Wednesday, April 20, 2016
Monday, March 28, 2016
Another land in KLCC is going up!
LEMBAGA Getah Malaysia (LGM) is monetising its prime land in Kuala Lumpur City Centre (KLCC), in what some believe is a move to shore up its coffers.
On March 15, the company held a briefing for qualified international and local hotel operators to invite tenders for a proposed five-star hotel to be developed on a parcel in Persiaran Stonor, within a stone’s throw of the Petronas Twin Towers.
This is not the first piece of land in the city that LGM is monetising.
In 2013, its board had entered into a joint development agreement (JDA) with Global Oriental Bhd (GOB) for the development of mixed-use projects on two parcels, one each in Jalan Ampang and the Ampang Hilir area.
There is also talk that the LGM headquarters — Bangunan Getah Asli — in Jalan Ampang could be hived off or redeveloped with unsolicited offers being made.
A name that has surfaced with regard to the redevelopment of Bangunan Getah Asli is Tan Sri Desmond Lim, who controls 35.34% of Malton Bhd and 37.35% of his flagship Pavilion Real Estate Investment Trust.
However, an executive familiar with the businessman says there is no truth in the rumour while another says any speculation is “premature”.
“Lembaga Getah is monetising its land in the vicinity because as a government statutory body, it doesn’t have to be in that prime area. The board is basically sitting on a gold mine as land there is hard to come by,” says a market observer.
When contacted, LGM said it could not comment on the Persiaran Stonor land and the proposed development because the deal was still under negotiation. According to a source, however, the land has been sold to a public-listed company.
The sale of land by government agencies to raise revenue is not an uncommon practice but it should go to the highest bidder to realise the maximum value for the state’s coffers, says the observer. At the same time, governments should balance the need to get the highest price with the responsibility to allocate some land for public benefit, such as affordable housing, public transport and hospitals, he adds.
The LGM parcel in Persiaran Stonor is in a strategic location. It faces Istana Siraj, the private residence of the Perlis royal family, and is flanked by the Embassy of Japan and the High Commission of Pakistan. It also lies between Persiaran Stonor and Jalan Eaton and is not too far from Jalan Tun Razak.
There is an archived listing of the parcel on a real estate website, which states that the listing has expired. According to the archived listing, the parcel is freehold and 4.75 acres in size. It also mentions plans for a mixed-use development comprising a 60-storey five-star hotel and three 50 to 60-storey blocks of small offices/home offices.
A real estate agent says a listing expires when the seller decides not to go ahead with the sale or a buyer has been found. As LGM is calling for tenders to operate the hotel, the latter could be a possibility.
The archived listing states that the land is for sale at RM248.4 million. However, the developer or investor who wins the tender will have to build the 60-storey hotel for LGM at an estimated cost of RM170 million on 1.75 acres of the land.
That leaves three acres for other types of development. In total, the developer will have to fork out RM418.4 million or RM3,200 psf. This is on a par with the market value of land in KLCC.
KSK Group Bhd’s 8 Conlay development sits on 3.95 acres that cost RM568 million in 2013, which works out to RM3,300 psf while Malaysian Resources Corp Bhd bought the German Embassy land in Jalan Kia Peng last year for RM3,188 psf or a total of RM259.16 million.
As for LGM’s JDA with GOB to develop the parcels in Jalan Ampang and Ampang Hilir, the board appointed Pedoman Ikhtisas Sdn Bhd, a wholly-owned subsidiary of GOB, for the task, according to an announcement. Pedoman Ikhtisas is to develop the parcels, measuring 5.75 acres in total, into mixed-use projects with an estimated total gross development value (GDV) of RM860 million. GOB is to start construction within four months of fulfilling the JDA and complete the projects in or before four years from the commencement date.
However, three years since the JDA was signed, there has been no update from GOB on the development. Its website does not list any projects in Jalan Ampang or Ampang Hilir.
According to the government’s e-portal for development planning approval, Dewan Bandaraya Kuala Lumpur had approved the land work, road and sewage plans for the projects on Feb 16 this year.
