REALITY BITES IN MALAYSIA

REALITY BITES

The comedown from pandemic-era stimulus measures in Malaysia weighs heavily on an electorate of property seekers ready for change

BY AL GERARD DE LA CRUZ

The rich and rakyat alike are united by a desire to bring equilibrium to the market forces that govern the real estate sector in Malaysia.

From the vulnerable B40 income group to the T20 earners, Malaysians have—over the course of a pandemic—come to understand how state intervention goes a long way toward matching property seekers with the country’s surplus of homes.

Financial easing policies fuelled a burst of exuberance in the property market in 2021. The country registered 300,947 real estate transactions worth MYR144.87 billion (USD33 billion), up 21.7% in value from 2020, according to the National Property Information Centre (NAPIC). When the policies ended, prospective buyers promptly retreated into their shells.

GDP was up 3.1% in 2021 after it tumbled 5.6% in 2020. Unstable incomes or sources thereof deterred property purchases, according to 47% of property seekers surveyed for a recent consumer sentiment study by PropertyGuru Malaysia. The property marketplace’s Demand Index contracted by 2.4% quarter-on-quarter in the first three months of 2022, following a 44.05% quarterly drop in Q4 2021. “Property seekers have taken a ‘wait-andsee’ approach since the pandemic as the nation continues its journey to recovery,” says Shylendra Nathan, country manager for Malaysia at PropertyGuru Group. “Affordability issues, inability to secure financing, job security, and overall economic stability are some of the external factors influencing homebuyers’ decisions. These factors, coupled with the lack of government initiatives to spur home buying, will continue to deter property seekers from making significant purchasing decisions.” Further dampening purchasing confidence, Bank Negara Malaysia has hiked the overnight policy rate from 1.75% to 2% in response to rising inflation and the swiftening depreciation of the ringgit.

“With the return of demand, we expect to see a bottleneck for vital commodities such as raw materials, which may continue to

FINANCIAL EASING POLICIES FUELLED EXUBERANCE IN THE PROPERTY MARKET IN 2021, BUT BUYERS IN MALAYSIA HAVE SINCE RETREATED INTO THEIR SHELLS

push prices upwards,” predicts Nathan. “In addition, with Malaysia’s current large volume of unsold housing units, there may be a final opportunity to snap up properties before a possible hike in development costs.”

Yet, of the 180,702 homes left unsold in Q3 2021, around 75.4% of them cost above MYR300,000, the maximum price of affordable housing in the country, according to data from Bank Negara Malaysia. Completed homes that remained unsold for more than nine months after their launch, also known as the residential overhang, rose 24.7% year-on-year in 2021 to 37,000 units worth MYR22.79 billion, an increase of 20.5% in value, NAPIC reports. High-rise properties made up most of the overhang at 20,505 units, with Selangor holding the highest overhang volume overall at 6,095 units, followed by Johor at 6,089 units. Of the 2,936 newly launched homes in Q1 2022, landed properties made up all sales—no high-rise units were sold.

Semi-detached residences, multi-storey terraced homes, and superlink houses tend to perform with sales of at least 80% within a short period of launching, reports independent property advisor Prem Kumar, formerly the deputy managing director of the consultancy Jones Lang Wootton. “On paper, condos obviously indicate better financial viability, but in terms of actual sales, the landed properties are doing very well,” he says. “People are willing to pay between one to two million ringgit for good landed houses.”

Developers have proactively managed their inventory levels in response. Those that do go ahead with vertical launches have consolidated their efforts behind smaller condominium

Property seekers have taken a ‘wait-and-see’ approach since the pandemic as the nation continues its journey to recovery. Affordability issues, inability to secure financing, job security, and overall economic stability are some of the external factors influencing homebuyers’ decisions

ALL IN A DAY’S WORK

As the pandemic segues into the endemic phase in Malaysia, the office segment is steeling itself for a resurgence.

In Q1 2022, the occupancy rate of purposebuilt offices stood at 71.2%, representing 12.93 million square metres in occupied space, according to data from the National Property Information Centre (NAPIC). “In terms of developers and owners of office buildings, nobody has actually gone bust,” says independent property advisor Prem Kumar, formerly the deputy managing director of the consultancy Jones Lang Wootton. “During the two-year period [of the pandemic], they were able to buffer some problems with regards to occupancies and rebates.”

