improving agricultural infrastructure, marketing of agricultural products and providing reinforcement to the entire

46

HB PERSPECTIVE 2021

value chain. With a budget of RM20 million and an additional RM12 million from year 2020, these strategies are meant to improve agricultural activities and generate the economy’s multiplier effects. The motivation behind the State Farm Year is also to shield Terengganu from the adverse global geopolitics movements that directly impacts oil prices.

On the property front, Terengganu’s

market is envisaged to remain at best unchanged. Generally, a wait-and-see attitude amongst developers shall prevail in 2021, with a close watch on news to overcome Covid-19 because once the vaccine is widely distributed, the market can expect developers to gradually start introducing projects to the public again. Meanwhile, local investors are expected to be cautious and sales of

FACTORS TO WATCH IN 2021 ● Residential’s resilience to the pandemic may continue to hold steady in 2021 barring any unforeseen circumstances. ● Tourism will return with the relaxation of inter-state travel.

BRIGHT SPOTS FOR 2021 ● East Coast Rail Link (ECRL) is set to spur a new wave of development in Terengganu. ● Terengganu State Farm Year 2021 is an economy diversification programme to reduce the state’s reliance on oil and gas, and will focus on improving agricultural infrastructure, marketing of agricultural products, reinforcement of the value chain and generating the economy’s multiplier effects.

Volume of Residential Transactions (Quarterly, Q1 2019-Q3 2020)

5000

4,391

Units

4000

3,318

3,259

3,406

3,807

3,438

3000 2,139

2000 1000 0

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

Value of Residential Transactions (Quarterly, Q1 2019-Q3 2020) 588.92

600 RM, million

500 400

419.22

454.83

457.87

501.01 413.33 285.08

300 200 100 0

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

existing units will experience a slower take-up rate.

It’s not an exaggeration to say that Covid-19 has caused its fair share of havoc across all sectors and all levels of society. What was thought to be a localised illness has spread worldwide with massive economic repercussions.

To that end, Terengganu’s property market is not exempt from its reach and as such can expect a slowdown in Q1 2021. Coupled with the reinstatement of the Movement Control Order (MCO) in January 2021 and the Emergency order lasting until 1 August 2021, the sense of buoyancy that once marked the state has now been replaced with a sense of hesitancy.

Residential - Review 2020 Over in the residential sub-sector, data from NAPIC shows that there was a rebound of the volume of transactions from the MCO months in Q2 2020 of

2,139 units to Q3 2020 with 4,391 units, representing a 105.3% recovery from quarter to quarter. Its total value of transactions also registered a complete recovery from RM285.08 million in Q2 2020 to RM588.92 million in Q3 2020.

can be felt by owners as their rental income has decreased and the number of foreclosures increased. The weak sentiment also made its way to launch activity with no major launches in 2020.

The resilient performance was spotted again when data for the first nine months is compared between the two years - 9,983 units for the first nine months of 2019 and only a marginal dip of 15 units to 9,968 units in the first nine months of 2020. The same can be said for the value of transactions with RM1.3 billion recorded in the first nine months of 2019 compared to a slight drop to RM1.29 billion in the first nine months of 2020. This suggests that Terengganu’s residential sub-sector has been rather sturdy against the Covid-19 pandemic.

The pandemic has inadvertently forced companies to adopt work-from-home (WFH) policies where possible. In spite of the rapid proliferation of the concept, that did not translate to additional demand for larger residential units. Terengganu for the most part will not see the WFH concept having any notable impact on developers; it is not a point of consideration, nor are developments marketed to appeal to the WFH trend.

Aside from that, observations from the market movements indicated that the economic impact of the pandemic

Residential Outlook 2021 Into 2021, developers are expected to adopt a wait-and see attitude, observing market sentiment and then adjusting their approaches HB PERSPECTIVE 2021

47

TERENGGANU OUTLOOK

accordingly. Even so, this needs to be tempered, as cutbacks and deferment of major projects may ultimately lead to a dampening of demand for the property sector. Developers would need to discern the times properly, and strike while the iron of opportunity is hot.

In terms of pricing, the prices for the landed residential sub-sector are expected to consolidate. However, that cannot be said for strata titled properties as prices of apartments and condominiums are expected to further ease due to existing and incoming supply. Stratified properties are in fact not as popular for buyers in Terengganu compared to landed developments.

Perhaps the relative abundance of available landed units have contributed to its less desirous reception of the highrise residential units. It remains to be seen as to whether these price shifts will result in better take-up from buyers in 2021, considering the slow economy.

Commercial & Industrial Review and

Outlook In the office and retail sub-sectors, due to the completion of office buildings and a number of shopping complexes that are currently under construction, an easing in rental and prices is expected.

Likewise, the industrial sub-sector (factories and industrial lands) is also expected to consolidate.

With the long MCO hindering economic activity and raising the level of economic uncertainties, vacancy of shophouses and shop offices increased by 30% in 2020 and will continue to face downwards pressure in 2021. As at December 2020, the prevailing rental rate for the upper floors of shop offices stood at RM1.40 to RM1.85 per sq ft (RM15 to RM20 per square metre).

Based on NAPIC’s data, it would seem that opportunity is still present in Terengganu. There were 91 transactions in Q3 2020, slightly higher than the 84 transactions in Q3 2019. This bodes well

for the state’s economic developments, as the sudden drop of transactions to 43 in Q2 2020 was compensated in the succeeding quarter. Although there is no clear indication about whether some of the numbers recorded in Q3 2020 were from the sales concluded in Q2 2020, it would be nonetheless safe to say some might have spilled over due to MCO. As Terengganu is also known for its tourism industry, it has undoubtedly been hit just like all the rest of the touristy spots in the country.

Generally, there is a 20% decrease of tourists visiting the state due to travel restrictions to curb the pandemic. This has led hotels to experience abnormally low occupancy rates. A slight uptick in occupancy was however seen in Q4 2020 when restrictions eased and interstate travel allowed. In the short term, rental values and property transactions should remain unchanged.

Volume of Commercial Property Transactions (Selected Quarters)

Pre-War Shop 1 - 1.5 Storey Shop

50

1 2 4 15

2 -2.5 Storey Shop 8

3 - 3.5 Storey Shop 4 - 4.5 Storey Shop

37

16

Vacant Plot

3

13

28 22 Q3 2019

Q2 2020

Q3 2020

11

4 4

Source: NAPIC

48

HB PERSPECTIVE 2021

KELANTAN OUTLOOK

KELANTAN - CAUTION IN THE WIND IN 2021

Better connectivity may come to boost Kota Bharu’s economy and livelihood.

