Stock market, politics weigh on Malaysian property

Source : Business Times - 3 Mar 2009

THE two biggest dampeners threatening Malaysia’s property market this year are the country’s moribund stock market and political uncertainty, a survey of chief executives has found.

Unemployment is viewed as a third negative, according to an annual CEO opinion survey conducted by real estate consultancy CH Williams Talhar & Wong (WTW) in November 2008.

Political problems might have been cited as the No. 1 factor likely to hurt property prices and sales had the survey been carried out more recently.

Political hostility has escalated sharply, underscored by the constitutional crisis in Perak which has brought the state to an operational standstill and sparked public division.

While little has been done to minimise politicking, industry players hope a mini-budget or second economic stimulus package will support the property sector.

According to the CEOs surveyed by WTW, the most beneficial would be property gains tax exemption, a 50 per cent cut in stamp duty and more funds for the country’s various economic corridors.

The outlook for property this year is bleak, with feedback from WTW offices throughout Malaysia pointing to a downturn in all sectors.

‘Sorry, there is no good news. Everything is down,’ was WTW managing partner Goh Tian Sui’s frank assessment at the firm’s 2009 outlook briefing yesterday.

WTW’s findings were backed by a survey of CEOs involved in real estate. Most said all property segments are in the early stages of a downturn - suggesting things have not hit bottom.

Compared with 2007, sales growth dropped last year in almost all major cities, especially Kuala Lumpur.

As a result of launches from 2005 onwards, plenty of new space will be added in the Klang Valley this year - an estimated 3.44 million square feet of office space, 3.3 million sq ft of retail space, almost 2,000 new hotel rooms and 5,000-plus luxury condo units.

Given the shaky state of the economy - growth in the fourth quarter of 2008 was just 0.1 per cent - demand for all of this extra space looks uncertain.

In the residential segment, many developers have focused on large units exceeding 3,000-4,000 sq ft, which at an average of RM5 (S$2) per square foot would mean monthly rent of RM15,000 or more. Unfortunately, the market lacks expatriates.

In the hospitality sector, hotels operated at an average occupancy rate of 70 per cent last year.

Although Malaysia has been hit less by declining tourism than its neighbours, the pace of growth is slowing, mainly because of a high base.

Wariness over property is probably greatest in the commercial segment, where proposed acquisitions have been called off because of the deterioration in the economy.

IOI Corporation lost a RM73.4 million deposit on Menara Citibank in central Kuala Lumpur when it decided against completing the RM587 million deal.

WTW’s snapshot of major office transactions shows that in 2006-2007, 56 buildings worth a total of RM6 billion changed hands, with foreigners acquiring 28 per cent.

Last year, only 12 buildings valued at RM3.8 billion were transacted, but foreigners accounted for 61 per cent of the acquisitions.

For those with loads of cash and little gearing, the outlook is bright.

‘It’s a good time to look,’ Mr Goh said yesterday, noting that owners are much more open to negotiating prices now than they were six months ago.