While landlords of government premises were compelled to provide rebates to tenants, their counterparts in the private sector benefited from a constancy of rental payments. “The value of the properties was not impacted in a sense that the income was still coming in from the perspective of the owners.”

Like the residential segment, however, the Malaysian office sector still faces a huge oversupply of space: about 30 million square feet in the Klang Valley alone, estimates Kumar. The glut comes as 46% of Malaysians express a keenness to continue working from home, thus precluding the need for daily transportation to the office, according to PropertyGuru Malaysia’s consumer sentiment study for H1 2022.

ISMAIL SABRI YAAKOB WAS SWORN IN AS MALAYSIA’S THIRD PRIME MINISTER IN 18 MONTHS IN 2021. ANALYSTS SAY THAT INVESTORS ARE HOLDING OFF ON PLAYS UNTIL THE COUNTRY ACHIEVES MORE POLITICAL STABILITY

CHINESE DEMAND FOR MALAYSIAN HOMES REMAINS A SHADOW OF ITSELF FROM FIVE YEARS AGO WHEN MAINLANDERS SUPPORTED DEVELOPMENTS ACROSS THE SOUTHERN STATE OF JOHOR

units of 800 square feet to 1,000 sq. ft. in sellable space around the pricing region of MYR500,000. “Pre-pandemic, developers did not want to admit or accept the fact that we were having either an oversupply or overhang,” says Kumar. “The pandemic helped the market to come to the realisation that things must be done to absorb the oversupply. Developers became more conscientious about market fundamentals…It’s no longer like, ‘I can put anything on the market, and it will sell.’”

Malaysia has addressed the overhang as far back as 2011 with initiatives like the Skim Rumah Pertamaku or My First Home scheme. But nothing has riveted the public imagination like the Home Ownership Campaign. Originally set to end in June 2020, the initiative had since been extended several times, with pandemic-weary property seekers lapping up the hefty price reductions and stamp duty exemptions on the instruments of transfer and loan agreement. Loan applications surged in November and December 2021 as buyers maximised the final two months of the campaign, Bank Negara Malaysia noted. The campaign ultimately contributed to MYR47 billion in residential sales after discounts. Also well received last year was the six-month moratorium on loans, part of the MYR150-billion National People’s WellBeing and Economic Recovery Package (PEMULIH). Sellers are now left to replace the bygone stimulus measures with their own set of incentives for homebuyers, balanced with a shrewd sense of optics. “Developers don’t want to be seen bringing down prices by themselves because they don’t want to erode confidence in the market,” says Kumar. Even though pandemic relief spending widened the government’s fiscal deficit to 6.4% of the GDP in 2021, the government is not gunning for all-out austerity just yet. Budget 2022, in fact, surpasses its predecessor with an allocation of MYR332.1 billion, the largest in Malaysian history. The budget notably abolishes the 5% real property gains tax on properties being disposed in their sixth year. Next year could see the passage of the Residential Tenancy Act, offering a long-awaited legal framework protecting renters and landlords. The legislation comes at a time of marked financial insecurity for property seekers, many of whom have resorted to deferring purchases for rentals. PropertyGuru Malaysia’s rental demand index rose 93.27% year-on-year in Q1 2022, led by a 111.23% jump in high-rise rentals.

GOVERNMENT STIMULUS MEASURES HAVE BROUGHT LIFE BACK TO THE STREETS IN MALAYSIA’S CITIES, BUT THE COUNTRY’S PROPERTY MARKET REMAINS LARGELY FLAT

MAKE AND SHOP

Exports of crude oil, electronics, and personal protective equipment continue to propel the manufacturing sector of Malaysia, according to Fitch Ratings. The sector also stands to benefit from the country being on board the Regional Comprehensive Economic Partnership (RCEP). The agreement, which entered into force in March, sets into motion the world’s largest free trade area.

The industrial segment has become one of the brightest spots in the Malaysian property sector as a result, reports Kumar. Investor demand is particularly high for midrange industrial premises in the price bracket of MYR5 million to MYR10 million.