L

ocated in the north east of Peninsular Malaysia bordering southern Thailand in the north, Kelantan is rated as one of the most conservatives states in Malaysia. Known more for its reserved lifestyles among the 1.89 million population (2019 estimates

by Department of Statistics Malaysia), development of infrastructure and urbanisation in the state has not been as active as the rest of the country and so when news of the East Coast Rail Link (ECRL) project was given the go ahead, there was much to look forward to.

The ECRL is a 640km rail link that connects the western coast of the Klang Valley to the east coast states of Pahang, Terengganu and Kelantan where the latter is slated with two stations in Kota Bharu and Pasir Puteh.

The new rail line has the hopes of many to further boost economic development and activity in the state. In line with that, Menteri Besar of Kelantan Dato’ Ahmad Yakob has also announced an allocation of RM1.57 billion under the Kelantan Budget 2021 to stimulate the state’s economy where five mega projects

FACTORS TO WATCH IN 2021 ● Landed residential and offices/shop offices sub-sectors are interesting asset classes to monitor.

BRIGHT SPOTS FOR 2021 ● The catalytic nature of the East Coast Rail Link (ECRL) will spur economic development and induce positive multiplier effects. ● 5 mega projects approved under Kelantan Budget 2021: Phase 3 East Coast Expressway (LPT3), expansion and upgrading of Sultan Ismail Petra Airport, Pasir Puteh-Machang-Jeli road, Kota Bharu-Kuala Krai Expressway and the Palekbang-Kota Bharu Bridge.

have been identified to spearhead the ambition, they are the Phase 3 East Coast Expressway (LPT3), expansion and upgrading of Sultan Ismail Petra Airport, Pasir Puteh-Machang-Jeli road, Kota Bharu-Kuala Krai Expressway and the Palekbang-Kota Bharu Bridge.

Upon completion, these projects are expected to reduce traffic congestion especially during peak hours, on the weekends and the festive seasons when Kelantan folks make their way back to their hometown including some of the tourists that might come for holiday.

It would also improve connectivity and spur property development in Kelantan especially in the residential and commercial areas.

Notwithstanding that it is smaller compared to the larger tourism markets in the country, Kelantan nevertheless experienced a 20% to 30% reduction in tourist arrivals with hotel occupancy rates falling below 50%. There was a slight uptrend in the final quarter of 2020 when inter-state travel restrictions were finally lifted.

2021 HB PERSPECTIVE

49

KELANTAN OUTLOOK

Value of Residential Transactions in Kelantan By Price Range (Q1-Q3 2018-2020)

RM, million

200

2018

2019

2020

150 100 50 0

0 - 100,000 100,001 200,000

200,001 300,000

300,001 400,000

400,001 500,000

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

Volume & Value of Industrial Property Transactions in Kelantan (Q1-Q3 2018-2020) 2018

250

2019

2020

220.03

200 150 100 50 0

32

18

7 Volume

24.24

17.89

Value (RM million) Source: NAPIC

Coming on the back of a pandemic year in 2020 with no significant property launches activated for the market, the Kelantan property industry is expected to continue to be sluggish in 2021 especially during the first quarter amid the weaker state and national economic conditions due to the ongoing Covid-19 pandemic. The cautious attitude of both the buyers and private developers also contribute to this pessimistic outlook.

Prices of landed residential properties are however expected to remain stable but for high-rise properties, it is expected to decline slightly due to the increase in supply.

With a hint of uncertainty hovering in the atmosphere, it is advisable for non-Kelantanese developers aspiring to enter the market to exercise extra caution before making their way in.

50

HB PERSPECTIVE 2021

Local Kelantanese developers on the other hand are already acquainted with the local norm and have taken the necessary precautions in their daily business affairs. On the whole, rental values and property transactions are expected to remain unchanged in the short term.

Residential Review & Outlook The Kelantan residential property market has seen a softening in 2020 compared to 2019, with a decline of 8% in the volume of transactions. However, the value of transactions registered a marginal 2% increase, probably due to more properties being transacted at a higher price range. It can be noted that there were more transactions of properties between RM200,001 to RM300,000 compared to the same period in 2019.

For the first nine months of 2020, house prices in the state declined by about 10% to 15% as compared to the same period in the previous year. Whilst there is a reduction in transactional activity for the residential market, the number of foreclosure cases are on the rise while rental demand has decreased.

This is not surprising as the reduction of transactional activities was mainly due to the Movement Control Order (MCO) that was enforced from 18 March 2020.

Transactional activities only improved towards the third quarter of 2020.

There were no major launches of property projects in Kelantan as most developers have adopted a wait-andsee attitude given the current economic situation. The residential sub-sector is therefore expected to prevail heading into 2021 with the landed residential properties expected to remain stable.

In contrast, prices of high-rises such as condominiums and apartments will see further downward pressure due to the existing and incoming supply.

Average Current Market Rentals of Office Spaces in Conventional Shophouses/Office Buildings Location

Level

Monthly Rental (RM psf)

Prime Area

Ground Floor 1st Floor 2nd Floor

RM2.00 to RM2.80 RM1.00 to RM1.20 RM0.60 to RM0.70

Suburban Areas

Ground Floor 1st Floor 2nd Floor

RM1.50 to RM2.00 RM0.70 to RM1.00 RM0.40 to RM0.60

Office Review & Outlook Performance for the office sector in Kelantan remained strong with an average occupancy rate exceeding 90%.

This is due to the lack of new office buildings being built in Kelantan at the moment. Most of the office buildings are concentrated in the town centre of Kota Bharu especially in Jalan Tok Hakim, Jalan Kebun Sultan, Jalan Dato’ Pati, Jalan Doktor and Jalan Tok Guru.

two (2) and three (3) storey shophouses/ office buildings compared to purposebuilt offices.

respectively compared to 18 units and RM17.89 million in 2018. The number of transactions of industrial properties above RM1 million also increased sharply to 21 units in 2019 compared to only 7 units in 2018. As there were no new industrial areas in Kelantan in 2019, the increase is likely due to the improvement in demand for industrial properties especially in the existing established industrial schemes such as the Pengkalan Chepa Industrial Estate and MIEL Lundang. The year 2020 however, saw a sharp decline in both the volume and value of industrial property transactions as the number of transactions in the first nine months fell nearly 78% to 7 units whilst the value of the transactions came down by 89% to RM24.24 million.

Industrial Review & Outlook Kelantan’s industrial market has remained stable over the past few years and the market has been mainly dominated by terraced factories followed by detached factories. The prices and rental rates for 2020 have remained stable as no new increase in development areas for industrial properties have been noted in Kelantan.