Under the JDA, LGM will get a corporate tower worth RM247.25 million and RM20 million cash, which translates into a land cost of RM1,067 psf for GOB. The fact that a corporate tower is part of the consideration for the land has sparked talk that LGM’s current headquarters in front of the Petronas Twin Towers could also be up for redevelopment.
Land in the Jalan Ampang vicinity could fetch around RM2,000 psf. In 2012, S P Setia Bhd had bought the British High Commission land for RM2,200 psf while reports have it that Putrajaya Holdings Sdn Bhd paid RM2,400 psf for the French Embassy land.
GOB has been disposing of its assets lately. In November 2014, the group sold two parcels measuring a total of 15.56 acres in Seri Kembangan to Singapore-incorporated Qingdao Investment Pte Ltd for RM142.35 million. It is also selling da:men mall in Subang Jaya to Pavilion REIT for RM486.8 million.
GOB is expected to have a huge cash pile of over RM560 million when it receives payments for da:men mall. A back-of-the-envelope calculation shows that it would be in a net cash position of RM249.3 million after deducting all borrowings, which translates into net cash per share of 55 sen.
As at Dec 31, 2015, GOB’s cash position was RM77.44 million. The group also listed RM17.9 million of assets held for sale as at end-2015. Long-term borrowings stood at RM242.44 million and current borrowings at RM90.37 million.
GOB’s shares closed at 48.5 sen last Thursday, giving it a market capitalisation of RM220.5 million. The counter has been on a downward trend so far this year, depreciating 10%.
Its share price reached a 52-week high of 65 sen last November following the announcement of the disposal of da:men mall to Pavilion REIT. The group’s net asset value per share stood at RM1.07 as at Dec 31, 2015.
At a price-earnings ratio of 3.56 times, GOB could be the cheapest mid-sized property developer on Bursa Malaysia. Land & General Bhd is trading at 7.7 times earnings while Malton Bhd is valued at 10.64 times.
Source from:
http://www.theedgeproperty.com.my/content/lembaga-getah-monetising-its-klcc-land
Sunday, March 27, 2016
Opportunity in a Slow Down Property Market?
PREDICTIONS are never easy. But unlike stocks, property investments have always been viewed as a longer term investment.
There is, therefore, the tendency for trends from the previous year to carry forward to the next. This being the second week of the new year, most of us would have read the writing on the wall.
Although the Government will be revising Budget 2016 – tabled just three months ago – Prime Minister Datuk Seri Najib Tun Razak said “we are not in a crisis”, just “taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control.”
The slow economy is affecting all economic sectors and the property sector is no exception. Compared to the banking and oil and gas (O&G) sectors, the property sector affects a greater part of the populace because there are more direct stakeholders. Also, over the last several years, a lot more (younger) people have entered the fray. So there is more skin in the game.
The property sector – residential, commercial and industrial – enjoyed robust and rapid expansion between 2009 and 2013 just after the 2008 global financial crisis and it was during this period that many young people entered property investments which they can ill afford. Growth slowed in 2014 and decelerated in 2015, which is expected to impact those with little holding power.
Several consultants say they “do not foresee a recovery this year given the current economic challenges both internally and externally. Concern should be drawn on market sentiments for 2016 as Malaysia’s biggest challenge lies in its net external debt.”
Last week’s rout on the Chinese stock market and the depreciation of the yuan do not bode well for the overall global economy. China is among our largest trading partner and it has invested in Johor and the Klang Valley.
Although the Chinese economy will continue to grow over the longer term, China is undergoing a transition as it develops its market further. Its involvement in different sectors, especially in Malaysian real estate, will impact us.
But China aside, the weakening ringgit and the still-falling oil price have cast a pall over the larger economy. Aside from these three factors, the 2016 market is expected to be more subdued compared to 2015 due to the following:
> Oversupply in certain property sub-sector market;
> Stringent lending rules;
> Slow recovery of global economies;
> Too many launches at inflated prices in 2014 and prior to this;
> Full impact from developers’ interest bearing schemes (DIBS) to be felt this year; and
> National issues.
Property consultants and valuers in general are weary about predicting price trends because price alone does not constitute the market. It is upholding the value and integrity of the market that is important because of the close relationship between the property and banking sector. And here is where correct valuation is so crucial.