“The jewel in the market is the industrial sector,” says Kumar. “There’s huge demand for industrial properties and, coupled with the fact that developers were not just rushing into building industrial properties, the market has been very, very solid for the last two years. It’s been proven now that industrial is perhaps the most resilient sector because it’s not really overbuilt.”

Conversely, the retail segment was hard-hit as shopping centres endured prolonged closures attendant on the movement control orders (MCO). Rentals plummeted 10% to 20% especially among midrange shopping centres, taking the brunt from regional or mega-scale shopping malls which enjoyed a more established catchment of consumers.

Owners of such shopping centres were forced to provide rebates to tenants that lost business, reports Kumar. “The rebates, which were given in terms of rentals, translated to some diminution in terms of the value of those properties.”

EXPORTS OF CRUDE OIL ALONG WITH ELECTRONICS AND PPE HAVE PROPELLED MALAYSIA’S MANUFACTURING SECTOR

Yet libertarian critics found one provision in the measure, requiring deposits to be parked with a government agency, to be high-handed, if not tone-deaf. In a nation still struggling with eroding public trust due to corruption scandals of recent years, the provision came across as another way for officials to meddle with laissez faire. “A free market is important at the end of the day,” admits Kumar. “But in some instances, it could be viewed as not so good because people just start building and building. It means that we end up in situations like offices being overbuilt and so much of spaces being vacant, including condominiums and apartments.”

Many buyers are pausing their homeownership journey until the conclusion of the 15th Malaysian general election (GE15), reports PropertyGuru Malaysia. To investors, a leader with a clear mandate would be reassuring.

“They would like to have the political legitimacy that goes along with being elected,” states William Thomas, director of The Economist Corporate Network, in a recent economic update. “The business leaders we’ve talked to in Malaysia have said, in some cases, ‘I don’t really care what the result is. I just need a result. I need some stability and that’s going to be helpful.’” The majority of the electorate still view real estate as a hedge against inflation. Fifty-three percent of homeowners look to buy property in addition to one they already own over the next year, according to PropertyGuru Malaysia. Even with movement control orders being dismantled in the endemic phase of the contagion, the residential market could take an entire year to recover from the bottom of the property cycle. Cautious optimism glints ahead, however, and a peak run is not implausible in the next three to five years.

“It’s a transition period as far as the residential market is concerned,” says Kumar. “It’s really a bottoming out of the market. The way I see it, most things are pointing towards gaining greater momentum moving forward.”

LANGKAWI IS ONE OF SEVERAL ATTRACTIVE INVESTMENT DESTINATIONS AROUND MALAYSIA FOR PROSPECTIVE SECOND HOME BUYERS

FOREIGNER-FRIENDLY?

The Ministry of Home Affairs relaunched last year the Malaysia My Second Home Programme (MM2H), courting foreign property investment anew after a pandemic-induced hiatus. The revamped programme requires a higher amount of permanent savings of at least MYR1 million, plus a declaration of liquid assets worth MYR1.5 million. “While these changes are designed to improve the quality of applicants, they are likely to deter many foreign investors who do not meet the criteria,” says Shylendra Nathan, country manager of PropertyGuru Malaysia. “The new regulations will make it harder for investors to qualify for the programme, and they may be discouraged by the red tape involved.

“Even those who can meet the new requirements may be put off by the fact that their investments will be subject to greater scrutiny.” Residential real estate has become a domestically driven market during the pandemic though. Homes that do target foreign buyers are typically branded, concentrated in commercial hubs with price points fetching from MYR2 million. Chinese demand for Malaysian homes remains a shadow of itself from five years ago when mainlanders supported developments across Johor state. “A lot of those units are still vacant,” says Kumar. “We haven’t seen significant interest in the last one or two years. If anything, it’s coming through the Malaysia My Second Home programme, but even that is still very much subdued now.”

THE CALL OF HOME

Non-resident Indians (NRIs) lured by the weak rupee and better offerings in the luxury residential sector are helping to put the country’s real estate market back on track

BY GEORGE STYLLIS

As India contended with a devastating Delta wave last year, the outlook for its housing market looked bleak.

Fears of stagnating house prices were abounding as demand sank and cash stopped flowing, and many braced for a third wave of Covid-19 even worse than the second. As it happened, that onslaught failed to rival the second in intensity, and the industry is now steaming ahead, driven by the return of a long absent but crucial market for Indian residential real estate: non-resident Indians (NRI).