The office spaces in the suburbs of the town centre are mostly concentrated in Bandar Baru Kubang Kerian, Pekan Wakaf Che Yeh, Kota Bharu Waterfront City and Bandar Satelit Islam Pasir Tumboh. Demand for office space in Kelantan is more focused on traditional

In 2019, there was a significant increase in the volume and value of industrial properties that were transacted in the state with 32 units and RM220.3 million

Volume of Industrial Property Transactions in Kelantan By Price Range (Q1-Q3 2018-2020) 2018

25

2019

2020

21

Units

20 15 10

7

6

5

3

1

0

0 - 100,000 100,001 200,000

1

200,001 300,000

2

1 1

300,001 400,000

1 1

400,001 500,000

2

4

6

500,001 - 1,000,001 & 1,000,000 Above Source: NAPIC

Supply & Occupancy of Purpose-Built Office in Kelantan (1H 2018-1H 2020) Total Space (sqm)

400000 395000 390000 385000 380000 375000 370000 365000 360000

97.3%

Space Occupied (sqm)

391,525

Occupancy Rates (%)

391,525

386,070 375,671 94.8%

370,997 2018

2019

94.8%

370,997

H1 2020 Source: NAPIC

2021 HB PERSPECTIVE

51

SABAH OUTLOOK

SABAH - A SHIFTING TIDE IN 2021

movements and it entered into a period where the masses can no longer find easy opportunities other than seeing prime products of landed residential, industrial, commercial and residential development lands, which are usually scarce in Kota Kinabalu, taken up at sustained prices by local followers and buyers for their own use, different from the speculative days like before.

The unmistakable peak of Mount Kinabalu remains the most glorious landmark in Sabah but its economy may be facing a wind of change due to Covid-19.

T

he Land Below the Wind as it is often referred to, Sabah is a land of abundance. From the pristine shorelines to the mountainous peaks and her epic natural wonder of flora, fauna and mystical rainforests, 2020 would have been yet another successful year had it not been for the Covid-19 pandemic.

As part of the country’s strong tourism ammunition and the state’s third largest contributor that has the propensity to lure tourists from as far as Europe and the Americas, not forgetting its staple tourists from China, Sabah missed turning it into another golden year after registering positive tourism growth annually from about four years ago starting 2016. To be halted in its steps due to the Coronavirus is definitely a big blow to its grand plans but as the old adage goes, when one door closes, another opens, the steady rise of the crude palm oil prices from May (RM2,074/tonne) to December 2020 (RM3,621/tonne) had come in at the right time to save the day. All hopes are therefore not lost but a winded economy that had gone on a repeated cycle of start-stop throughout the year including the Sabah State Elections on 26 September 2020 that was blamed for the current third wave of the Covid-19 in the country had

52

HB PERSPECTIVE 2021

nevertheless left her citizens breathless, and worse some industry players permanently resigned as they buckled under the incremental pressures of minimal to zero business.

In the property sector, Sabah has had a muted year in 2020 as a consequence of the pandemic which also barred visitors from West Malaysia from entering. Coupled with the restricted

For properties in the secondary locations, retail shops in the shopping complexes and high-rise residences, price corrections had also been spotted from Q3 2020. The ensuing twelve months as such will be critical for these categories because of the impact a potentially free fall of the already depressed prices will bring to the market. But regardless of the outcome, it is foreseeable that property developers will continue to market their products and justify the accompanying sale prices by citing increasing cost push

FACTORS TO WATCH IN 2021 ● Re-opening of the borders and the return of international tourists bode well for Sabah. ● Pan-Borneo Highway is the single most important impetus for 2021 and also for the next 5 years. ● Continuous growth from the palm oil industry will see palm oil players reinvesting the profits into the property sector and also motivate downstream palm oil related manufacturing activities to commence in Sabah spurring a series of economic multiplier effects. ● Prices of properties in secondary locations, retail shops in the malls and highrise residences may sway the market if it plunges further than expected. ● Property developers taking advantage of the slow market to re-strategise and develop new products and pricing to better suit the existing market. ● Sabah’s pursuit of its rights for greater oil and gas revenue from Petronas.

BRIGHT SPOTS FOR 2021 ● Prime properties in Kota Kinabalu such as landed residential, industrial, commercial and residential development lands may offer opportunities if the economy continues to be under pressure. ● Prime industrial properties have remained well in demand with cash rich and high income investors/industrial owners continue to buy. General hotspots include Kolombong/Inanam area, Lok Kawi Industrial Centre, Jalan Tuaran By-Pass area, KKIP area (near Sepanggar Container Hub).

Price (RM/Tonne)

Crude Palm Oil Price 2020

4000 3500 3000 2500 2000 1500 1000 500 0

3,422 3,014

2,715

2,815 2,924

2,412 2,519

2,382 2,299

3,621

2,980

2,074

Series 1

Source: Malaysia Palm Oil Council

factors. In that regard, the market may also start to see smaller units making their way into the market girded with competitive pricing to maximise take-up rates and depart totally from the speculative prices more prevalent between 2011 to 2015.

As the market moves into a buyers’ market era in 2021, the onus shall be on the developers and all property stakeholders to sweeten the deals for the buyers as they now hold the trump card to finalising transactions at any time convenient to them and let’s not forget the incentives provided through the Home Ownership Campaign 20202021 as well. Should the gestation period play out a little longer, property developers could also utilise this time to reflect upon their strategies and plan into the future before they execute every actionable item on the blueprint.

rise is attributed to previous quarter’s transactions that weren’t recorded in the registry due to MCO and which were actual third quarter transactions.

Nevertheless, movement on the ground suggested that the take-up rate had indeed gradually increased after the lockdown was loosened.

Residential Outlook 2021 With a downright challenging time to find buyers, the market also found it tricky to lock in tenants for rental.

Factors such as these have not been conducive for investors because unlike before, they can no longer flip properties for a quick profit and to make matters worse, any new high rise property, especially condominiums, in the market is expected to take up to three years for it to be fully taken up by interested buyers.

Projects which were launched in 2019 and continued to be marketed or constructed in 2020 were faced with the pandemic setback as well as the stuttering start and stop work orders by the government to curb the spread of Covid-19, which made it more difficult to be productive. This has also deterred willing buyers from committing to the

Residential Volume & Value Transaction in Sabah (Quarterly, Q1 2019-Q3 2020) Q1 2019

Residential - Review 2020 Admittedly, and like the rest of the country, the most glaring period for the residential sub-sector in Sabah was when MCO was imposed in March. The nationwide lockdown has decreased take-up rates of residential properties to only 561 transactions in Q2 2020 before it quickly recovered back to 1,525 transactions in Q3 2020, registering a 171% growth and exceeding the 1,361 transactions recorded in Q3 2019.