Says Faizan Abdul Rahman, Board of Valuers, Appraisers and Estate Agents Malaysia president: “Valuations underpin the banking sector... valuations for loan securities depend on proper valuations, accompanied by periodic updates to ensure the maintenance of loan security values.
“The system should also detect bad valuations at an early stage, before loan approval. Too often, it is only at the point when loans go sour that such valuations are inconveniently ‘discovered’,” says Faizan who is Valuation and Property Services Department deputy director-general.
The residential market
“House prices are expected to self-correct in 2016,” according to a VPC Alliance (KL) spokesman. Although 2015 saw a consolidation with flat sales and falling number of transactions, prices continued to escalate, although at a slower rate driven by rising costs and the implementation of GST.
Developers kept prices high by launching lesser units. Which such strategies may remain work in the short-term, over the longer term, developers may review their offerings to meet affordability levels of local consumption and to offer acceptable level of returns for the buy-to-let market. Investors are learning the financially painful lesson that paying higher price for a property does not mean higher rental. Although the residential segment will continue to be the main driver of the property sector, it will not be at the momentum seen in previous years.
Third quarter sales volume and value for 2015 drop 3.9% and 7.8% respectively compared with the previous quarter, according to the National Property Information Centre (NAPIC). Off-plan purchases and direct purchases from houses owners will be impacted negatively.
New launches generally declined in Kuala Lumpur, Selangor and Johor, yet these are the three states with the highest launches last year. The number of launches for 2016 is expected to further reduce compared to 2015 (which dropped compared to 2014). Developers large and small are expected to be affected.
Although not obvious, housing transactions saw a drop in volume by 2.6% and in value by 5.7% for the first half of 2015 against the first half of 2014, according to NAPIC. The higher decline in value against volume suggests that there was a drop in prices in general in 2015 because the second half continued to trend down.
The weak ringgit against other currencies led to active monitoring by foreign investors. They are, however, not committing themselves because as in any investments, any further fall in the ringgit means an erosion of the value of their investments. Therefore, the ringgit need to stabilise before foreign investors will enter the market.
The effects of the accesses of the past - freebies, rebates and developers’ interest bearing schemes - are expected to culminate in 2016 and 2017 as more projects are handed over to buyers. Thousands of high-rise residentials were sold compared with landed units the last several years. The landed market will, therefore, be more resilient than high-rise segment, which were sold by the tens of thousands, in the Klang Valley, Penang and Johor.
Johor Baru alone has an existing stock of 41,000 units compared to about 2,000 units in 2011/2012, with an occupancy of between 80% and 90% then. There will be an incoming supply of about 14,000 units, bringing its stock to about 55,000 units. In 2017, Johor Baru will have an incoming supply of about 26,000 units, bringing its stock to about 81,000 units. This avalanche has promoted a go-slow among high-rise developers.
The Johor government has rejected new applications to build serviced apartments and implemented a 1% property tax on serviced apartments. The oversupply is evidenced in Penang and the Klang Valley also.
There are two issues here – an oversupply of a particular product and a huge mismatch between what people can afford and what’s available for sale. Developers have been catering for buyers in middle high-end and above income bracket in urbanized localities the last several years, leading to a decrease in rentals and prices.
In the Klang Valley, about 13,500 units will be entering the market, of which 75% will be shoebox-sized units of about 500 sq ft. The challenge going forward is how to fill them. It will take more than one year to fill them.
Overall, the secondary market where buyers buy directly from house owners will be impacted. NAPIC data show that between the first and third quarter of 2015, the number of transactions dropped in number and value by 4.77% and 8.26% respectively compared to the corresponding period in 2014. This falling trend – both value and number of transactions – will continue this year.
The scarcity of landed units will give it a degree of resilience, particularly with the gated and guarded communities. Landed housing has gone beyond the reach of the lower-middle income group. New launches of landed units are further away from the city with little or no public transport links like Shah Alam, Rawang, Cyberjaya, Semenyih, Kajang and Bangi.
The situation in the Klang Valley is more pressing than in Johor and Penang with about 9 million sq ft of purpose-built office space each compared to about 100mil sq ft in the Klang Valley.