According to a report by 360 Realtors, NRI investments in Indian real estate amounted to USD13.1 billion last year and are expected to grow by 12% this year. “Real estate has always been the preferred asset class for NRI,” says Mohit Jain, managing director of, Krisumi Corporation. “The last few months have witnessed a gradual comeback of the NRI to the realty market, bolstering sales of luxury homes.”

Indian expats account for about 6.5% of the world’s 272 million migrants, the largest of all groups, and their contribution to India’s economy is significant.

According to a report by the World Bank in 2020, India received more than USD83 billion in remittances.

INDIA’S PANDEMIC STRUGGLES WERE WELL DOCUMENTED, BUT THE COUNTRY’S HOUSING MARKET IS RECOVERING WELL, PARTLY DUE TO AN INFLUX OF INVESTMENT FROM NONRESIDENT INDIANS

TAXES RISE IN PAKISTAN

Pakistan’s real estate market was hit with more taxes in June as the country faced a balance of payment crisis.

Among them was a 15% capital gains tax on a house where the holding period does not exceed one year, along with an increase on the capital gains tax period to six years. Previously the CGT would only apply to properties sold within four years.

Announcing the proposals, Prime Minister Shehbaz Sherif said it was “inevitable to tax non-productive assets” like real estate as the government struggled to rehabilitate the economy from its predecessors.

“The lands lying vacant just for speculative purposes is a disservice to this nation,” he says.

Sharif, who took office in April, said he inherited a broken economy with shrinking reserves, unmanageable external debts, and huge fiscal deficit. “The country doesn’t have money for oil and gas,” he says. However, industry watchers dismissed the tax hikes as being detrimental to the industry.

Muhammad Shakeel Munir, president of the Islamabad Chamber of Commerce and Industry, says: “All these tax measures will badly affect business activities in the entire real estate sector and create more unemployment.”

Real estate has always been the preferred asset class for non-resident Indians. And we’ve witnessed a gradual comeback of the NRI to the realty market, bolstering sales of luxury homes

While NRIs began buying property in earnest in India in the mid to late 90s, demand had waned since the 2008 financial crisis.

Now, however, amid a weak rupee and resurgent property market, that interest is coming back.

“One report has said around 40,000 NRIs are interested in buying property in India. That doesn’t mean they are going to buy today, but they are interested in India as a place to buy their houses,” says Dr Niranjan Hiranandan, founder of Hiranandani Group, an Indian Think-Tank specialising in real estate.

In June, the rupee hit a record low against the US dollar as the global price of crude oil surged, raising concerns about a sustained rise in imported inflation.

The partially convertible rupee was trading at 77.79/80 per dollar after dropping to a record low of 77.81. The previous low of 77.7975 was reached on May 17. Dhimaan Shah, founder and chief operating officer of luxury holiday home developer Isprava Group, said Indians in countries that use US dollars or peg their currency to it rush to buy real estate at home, knowing they can now get more for their money. “We are seeing a lot of traction from NRIs in the Gulf, which is traditionally a strong market for us,” says Shah.

“In addition to this, we are also witnessing strong demand from Singapore and Hong Kong as well. Over 30% of our business so far this year has come from NRIs in these markets, apart from London and Malta,” he adds.

Dheeraj Reddy, sales director of Pooja Crafted Homes, said one of the segments to benefit the most has been luxury. Indians living in developed countries have become used to a more comfortable and affluent lifestyle and wish for something similar in India, he says.

“Due to the currency value and the appetite of the NRI buyers to invest in India, the demand for luxury properties is really increasing because they get a sense of familiarity with what they expect outside India,” says Reddy.

The surging demand from NRIs is helping to drive India’s property market as it sees its fortunes reversed by the pandemic.

India, which was one of the worst-hit countries by Covid-19, has achieved record sales and launch volumes in the first quarter of 2022, Knight Frank reported.

MUMBAI’S GLITZIEST ENCLAVES ARE ESPECIALLY ATTRACTIVE TO WEALTHY INVESTORS

BANGLADESH COPS UKRAINE CONFLICT COST

Bangladesh’s housing market had rebounded vigorously after the pandemic. But as the war in Ukraine continues, the price of materials is dragging on the sector and stoking fears of stagflation. Around 6,000 housing projects were put on hold as construction workers returned home during Bangladesh’s pandemic lockdowns in 2020 and people fell behind on their mortgages.