There is however insufficient evidence to conclude which portion of this steep

purchase as they would’ve changed their minds after the flip-flop policies.

With Covid-19 still a threat to most in 2020, project launches were not as robust and although some developers rolled out new releases to the market, they were of a smaller scale compared to previous years with most featuring smaller condominium units owing to the higher land cost in the city of Kota Kinabalu.

From these launches, the take-up rate had been relatively slow as they had to also compete with existing projects in the markets with some projects launched as far back as four years ago. Seeing that these projects still have unsold units to clear, it is an indication of the level of difficulty developers will face in securing buyers had they also put up new properties to the market in 2020.

1,591

516.91 1,090

Q2 2019

418.81 1,361

Q3 2019

507.96 1,090

Q1 2020

379.88 561

Q2 2020

182.83 1,525

Q3 2020

536.21

0

200

400

600

800

1000

1200

1400

1600

1800

Units Volume

Value (RM million) Source: NAPIC

HB PERSPECTIVE 2021

53

SABAH OUTLOOK

Residential Volume Below RM500,000 in Sabah (By Type, 1H 2020)

140

131 112 97

80

39

34

7

10

lat st F Co

Co

00 0

Lo w

st H

ou se

ou se

00 0 0 3

Market movements aside, developers are however accustomed to dishing out the right marketing techniques to justifying their value proposition in any season. So if buyers were doubtful of the typically high prices or depressed sentiments, developers were ready to defend citing valid reasons to the pricing model and the relevant cost push factors such as the land acquisition cost to arrive at the final pricing. But not undaunted by the challenging market, some developers have also taken the opportunity to remodel their products to be more competitive. For example, instead of launching larger units, the market has compelled developers to incline towards the smaller sizes for better pricing bracket to facilitate better take up rates. These are also sometimes backed by the strategic location of the development and the kind of facilities it is equipped with as part of the development’s unique selling proposition.

narrow their search at the affordable range priced below RM500,000 for both landed and high-rise residential while properties under construction continue to add to the supply pool.

It goes without saying that when looked at from a developer’s perspective, 2021 stands out as a year more ideal for planning than for executing. It is a year cut out for mapping the right strategies with the right products at the right prices. One can therefore expect Sabah’s residential market to be slow in the next one to two years or until the economy recovers with confidence returning. Mean time, transactions shall be more price sensitive as buyers

Occupancy on the other hand has also dropped as businesses continue to struggle but it is worthy to note that the exodus from the office in Sabah is not entirely because of the work from home (WFH) initiative seen elsewhere.

In fact, businesses in Sabah are unlikely to adopt the WFH culture, preferring instead the traditional way of separating work and home as two distinct activities, housed in two separate properties. But the Covid-19 fright has certainly been a

54

HB PERSPECTIVE 2021

In the secondary market, demand shall continue to exist as long as prices are reasonable with landed properties in prime location remaining as the most sought after given its potential upside value.

Commercial & Office Overview Over in the commercial space, purposebuilt offices (PBO) in Kota Kinabalu have always been pitted against the conventional shop offices, primarily due to the historically static and lower prices or rents from the upper floors of conventional shop offices. As such, owners of PBOs are pressured to withhold increases in asking prices and maintain rental rates to remain in competition.

0 - 100,000 100,001 - 200,000

36 38 27

23

18

Lo w

6

23 2020 15 14 11 8 912 4 5 7 301 04 3 1

nh

27 22

To w

13

Si ng Te le S rra to ce rey

0

40

us te r

20

67

57

Cl

40

61 60

59

60

105

27

28

3

200,001 - 300,000 300,001 - 400,000 400,001 - 500,000

Fla t Co /A ndo pa m rtm in en ium t

100

2 Te 3 St r o Se S rac rey e m in i-D gle et St ac o h rey Te rra ce 2 Se - 3 m S i-D to et rey ac h De ta ch

Units

120

Source: NAPIC

nightmare for businesses in the tourism industry as most have been forced to grind to a halt in the last ten months and many are still closed with a significant number discontinuing office tenancies.

Only some of the sustaining ones are waiting to see how the situation develops in 2021.

Occupancy in prime districts have reportedly dropped by almost 30% to 40% too. Taking the prime Jalan Gaya as an example, vacancy rate was nil or almost nil pre-pandemic, packed with F&B outlets and shops catering to the visiting tourists but ever since the border closures and various forms of MCOs have been imposed, occupancy has dwindled to only 50% to 60% with rental dipping by 50%. In this sense, landlords were equally compromised and have no choice but to reduce rental by about 30% to 50% for the sake of retaining tenants.

Commercial & Office Outlook 2021 As the industry is not expecting to see a sudden influx of high-end large corporate office users, prices and rental rates are therefore not anticipated to increase significantly. The erosion of any potential appreciation is dragged down further by externalities such as the continuous competition from conventional shopoffices, evolving business models, ease of connectivity via the Internet and the incoming supply of commercial soho and sovo units launched prior to Covid-19. The need for PBOs as such is

The lack of real demand, lower sale price per sqm (compared to high end and higher density residential estates) and a slow market have become the factors that discouraged developers from venturing into large scale office developments in recent years. Suffice to say, things have not been too rosy for the office sub-sector and as such it is predicted to perform moderately or muted in the coming few years.

Hospitality Overview & Outlook 2021 Looking back, Sabah has traditionally been a strong market for tourism, so much so the Kota Kinabalu International Airport is the second largest airport in Malaysia. The fact that an air transportation terminal that big is invested in Sabah shows that it has the volume of arrivals to cater to as visitors fly in from around the world, and just from January to September 2019 before the pandemic, Sabah welcomed a total of 3.112 million tourists. Such promising numbers have unfortunately dropped by about 69.5%, with only 948,651 tourists walking through immigration from January to September 2020. The drastic decline has impaled businesses in the tourism sector such as the travel agencies, hotels, shopping malls, recreation providers, attractions, just to name a few, leaving them with little choice but to exercise retrenchment, relocation and securing loans among others to survive. Some have also attempted to sell off their businesses or shut down for good.

With the insignifiant number of travellers in Sabah in 2020, hotel occupancy has submerged to between 10% and 25%.

As survival has then been called into question, hotels began lowering rates as part of the solution to continue business.

But the detrimental situation has caused a catastrophic spillover effects throughout

Industrial Volume & Value of Transactions (Quarterly, Q1 2019 - Q3 2020

100 90 80

Volume

91

86

156.83

127.69

70 Units

gradually being eliminated as smaller companies and individual business owners possess the flexibility to operate in cheaper and smaller spaces to reduce cost.