Average rental in Penang is about RM2.80 psf (occupancy: 88%) but some landlords are asking for more to cover rising costs. In Johor, average rental is between RM2.80 and RM3.30psf, with occupancy rate of 75%.
Over the past two years, multi-national companies have unsuccessfully searched for suitable office space in Johor Baru, prompting developers to look into this segment. Some have offered low-rise office space in Medini for RM4.50per sq ft and this has been snapped up.
In the Klang Valley, with at least 4.1 million sq ft scheduled to be completed by end of 2015 and another 1.25 million sq ft scheduled to be completed by 2016, rentals and occupancy rates are expected to move downwards. Rental levels saw marginal movement the last three years due to over supply and incoming stock. Prime office commands gross rental of between RM7.50 and RM8 psf, some asking RM6.80psf. At the higher end is RM11psf; Petronas Tower 3 is at RM13psf.
Effective rental rates, however, have been gradually declining as more incentives are given with longer rent-free periods. Klang Valley landlords are innovative, they maintain the rental rate but give tenants one month free rent and other incentives. Tenants pay 11 instead of 12 months rent. The rationale is that when the good times return, landlord can move up the scale instead of agreeing to a drop in rates now.
Top grade office space rental, collectively known as Grade A (includes Grade A+ and A), is expected to come under pressure as oil and gas (O&G) sector takes a drubbing from continuing low oil prices. The banking sector occupies a third of Grade A office space in KL, O&G sector at 26%.
The general opinion in early December was that the limited supply of existing Grade A+ office featuring MSC status and Green Building Index (less than 10% of the total supply) would remain resilient. However, with the current oil price volatility, from hopes of it reaching US$50 a barrel in early December to about US$30 per barrel in just six weeks, does not bode well for the global economy.
Opinions differ whether city fringe areas enjoy better demand. Some consultants like the city while others champion prime fringe areas like Bangsar South, KL Sentral, Mid Valley and KL Eco City.
Retail market
Year-on-year growth was lower in 2015, compared with 2014, mainly due to the implementation of the goods and services tax (GST). The overall retail market has reported a drop by a third in spending and this is likely to continue as rising prices and a weaker ringgit begin to bite.
Some segments of food and beverage outlets should still be relatively stable or even strong for now, but may be hit as the year unfolds. Other retail outlets are feeling the pinch with most offering sales of 50%-70%. Smaller retailers are expected to downsize as they try to sustain themselves in order to stay afloat.
The scheduled openings of 10 new shopping malls by 2015/2016 in the Klang Valley is expected to impact occupancy and rent further. Consumers will be more selective in their spending and consumption will trend towards needs more than wants.
Weakening ringgit may attract foreign buyers and tourists, especially from Singapore into Johor. Price correction to occur in specific market segments.
Total retail stock is about 51 million sq ft with another 7.65 mil sq ft to open in 2016/17. About 2 million sq ft is expected to enter the Cheras market with the opening of Sunway Velocity and MyTown shopping centre .
It will be a challenge to fill up the space. Some malls in Petaling Jaya are feeling the pressure as tenants leave.
Johor Baru and Penang have about 13.3 million sq ft and 18 million sq ft of retail space respectively. Penang’s retail scene is expected to remain healthy in the near future. Interest is shifting to Batu Kawan. Johor’s retail scene is stable.
Industrial
Among all the sectors, industrial space seems to have a better prognosis. There is the view that rental rates for smaller industrial lots within the Klang Valley to hold steady with industrial lots below 100,000 sq ft expected to retain their rates as companies downtrend their businesses and become more cost conscious in light of the challenging economic conditions.
The introduction of incentives for industrial estates by the Government is expected to enable industrial estate operators to enjoy 100% tax exemption on statutory income for five years. This is likely to interest more developers to develop industrial estates in the Klang Valley.
As of the third quarter of 2015, industrial supply in the Klang Valley remained unchanged, with most of the incoming supply in Klang.