As restrictions were later lifted the market rebounded, aided by a government scheme allowing the use of untaxed income to purchase property, land, and apartments, without the need to disclose the source of funds.

But now the war in Ukraine threatens to undo those gains as the price of materials surge amid rising freight costs. Md Shahadat Hossain Dabi, chairman of Jams Development, a Bangladeshi real estate developer, says: “The rate at which the market price of housing materials has risen since the war started left us with no alternative but to raise prices.”

Dr Zahid Hussain, a former lead economist at the World Bank, said if the price rally of construction materials continues, apartments will be costlier and homebuilders will get few buyers, which might lead to suspension of construction works.

“In such a situation, there are fears that the housing sector may face stagflation,” he says.

TECH-FORWARD, MODERN CITIES LIKE GURGAON, JUST OUTSIDE NEW DELHI, ARE SEEN AS INDICATORS OF THE FUTURE SHAPE OF UPSCALE URBAN LIVING IN INDIA

“The pandemic seems to have cured the residential real estate market of the inertia it was gripped with,” stated a recent report. “Low interest rates, comparatively healthy affordability levels, healthy wage growth and a waning pandemic with lower risk of further disruptions have created a favorable environment for the homebuyer who has rediscovered his need for new and better housing.

“This vastly increased the perceived value of one’s home in the overall scheme of things, and along with the prevailing low interest rates, it sparked and sustained homebuyer interest in the residential market.”

Dr Hiranandani believes NRIs will continue to drive this boom as the rupee remains weak. But what happens when it is no longer?

Already the central bank is moving to strengthen the currency by raising interest rates and stem inflation. In April, consumer price inflation rose to an almost eightyear high of 7.8%, well above the central bank’s limit of 6%, in large part due to the war in Ukraine driving food and fuel prices.

Dr Hiranandani believes, however, that the trend of recent months signifies a shift that will continue even if the rupee strengthens. Major cities have developed to offer the kind of lifestyle NRIs can get in the likes of London or Dubai. At the same time, sales are no longer driven by word-of-mouth, but by a sophisticated online presence and branding among developers and estate agents.

“The future looks good in India in terms of opportunities to grow,” he says. “The Prime Minister talks about how India is looking forward to the next generation of development. So overall interest in Indian real estate is growing.”

SRI LANKA IS CURRENTLY REELING DUE TO FUEL SHORTAGES. BUT ITS ATTRACTIVE FUNDAMENTALS STILL MAKE IT A SOLID INVESTMENT PROSPECT

REFUELING NEEDED FOR SRI LANKA

Sri Lanka’s real estate market could begin a slow climb back to pre-crisis levels if it gains access to fuel soon, says Ivan Robinson, head of Lanka Real Estate.

He says that Sri Lanka’s real estate market has “cooled down dramatically” amid severe fuel shortages caused by dwindling foreign currency reserves.

However, if the country can gain regular access to fuel, it should begin a slow process of recovery, possibly in about two months.

Despite the current situation, Robinson says demand remains strong among locals and prospective foreign buyers amid the potential for bargains.

“Right now, we are advising some foreign buyers to wait a short while as we are really having trouble getting fuel on a regular basis so we can’t just visit properties when we want to — it needs to be well planned especially when we need to travel across the country,” says Robinson. “There are, however, a certain number of deals to be made buying from distressed locals who are getting into further debt or foreigners who need funds offshore,” he adds.

Before Sri Lanka’s economic crisis deepened, its residential market was “operating in full throttle”, according to Knight Frank, with investors reaping the benefits of low interest rates. “The demand for residential condominiums continued to soar amidst the increased money supply and high inflation rates.” The Central Bank raised interest rates in March to stem inflation, followed by a doubling of them in April. “The rate hike will give a strong signal to investors and markets that we are coming out of this [crisis] as soon as possible,” central bank governor P Nandalal Weerasinghe says. Meanwhile, Tourism Minister Harin Fernando has offered assurances that the country will be ready to welcome visitors this winter.