62

60 50 40

36

85.59 31

30 20

36.48

10 0

59

100.02

23.65

Q1 2019

Q2 2019

Q3 2019

Q1 2020

Q2 2020

Q3 2020 Source: NAPIC

the industry with retail tenants also moving out of shopping malls, travel agencies forced to venture into different businesses (eg. supermarket, food) and all other related enterprises hanging by a thread. To date, the tourism sector has definitely been the worst hit among all sectors in Sabah with no avenue for recovery so long as the borders remain closed and a safe vaccine against Covid-19 continues to be out of reach.

reduce operation costs and downsize their workforce. On the bright side, a majority of the manufacturing, warehousing and service sectors in the essential services category are still provided with the opportunity to continue operating but most have been pressured to keep their operations afloat and are only looking at sustaining so that they will be at the right place and the right time to stage a quick recovery once the pandemic is over.

Industrial Review & Outlook 2021 Large logistics companies in Sabah may have seen a general increase in business but this has yet to be translated into new properties being taken up or at least not yet. Thus far, logistics companies in Sabah are still considered small scale players with no integrated hub or centre commissioned by any of the major logistic players. But despite the lack of a large scale logistics operator, the industrial market is expected to see a recovery and growth in 2021. This comes on the back of a rather unscathed experience in the sub-sector compared to tourism. The only foreseeable major stumbling block is the reduced demand as exporting activities to major international markets have been halted and local consumption for manufactured products and services has also reduced due to the economic downturn. The substantial decrease in revenue and high cost of larger industries have inevitably forced owners who are unable to cope to

Notwithstanding the pandemic, prime industrial properties in Sabah have remained well in demand with cash rich and high income investors as well as industrial owners continuing to purchase prime and well sought after industrial locations especially in the Kolombong/Inanam area, Lok Kawi Industrial Centre and Jalan Tuaran By-Pass area. Factory owners/operators have also continued to seek and purchase lands and warehouses within the KKIP area which are near to the Sepanggar Container Hub. These are positive indicators that there remains strong demand for industrial properties from purchasers and industrial owners looking to expand business operations and increase their property investment portfolio for long term capital gains.

A recovering and possibly thriving industrial sub-sector is on the cards in 2021 for Sabah but this hope hinges on the state’s and also the federal government’s ability to contain the Covid-19 pandemic.

HB PERSPECTIVE 2021

55

SARAWAK OUTLOOK

SARAWAK - SUSTAINING IN 2021 the largest Budget ever to stimulate the economy towards a 6% to 7% growth for 2021. This had also motivated the Sarawak State Government to allocate RM9.83 billion to sustain the economy with a lion share of 62% set aside for development. The focus is on rural infrastructure such as roads, bridges, electricity and water supply to stimulate rural economies and eventually contribute to a positive urban growth for the localities.

High-rises are facing some pressure while performance of shopping centres such as VivaCity Shopping Mall (above) have been affected by the Covid-19 pandemic.

S

arawak’s land mass measures 124,450km2, it is almost as big as the whole of Peninsular Malaysia at 132,090km2 and thoroughly blessed with a natural topography of rainforest, marine life to fossil fuels. The resource rich colossal landscape however is only populated with about 2.81 million people based on the Department of Statistics Malaysia’s estimation, with a big portion of the Sarawakians domicile in Kuching, estimated at 611,566 people in year 2020 according to World Population Review (data compiled from UN World Urbanisation Prospects).

While the rest of Sarawak is made up of other divisions such as Miri, Bintulu, Sibu, just to name a few, Kuching remains the most important. Aside from being the capital of Sarawak, it is also where statutory policies and main urbanisation programmes are mooted, planned and released to the public.

From a macro point of view, the year 2020 has more or less been written off as a Covid-19 pandemic year and like the rest of the world, Malaysia has also grappled with the pressure of juggling

56

HB PERSPECTIVE 2021

between curbing the virus spread and operating daily life in the new normal - lockdown, physical distancing, face masks, work from home, “zooming”, take-aways, online shopping etc. The combined impact brought Malaysia to a -5.8% growth in year 2020 and this has pushed the government to roll out

Supported also by the stable prices of mineral oil and palm oil, some of the small towns have shown signs of a vibrant economy as a result of the new infrastructure. It is testament that concrete plans for the masses are a step in the right direction, there is therefore merit to continue rolling out beneficial projects for the people such as the continued construction of the Pan-Borneo Highway, the construction of new bridges like Saribas Bridge, Igan Bridge, Kemena Bridge and the launch

FACTORS TO WATCH IN 2021 ● Landed residential as the most stable asset class. ● Potential rise in land prices. ● The rented accommodation market may return after the inter-state travel ban is lifted and when tertiary education institutions are open for on-site classes again. ● Hotels to get a lifeline and resume business when border closure ceases.

BRIGHT SPOTS FOR 2021 ● 62% of Sarawak State Government’s RM9.83 billion allocation for development of rural infrastructure eg. roads, bridges, electricity, water supply and urban growth. ● Stable prices of mineral oil and palm oil. ● Multiplier effects from the Pan-Borneo Highway, new bridges like Saribas Bridge, Igan Bridge, Kemena Bridge, Kuching’s ART transportation, construction of Baleh Dam. ● Future relocation of Indonesia’s capital to East Kalimantan. ● Emerging areas around Pan-Borneo Highway, Kuching-Samarahan road, Stutong/Muara Tuang road connecting Muara Tuang, Samarahan, Jalan Stephen Yong and Tondong areas, and Matang and Samariang areas.

Volume of Residential Property Transactions in Sarawak (Quarterly, 2019-Q3 2020) Volume

3000

2,828

2,634

Units

2500

2,329

2,533

2,418

125.52% 1,987

2000 1500 1000

8.76%

-5.99%

1,254 -4.54%

-17.82%

-11.58%

500 0

Percentage Change (%)

-36.89% Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

Value of Residential Property Transactions in Sarawak (Quarterly, 2019-Q3 2020)

RM Million

Volume

Percentage Change (%)

1000.00

893.67

800.00

133.44%

742.76 635.36

600.00 400.00 200.00 0.00

717.97

576.34 13%

-8.11%

712.19

-14.46%

-0.81%

382.83 -19.97% -33.58%

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

of Kuching’s ART (Autonomous Rail Transit) transportation. Further away, the construction of Baleh Dam and the relocation of Indonesia’s capital to East Kalimantan also hold promises to Sarawak’s overall well-being.

As to how property players should anticipate the coming year, some signs have pointed to a possible rise of land prices while developers are compelled by market movements to focus on the medium cost properties further from the city centre.

For Sarawak as a whole, the arrival of a proven vaccine together with the projected growth of the Malaysian economy in 2021 and the State Government’s effort to continue developing the state will come as a unified cause that can spur positive market activity and crank up the

business sector for a recovery and stimulate growth in the property sector.