However, this sense of optimism does not bear out in the rental market. Going into specific locations, rental rates of old buildings in Shah Alam have dropped to RM1.40 per sq ft from RM1.60 per sq ft previously, while prices of new buildings hovered around the RM1.80-mark towards the end of 2015. In Klang, old factory space have gone to about 88 sen from 98 sen previously while the new ones are down to RM1.15 per sq ft from RM1.30 per sq ft initially.
This drop in rental rates notwithstanding, the general view is that there will be demand for industrial space in the country going forward due to the ongoing and upcoming infrastructure projects.
There is a lot of optimism for example in Sabah and Sarawak due to the various infrastructure projects there.
Among the notable highlights is the RM12.8bil funding for the Pan Borneo Highway, beginning with the construction of the route linking Sindumin in the west coast of Sabah to the east coast of Tawau.
A proposed rapid bus transit system was also announced for Kota Kinabalu. Also outlined were the proposed highways of Dash and West Coast and light rapid transit line 3.
Note: CH Williams Talhar & Wong, VPC Alliance (KL), PPC International, Knight Frank Malaysia, JLL Malaysia, Henry Butcher Malaysia and an analyst contributed to this 2016 outlook.
There is, therefore, the tendency for trends from the previous year to carry forward to the next. This being the second week of the new year, most of us would have read the writing on the wall.
Although the Government will be revising Budget 2016 – tabled just three months ago – Prime Minister Datuk Seri Najib Tun Razak said “we are not in a crisis”, just “taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control.”
The property sector – residential, commercial and industrial – enjoyed robust and rapid expansion between 2009 and 2013 just after the 2008 global financial crisis and it was during this period that many young people entered property investments which they can ill afford. Growth slowed in 2014 and decelerated in 2015, which is expected to impact those with little holding power.
Several consultants say they “do not foresee a recovery this year given the current economic challenges both internally and externally. Concern should be drawn on market sentiments for 2016 as Malaysia’s biggest challenge lies in its net external debt.”
Last week’s rout on the Chinese stock market and the depreciation of the yuan do not bode well for the overall global economy. China is among our largest trading partner and it has invested in Johor and the Klang Valley.
Although the Chinese economy will continue to grow over the longer term, China is undergoing a transition as it develops its market further. Its involvement in different sectors, especially in Malaysian real estate, will impact us.
But China aside, the weakening ringgit and the still-falling oil price have cast a pall over the larger economy. Aside from these three factors, the 2016 market is expected to be more subdued compared to 2015 due to the following:
> Oversupply in certain property sub-sector market;
> Stringent lending rules;
> Slow recovery of global economies;
> Too many launches at inflated prices in 2014 and prior to this;
> Full impact from developers’ interest bearing schemes (DIBS) to be felt this year; and
> National issues.
Property consultants and valuers in general are weary about predicting price trends because price alone does not constitute the market. It is upholding the value and integrity of the market that is important because of the close relationship between the property and banking sector. And here is where correct valuation is so crucial.
Says Faizan Abdul Rahman, Board of Valuers, Appraisers and Estate Agents Malaysia president: “Valuations underpin the banking sector... valuations for loan securities depend on proper valuations, accompanied by periodic updates to ensure the maintenance of loan security values.
“The system should also detect bad valuations at an early stage, before loan approval. Too often, it is only at the point when loans go sour that such valuations are inconveniently ‘discovered’,” says Faizan who is Valuation and Property Services Department deputy director-general.
The residential market
“House prices are expected to self-correct in 2016,” according to a VPC Alliance (KL) spokesman. Although 2015 saw a consolidation with flat sales and falling number of transactions, prices continued to escalate, although at a slower rate driven by rising costs and the implementation of GST.
Developers kept prices high by launching lesser units. Which such strategies may remain work in the short-term, over the longer term, developers may review their offerings to meet affordability levels of local consumption and to offer acceptable level of returns for the buy-to-let market. Investors are learning the financially painful lesson that paying higher price for a property does not mean higher rental. Although the residential segment will continue to be the main driver of the property sector, it will not be at the momentum seen in previous years.
Third quarter sales volume and value for 2015 drop 3.9% and 7.8% respectively compared with the previous quarter, according to the National Property Information Centre (NAPIC). Off-plan purchases and direct purchases from houses owners will be impacted negatively.