Residential - Review 2020 Based on NAPIC’s data for the first nine months of 2020, there is a decrease in the number of transactions for all property sectors in Kuching. In the residential sub-sector, the total volume and value of transactions in the strict Movement Control Order (MCO) period of Q2 2020 registered a massive decline of 46.16% and 39.75% respectively compared to the same period in 2019.

This was later reversed in Q3 2020 when the volume of transactions rose by 125.52% to 2,828 units and the value of transactions increased by 133.44% to RM893.67 million.

Although the steep rise in Q3 2020 seemed impressive, the total volume and value of transactions in the first

nine months of 2020 are in fact inferior compared to the corresponding period in 2019, registering a drop of 19.04% and 11.6% respectively. The overall decline is to be expected because sentiments on the ground have been greatly shaken by the Covid-19 pandemic.

The rental market near universities has encountered a shrinking demand due to the absence of students to lease the units caused by the inter-state travel ban and the policies to bar mass congregations at school grounds. While online classes have been praised for delivering the lectures effectively, this has dampened the rental market as now students can log in remotely and sometimes away from Kuching or even Sarawak. The shrunken demand shall consequently experience a drop in rental rates.

Residential Outlook 2021 There is a general consensus from a survey done which identified landed residential as the most stable asset class in the residential sub-sector. As such, any new launches in this category in 2021 would likely register a good take-up rate especially those in highly accessible areas although prices may face some pressure and drop slightly in view of the market environment.

Seeing that improvement in accessibility are often the precursors of new development, there is a foreseeable possibility that new residential estates will emerge from areas involved in the continuous construction of road infrastructure such as the Pan-Borneo Highway, the Kuching-Samarahan road, the expected development of Stutong/Muara Tuang road which will ease accessibility to Muara Tuang, Samarahan, Jalan Stephen Yong and Tondong area. Matang and Samariang are also two potential areas given its six miles radius distance from Kuching and this is also where high-end landed property or high-rise projects are likely to be built.

HB PERSPECTIVE 2021

57

SARAWAK OUTLOOK

Sentiments on the high-rises of apartments and condominiums are however posing a great concern to the market especially in secondary locations and this will be reflected when selling prices come under downward pressure.

Regardless, medium cost properties will continue to make its entry as it is purposed to meet the demand of the middle class.

Another factor to watch is that the present inflationary pressure on building material cost and shortage of labour will hamper the supply in 2021 if the situation persists. This will then lead to a rise in asking prices for properties especially the landed residential category.

Commercial & Industrial Review and Outlook Over in the commercial category,

NAPIC’s data revealed a similar trend where after the decline of 32.45% in volume and 22.95% in value of transactions, Q3 2020 experienced a quick rise with a 72.49% increase in volume and 50.99% in value of transactions. Again when compared on a first nine months basis, both the volume and value of transactions dropped but by a larger and almost a similar margin at 33.36% in volume totalling 963 units and 32.38% in value at RM510.42 million compared to the same period in 2019 with 1,445 units worth RM754.8.

Due to the uncertainty in the market, there have been very few new launches in the commercial shophouses and shop offices category with selling prices also experiencing a decline in light of the overhang situation for such properties.

Vacancy rate has also risen especially

Volume of Commercial Property Transactions in Sarawak (Quarterly, 2019-Q3 2020) Volume

600

536

Units

500

72.49% 485 424

400

100 0

395 339

300 200

449

-7.11%

229

5.89% -9.51% -12.58%

-32.45% -24.51% Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

Value of Commercial Property Transactions in Sarawak (Quarterly, 2019-Q3 2020) Volume

300

279.14

RM Million

250

50.99% 230.83

244.83

231.61 202.40

200

173.97

150 100

-5.39%

-7.93%

50 0

134.05

6.06%

-17.31%

-24.89% -22.95%

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Source: NAPIC

58

HB PERSPECTIVE 2021

those in the secondary locations including the ones near or within poorly managed shopping centres. It is safe to say that the present shrinking demand of office space is due mostly to the Covid-19 pandemic and not the work from home practice more prevalent overseas.

As tourism has been affected worldwide, Kuching’s tourism market has also witnessed occupancy rates of both the hotels and homestays dropping drastically. Some well-known hotels have offered its premises as quarantine centres due to the poor arrivals while some of the smaller hotels have unfortunately closed for business.

Moving forward, transaction numbers for both the commercial and hotel sub-sectors are expected to decline given the tough period as businesses struggle to maintain a stable income.

In the industrial sub-sector, volume of transactions in the first nine months of 2020 at 349 units is only 7.92% lesser than the corresponding period in 2019 with 379 units but in terms of value of transactions, the drop is larger at 33.97%.

Suffice to say, the impact of Covid-19 has certainly caused a large ripple effect across the Sarawak market and even into the otherwise steady industrial sub-sector seen in some other states. It is also obvious that the Sarawak market seemed to have moved in cohesion in this season. The foreseeable potential outcome from this is that when the tide does turn positive, its upside potential could go beyond ordinary estimates. But for now as the market is looking more realistic with time, some form of pressure might still exist unless a proven vaccine can really be found soon and inoculated to the masses to protect lives and then to sustain the economy.

RETAIL OUTLOOK

RETAIL - RESTRATEGISE IN 2021

A quiet shopping centre in Klang Valley during the second Conditional MCO.

I

t’s an open secret that the retail sector has been one of the biggest casualties when Covid-19 was declared a pandemic on 11 March 2020.

The Novel Coronavirus 2019 which was spotted first in Wuhan, China, quickly gained ground and recorded 118,000 infected cases across 114 countries with 4,291 people having lost their lives the day it was recognised as a pandemic.

The catastrophic numbers continued to climb and at this juncture, has infected more than 101 million people worldwide. Retail was put at the back burner when life was and is still at stake.

In Malaysia, the business of shopping centres was disrupted by Covid-19 for most of 2020. On average, shopping traffic was down from 40% to 80% during the various lockdown periods as shoppers were afraid to visit their favourite and regular malls when cases surged daily albeit in smaller numbers compared to the third wave that hit Malaysia but because it was still a relatively unknown virus, fear enveloped the country and authorities were left with no choice but to impose a strict lockdown to curb the spread.

Retail - Review 2020 The date of 18 March 2020 will go down in history as the beginning of the collapse of many in the Malaysian retail industry, not forgetting those in the tourism industry as well. It was the day when the strict Movement Control Order (MCO) was implemented

nationwide for a little over six consecutive weeks and for the first time in the modern era retail landlords were caught off guard from the complete closure of all non-essential retail stores.

Disrupted almost the entire 2020 alongside the non-essential retail

FACTORS TO WATCH IN 2021 ● A fourth wave of Covid-19 and additional movement restrictions will damage the shopping centre industry. ● Foreign tourists have been an important contributor to the sales of Malaysia’s shopping centre industry and so it is critical to have selected borders open by early 2021 especially for retailers reliant on such clientele. ● A broad-based economic recovery will boost retail spending because more economic activities means a higher take home pay for ordinary Malaysians which in turn will lead to more purchases of retail goods and services. ● An uncertain political environment will reduce consumers’ confidence and will translate to lower spending.

BRIGHT SPOTS FOR 2021 ● Malls anchored by grocery stores or tenanted by service-oriented retailers, corporate showrooms and offices including those charging low rental rates with low operation costs in 2020 will continue to survive ahead of others. ● Malaysians will continue to shop and visit shopping centres. ● Retailers and F&B operators going omni-channel to maximise outreach and revenue.

HB PERSPECTIVE 2021

59

RETAIL OUTLOOK

Incoming Supply of Shopping Complexes Total Space (sqm)

No. Of Buildings

2,500,000 42

(Sq. M.)

2,000,000 1,500,000

42

1,952,135

1,821,222

1,471,185

1,000,000 40

500,000 0

H1 2018

H1 2019

H1 2020 Source: NAPIC

stores were also the entertainment and recreational facilities such as the cineplexes and theme parks located in the shopping malls. The absence of these facilities meant shoppers were spending less time in the shopping centres and even though they were allowed to operate during the more relaxed time of the Conditional MCO and Recovery MCO, they were struggling to get enough customers to cover their daily operation costs.

For shopping centres located in the city centres surrounded or are adjacent to high-rise office buildings, business in year 2020 suffered on abysmal footfall due to the lockdown and the mass adoption of work from home (WFH).

This was more pronounced for those dependent on the office crowd for breakfast, lunch and basic necessities.

According to NAPIC’s data, the total supply of retail space had actually risen by only about 5% from Q1 2019 to Q3 2020 but occupancy rate declined by about 2% when compared between Q3 2019 to Q3 2020. With an incoming supply of 1.8 million sqm coming on stream in the pandemic hit H1 2020, occupancy is expected to face a huge challenge to completely fill up the vacant lots. Even with arrivals of new foreign brands in setting up their first stores in Malaysia such as Taco Bell, Tom Ford, Five Guys, David Rocco, Don Don

60

HB PERSPECTIVE 2021

days to make way for mass testing and sanitisation. Two shopping centres up in Genting Highlands also had more than 20 outlets closed their doors to the public at the same time.

Donki, it will continue to pose a difficult time for retail landlords to maintain a good occupancy rate.

Despite the predicament, a majority of the landlords provided rental waivers to the non-essential retailers in the approximately six weeks of the MCO followed by rental rebates or rental discounts when they were allowed to open from the Conditional MCO period onwards which began on 4 May 2020. Although the period of closure may have seemed short, the damage incurred was extensive. Average rental income of shopping centres had fallen by about 30% to 35% for the entire year and in terms of rental rates, it will take about three to five years to recover to pre-Covid-19 levels.

Rather accustomed to shopping as part of the Malaysian lifestyle, consumers have been heading to the malls since physical stores were to open from the first CMCO. However, the reduced purchasing power only meant less purchases but this did not deter Malaysians from completely stop shopping.

Devil’s in the Detail Up until December 2020, a total of 39 shopping centres in Malaysia have reported positive cases of Covid-19 with four shopping centres asked to close down entirely from three to seven

Major shopping centres that were dependent on foreign tourists experienced a significant drop in shopping traffic across the various stages of MCO. For example, malls in the vicinity of Bukit Bintang and KLCC suffered more than those in Petaling Jaya and Shah Alam while in Johor Bahru and Melaka, retailers were having a tougher time than the ones in Klang Valley and Penang.

Shopping centres that have experienced low occupancy rates before Covid-19 continued facing the same problem and this is especially so for strata-titled malls.

Over in Johor where shoppers from Singapore form an integral part of its retail market, sales of many retailers in Johor Bahru dropped by as much as 70% compared to the previous year when the border was ordered to close as part of the MCO. Performance on the ground also showed that shopping centres in Johor Bahru city centres were more affected than the neighbourhood malls located in the suburbs or at the residential areas. A far cry from the normal days before Covid-19, Johor Bharu’s city streets were much quieter on the weekends, As for malls that continued enjoying brisk sales, they are usually those anchored by grocery stores, thanks to limitations of travelling distance and the number of passengers per car. Shopping centres tenanted by service-oriented retailers, corporate showrooms and offices also did not weather through as much because many of its tenants are not dependent on the masses. Shopping centres that had been charging low rental rates with low operation costs too were less affected in 2020.

Existing Stock of Shopping Complexes and Occupancy (Quarterly) Space Occupied (sqm)

Total Space (sqm)

Occupancy Rates (%)

(Sq. M.)

20,000,000 79.4%

15,000,000

79.7%

79.5%

79.4% 78.6%

10,000,000 77.5%

5,000,000 0

Q1 2019

Q2 2019

Q3 2019

Q1 2020

Q2 2020

Q3 2020 Source: NAPIC

Retail Outlook 2021 Malaysia’s retail future depends highly on the way Covid-19 is handled such as the government policies on movement restrictions and physical distancing guidelines. Further, a recovery of shopping traffic since 7 December 2020 will not also necessarily lead to immediate improvements in rental rates and transactions of shopping centres as well.

As for shopping centres scheduled for opening in 2021 such as Mitsui Shopping Park Lalaport, Pavilion Bukit Jalil, KSL Esplanade Mall, Setia City Mall Phase 2 and IOI City Mall Phase 2 in Klang Valley, the challenges will remain the same like in the previous years and that is to fill up retail lots. Of course, favourable terms are expected from the landlords to attract tenants such as rental rates reduction and the possibility of securing a longer rent-free period.

Another uphill task is to locate and identify temporary tenants that can help fill the empty lots, especially the ones in prime locations.

Shopping traffic is however expected to return gradually from early 2021 barring any rise of infectious cases or the occurrence of a new wave. Malaysians by and large will accept the current SOPs as the new normal for months to come.

Moving forward, retailers and F&B operators must adopt the omni-channel strategy and provide both online and offline or physical store experience as part of the new normal. Gone are the days where retailers can rely on just the physical stores to survive. In this new era, multiple channels is the way to go as consumers have a preconceived notion that they could reach out to buy as conveniently as possible, even if it’s through their tiny mobile screens. This is why consumers have begun learning all sorts of apps just to stay engaged and make a purchase online.