New launches generally declined in Kuala Lumpur, Selangor and Johor, yet these are the three states with the highest launches last year. The number of launches for 2016 is expected to further reduce compared to 2015 (which dropped compared to 2014). Developers large and small are expected to be affected.
Although not obvious, housing transactions saw a drop in volume by 2.6% and in value by 5.7% for the first half of 2015 against the first half of 2014, according to NAPIC. The higher decline in value against volume suggests that there was a drop in prices in general in 2015 because the second half continued to trend down.
The weak ringgit against other currencies led to active monitoring by foreign investors. They are, however, not committing themselves because as in any investments, any further fall in the ringgit means an erosion of the value of their investments. Therefore, the ringgit need to stabilise before foreign investors will enter the market.
The effects of the accesses of the past - freebies, rebates and developers’ interest bearing schemes - are expected to culminate in 2016 and 2017 as more projects are handed over to buyers. Thousands of high-rise residentials were sold compared with landed units the last several years. The landed market will, therefore, be more resilient than high-rise segment, which were sold by the tens of thousands, in the Klang Valley, Penang and Johor.
Johor Baru alone has an existing stock of 41,000 units compared to about 2,000 units in 2011/2012, with an occupancy of between 80% and 90% then. There will be an incoming supply of about 14,000 units, bringing its stock to about 55,000 units. In 2017, Johor Baru will have an incoming supply of about 26,000 units, bringing its stock to about 81,000 units. This avalanche has promoted a go-slow among high-rise developers.
The Johor government has rejected new applications to build serviced apartments and implemented a 1% property tax on serviced apartments. The oversupply is evidenced in Penang and the Klang Valley also.
There are two issues here – an oversupply of a particular product and a huge mismatch between what people can afford and what’s available for sale. Developers have been catering for buyers in middle high-end and above income bracket in urbanized localities the last several years, leading to a decrease in rentals and prices.
In the Klang Valley, about 13,500 units will be entering the market, of which 75% will be shoebox-sized units of about 500 sq ft. The challenge going forward is how to fill them. It will take more than one year to fill them.
Overall, the secondary market where buyers buy directly from house owners will be impacted. NAPIC data show that between the first and third quarter of 2015, the number of transactions dropped in number and value by 4.77% and 8.26% respectively compared to the corresponding period in 2014. This falling trend – both value and number of transactions – will continue this year.
The scarcity of landed units will give it a degree of resilience, particularly with the gated and guarded communities. Landed housing has gone beyond the reach of the lower-middle income group. New launches of landed units are further away from the city with little or no public transport links like Shah Alam, Rawang, Cyberjaya, Semenyih, Kajang and Bangi.
Commercial office space Companies from across the board are reducing headcount which naturally leads to drop in space needed. They have gone back to the landlords to renegotiate rental and space needed. A new leasing trend has also emerged – the average space required per staff has been reduced to below 100 sq ft from over 200 sq ft a few years ago.
The situation in the Klang Valley is more pressing than in Johor and Penang with about 9 million sq ft of purpose-built office space each compared to about 100mil sq ft in the Klang Valley.
Average rental in Penang is about RM2.80 psf (occupancy: 88%) but some landlords are asking for more to cover rising costs. In Johor, average rental is between RM2.80 and RM3.30psf, with occupancy rate of 75%.
Over the past two years, multi-national companies have unsuccessfully searched for suitable office space in Johor Baru, prompting developers to look into this segment. Some have offered low-rise office space in Medini for RM4.50per sq ft and this has been snapped up.
In the Klang Valley, with at least 4.1 million sq ft scheduled to be completed by end of 2015 and another 1.25 million sq ft scheduled to be completed by 2016, rentals and occupancy rates are expected to move downwards. Rental levels saw marginal movement the last three years due to over supply and incoming stock. Prime office commands gross rental of between RM7.50 and RM8 psf, some asking RM6.80psf. At the higher end is RM11psf; Petronas Tower 3 is at RM13psf.
Effective rental rates, however, have been gradually declining as more incentives are given with longer rent-free periods. Klang Valley landlords are innovative, they maintain the rental rate but give tenants one month free rent and other incentives. Tenants pay 11 instead of 12 months rent. The rationale is that when the good times return, landlord can move up the scale instead of agreeing to a drop in rates now.