The rise of online shopping does not necessarily mean the demise of physical stores. In fact quite the opposite because as retailers begin tapping the potential of online stores, they also realised the advantages of maintaining a physical store because Malaysian shoppers will slowly but surely return to their favourite shopping haunts as had been seen since RMCO was implemented where crowded shopping scenes had dominated the floor space in the more popular shopping centres on weekends.

Shopping centre affected by drastic drop in foreign tourists.

HB PERSPECTIVE 2021

61

ART AUCTION

ART COLLECTION SHOWING RESILIENCE TO PANDEMIC Achieving RM2.75 million in 3.5-hour of art auction, all through zero floor bidding.

H

enry Butcher Malaysian and Southeast Asian Art Auction recorded RM2.75 million sale in just three-and-a-half-hour on 15 November 2020. Due to the Conditional Movement Control Order (CMCO), no floor bidding took place to observe the SOP (Standard Operating Procedures). In its place were telephone, online and absentee biddings.

“The result is encouraging, considering the current sluggish economic atmosphere, and with no floor bidding being carried out. We sincerely appreciate the continuous support from the buyers and art collectors,” said Sim Polenn, Director of Henry Butcher Art Auctioneers.

The top-selling masterpiece is one painted by Datuk Ibrahim Hussein in 1980, titled Figures On The Beach, which sold for RM588,000. Datuk Ibrahim brilliantly executed this work, leaving the upper part of the painting in a simple plain background colour, which made the concentrated linear compositions at the centre and bottom part stand out, with sinuous rhythm and decorative veneer that mesmerised the viewers.

At the Henry Butcher Art Auction August 2020 edition, Datuk Ibrahim Hussein’s Calama Desert was sold at RM918,000, the highest public auction record set by the artist in the local art auction scene. Abdul Latiff Mohidin’s 1990s Rimba was sold for RM201,600 while another early abstract artwork painted by Datuk Ibrahim Hussein in 1967, Untitled, oil on jute was sold for RM134,400.

62

HB PERSPECTIVE 2021

Encouraged by the results despite the pandemic, Director of Henry Butcher Art Auctioneers Sim Polenn.

On the front cover of the auction catalogue was also the top selling masterpiece by Datuk Ibrahim Hussein; Lot 148, Ibrahim Hussein, Datuk (b. Kedah, 1936 - d. Kuala Lumpur, 2009) Figures On The Beach, 1980, sold for RM588,000.

Lot 82, Abdul Latiff Mohidin (b.

Negeri Sembilan, 1941), Rimba, c.

1990s, sold for RM201,600.

Awang Damit Ahmad’s Senja Kelabu from the famous Essence Of Culture (E.O.C) Series achieved RM87,360 while a beautiful piece by Dato’ Sharifah Fatimah Syed Zubir illustrates segments of gorgeously mixed prismatic colours, titled Reflection VI, 1995 was sold in an intense bidding between the telephone bidders for RM73,920. Blue, green, red and yellow colours used harmoniously composed a soothing picture.

Lot 81 Ibrahim Hussein, Datuk (b.

Kedah, 1936 - d.

Kuala Lumpur, 2009) Untitled, 1967, sold for RM134,400.

Other notable paintings that fetched a respectable value include Jolly Koh’s Palm, painted in 2005 sold for RM61,600 and a rare watercolour piece painted by Abdullah Ariff in 1956 titled The Sudden Monsoon Downpour sold for RM56,000.

Top quality artworks continue to grab the attention of the bidders.

Lot 83, Awang Damit Ahmad (b. Sabah, 1956) Essence Of Culture (E.O.C) — ‘Senja Kelabu’, 1994, sold for RM87,360.

Lot 124, Tay Bak Koi (b. Singapore, 1939 - d. 2005) Untitled, 1999, sold for RM89,600.

Collectors also took the opportunity to acquire pieces from Southeast Asian artists such as Tay Bak Koi’s 1999 painting concluded at RM89,600 while Ong Kim Seng’s watercolour piece from the Kathmandu Series sold for RM20,160. Myanmar senior artist U Lun Gywe’s Buffaloes also sold for RM20,160.

Lot 86, Sharifah Fatimah Syed Zubir, Dato’ (b. Kedah, 1948) Reflection VI, 1995, sold for RM73,920.

“In the span of a decade, Henry Butcher Art Auctioneers recorded art auction sales of RM58 million, selling more than 2,500 pieces of artworks, in which 90% are Malaysian art. We are glad that this auction reflects a widening of interest for works from the region, and participation of new and young collectors,” added Sim Polenn.

HB PERSPECTIVE 2021

63

A Comprehensive Service from Start to Finish Henry Butcher Malaysia is registered with the Board of Valuers, Appraisers, Estate Agents & Property Managers Malaysia as a full fledged professional practice and offers a wide spectrum of consultancy services in the fields of property and plant & machinery. Our expertise covers the following areas.

Valuation

Project Marketing

Real Estate Agency

We adopt a thoroughly

We believe that to be successful,

We recognise that the

professional and transparent

the initial planning for the

requirements of each client is

approach using well-accepted

project must be done well.

different.

Market Research & Development Consultancy

Retail Planning & Consultancy

other countries to showcase

We strive to understand

retail property consulting firm in

their properties to the Malaysian

the objectives and specific

Malaysia.

market.

requirements of the individual

and established methodologies.

International Marketing We work with leading international developers in

Henry Butcher Retail is a leading

clients.

Facilities & Asset Management

Plant & Machinery Consultancy

Art Auctioneers

Our property management

Henry Butcher’s expertise in

established Henry Butcher Art

team is highly experienced in all

plant and machinery valuation

Auctioneers in 2009.

aspects of property or facilities

and disposal services have

management.

gained worldwide recognition.

Bao Fun MM2H

Henry Butcher Malaysia Sdn Bhd

Bao Fun (MM2H) Sdn Bhd is a

Off Jalan Dang Wangi,

service arm under the Henry

50300 Kuala Lumpur

Butcher Malaysia group.

T: 603-2694 2212 / 2692 3437

25, Jalan Yap Ah Shak,

F: 603-2694 5543 / 2694 3484 E: hbmalaysia@henrybutcher.com.my W: www.henrybutcher.com.my

Henry Butcher Malaysia

Henry Butcher Malaysia Sdn Bhd 25, Jalan Yap Ah Shak, Off Jalan Dang Wangi, 50300 Kuala Lumpur T: 603-2694 2212 / 2692 3437 F: 603-2694 5543 / 2694 3484 E: hbmalaysia@henrybutcher.com.my W: www.henrybutcher.com.my