Top grade office space rental, collectively known as Grade A (includes Grade A+ and A), is expected to come under pressure as oil and gas (O&G) sector takes a drubbing from continuing low oil prices. The banking sector occupies a third of Grade A office space in KL, O&G sector at 26%.
The general opinion in early December was that the limited supply of existing Grade A+ office featuring MSC status and Green Building Index (less than 10% of the total supply) would remain resilient. However, with the current oil price volatility, from hopes of it reaching US$50 a barrel in early December to about US$30 per barrel in just six weeks, does not bode well for the global economy.
Opinions differ whether city fringe areas enjoy better demand. Some consultants like the city while others champion prime fringe areas like Bangsar South, KL Sentral, Mid Valley and KL Eco City.
Retail market
Year-on-year growth was lower in 2015, compared with 2014, mainly due to the implementation of the goods and services tax (GST). The overall retail market has reported a drop by a third in spending and this is likely to continue as rising prices and a weaker ringgit begin to bite.
Some segments of food and beverage outlets should still be relatively stable or even strong for now, but may be hit as the year unfolds. Other retail outlets are feeling the pinch with most offering sales of 50%-70%. Smaller retailers are expected to downsize as they try to sustain themselves in order to stay afloat.
The scheduled openings of 10 new shopping malls by 2015/2016 in the Klang Valley is expected to impact occupancy and rent further. Consumers will be more selective in their spending and consumption will trend towards needs more than wants.
Weakening ringgit may attract foreign buyers and tourists, especially from Singapore into Johor. Price correction to occur in specific market segments.
Total retail stock is about 51 million sq ft with another 7.65 mil sq ft to open in 2016/17. About 2 million sq ft is expected to enter the Cheras market with the opening of Sunway Velocity and MyTown shopping centre .
It will be a challenge to fill up the space. Some malls in Petaling Jaya are feeling the pressure as tenants leave.
Johor Baru and Penang have about 13.3 million sq ft and 18 million sq ft of retail space respectively. Penang’s retail scene is expected to remain healthy in the near future. Interest is shifting to Batu Kawan. Johor’s retail scene is stable.
Industrial
Among all the sectors, industrial space seems to have a better prognosis. There is the view that rental rates for smaller industrial lots within the Klang Valley to hold steady with industrial lots below 100,000 sq ft expected to retain their rates as companies downtrend their businesses and become more cost conscious in light of the challenging economic conditions.
The introduction of incentives for industrial estates by the Government is expected to enable industrial estate operators to enjoy 100% tax exemption on statutory income for five years. This is likely to interest more developers to develop industrial estates in the Klang Valley.
As of the third quarter of 2015, industrial supply in the Klang Valley remained unchanged, with most of the incoming supply in Klang.
However, this sense of optimism does not bear out in the rental market. Going into specific locations, rental rates of old buildings in Shah Alam have dropped to RM1.40 per sq ft from RM1.60 per sq ft previously, while prices of new buildings hovered around the RM1.80-mark towards the end of 2015. In Klang, old factory space have gone to about 88 sen from 98 sen previously while the new ones are down to RM1.15 per sq ft from RM1.30 per sq ft initially.
This drop in rental rates notwithstanding, the general view is that there will be demand for industrial space in the country going forward due to the ongoing and upcoming infrastructure projects.
There is a lot of optimism for example in Sabah and Sarawak due to the various infrastructure projects there.
Among the notable highlights is the RM12.8bil funding for the Pan Borneo Highway, beginning with the construction of the route linking Sindumin in the west coast of Sabah to the east coast of Tawau.
A proposed rapid bus transit system was also announced for Kota Kinabalu. Also outlined were the proposed highways of Dash and West Coast and light rapid transit line 3.
Note: CH Williams Talhar & Wong, VPC Alliance (KL), PPC International, Knight Frank Malaysia, JLL Malaysia, Henry Butcher Malaysia and an analyst contributed to this 2016 outlook.
Quote from The Star as below link:
http://www.thestar.com.my/business/business-news/2016/01/16/opportunities-in-a-slow-property-market/
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