2. Table of Contents
1
2
3
4
5
6
6.1
6.2
6.3
6.4
6.5
7
Looking Back into 2016
Major Highlights of 2016
That Will Affect the Property
Market in 2017
Property Affordability Issues
Actions and Suggestions to
Ease Property Affordability
Loan Rejection Issues
2017 Outlook
Factors That May Push
Property Prices Up in 2017
KL 2017 Outlook
Selangor 2017 Outlook
Penang 2017 Outlook
Johor 2017 Outlook
Conclusion
02
05
03
06
08
09
12
14
16
19
21
04
3. Malaysia Market Slowdown
2016 was another quiet year for the Malaysian property market. As reported in the PropertyGuru 2016
Outlook Report, 2016 was a renters’ market.
Residential properties in Kuala Lumpur saw a decrease in gross rental yields from 8% two years ago
to 4.5% in 2016. Rental rates of Menara TH Platinum, a Grade A office within the KLCC area, also
reduced their rental rate to RM5 psf in 2016 even though the market rate in the area was RM11 psf.
Property transaction volumes and their value saw a decrease in Kuala Lumpur, Selangor, Johor and
Penang.
Looking Back into 2016
02
According to the PropertyGuru Price Index data, the average asking psf price for properties in Kuala Lumpur,
Selangor, Penang and Johor have remained stable from mid-2015 to mid-2016 with little change.
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Price Index
KL Selangor Johor Penang
1
4. 03
The government’s actions in 2016 indicates that they were trying to boost Malaysians’ spendings:
i. Statutory Reserve Requirement (SRR) lowered from 4% to 3.5% in January 2016
ii. EPF contribution rate reduced (optional) to 8% instead of 11% in February 2016
iii. OPR rate decreased from 3.25% to 2.75% in July 2016
iv. Developers officially allowed to provide loans now under the Developer Financing Scheme
(Sunway Bhd was the first to apply this) in September 2016)
But a look at the price hikes in 2016 show that the citizens of Malaysia might have to channel their
additional cash flow elsewhere:
i. Cooking oil price increased significantly after Budget 2017 announcement
ii. Petrol increased in price after Budget 2017 announcement
iii. Toll prices take another significant hike after Budget 2017 announcement
The above price hikes are then expected to translate to:
i. Increased food prices
ii. Increased cost of living overall
In short, the government was clearly trying to increase the public’s spendings to boost the flailing economy.
Lower SRR rates encourage banks to provide more loans, and lower EPF contributions and OPR rates
supply more cash to Malaysians for extra spending.
And unable to convince Bank Negara to loosen their stringent stand on ‘Responsible Lending’, the
government has now officially sanctioned developers to provide property loans. The interest rates for the
Developer Financing Scheme is however on the steep side, at 12% for loans with collateral and 18% for
loans without collateral.
Major Highlights of 2016 That Will
Affect the Property Market in 2017
2
5. 04
“40% of the Malaysian population is classified to be of the lower income group with a gross monthly
household income of RM6,075. This allows them to purchase properties priced at only RM450,000
and below.”
Affordability is still the main issue when it comes to buying a property. According to statistics, the
lower income group is defined as households that earn less than RM3,000 per month, while the middle
income group are households that earn between RM3,001 to RM6,999 per month. The upper middle
income group has household earnings of between RM7,000 to RM12,000 per month, and anything
above that is considered to be of the higher income group.
As of the year 2016, 40% of the Malaysian population has been classified to be of the lower income
group, constituting almost half the population. The Malaysia 2017 budget announcement has
addressed the concerns of those in the bottom 40% of the income range bracket with the MyBeautiful
New Home (B40) initiative.
There are however more concerns that need to be addressed. In Malaysia, property affordability
is defined as the ability to service a mortgage loan with at less than 30% of household income.
Those whose mortgage loan instalments exceed 30% of their household income are deemed to be
overburdened and may have difficulties with other necessities in life such as food and education.
According to the statistics calculated by PropertyGuru, the mean monthly household gross income as
of 2015 was RM6,075 per household.
This means that the average Malaysian citizen will only be able to pay approximately RM1,822 per month
for their property; translating to a property priced at RM450,000, with a loan period of 35 years at an
interest rate of 4.25%.
Finding a decent home with only RM450,000 within the city limits is however getting to be an unattainable
feat, and the affordable home projects are difficult to procure due to their limited numbers.
First time home buyers who need a new home urgently are then forced to find a way to afford the inflated
property prices. It would hence also be interesting to note that according to REHDA, properties in the price
bracket of between RM500,001 to RM700,000 are the most susceptible to loan rejection.
This graph combines data from the Gross National Income (GNI) and the average Malaysian salary. It is an indication of the average Malaysian household income.
Property Affordability Issues
0
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3
6. 05
Actions and Suggestions to
Ease Property Affordability
New Affordable Home Scheme - B40
The MyBeautiful New Home (B40) initiative is the new affordable home scheme unveiled during the
Malaysia 2017 budget announcement, which caters to the lower 40% income bracket of the population;
hence its short form name. This new initiative which the maximum household income allowed for
applicants is RM3,900, addresses the urgent needs of the lower income bracket for affordable homes.
Additional Assistance from the Government
To ease the burden of low cost and affordable home buyers, the government announced in the 2017
budget announcement that they are going to waive 100% of the stamp duty for homes priced at
RM300,000 and below.
Property experts however recognise the impracticality of this move for the property ceiling price being
too low and are urging the government to increase it to RM500,000 instead.
Building Shell Homes
Other things that property experts are proposing to build are shell homes. According to Sarkunan
Subramaniam the Managing Director of Knight Frank, prices of homes in the current market are inflated
because of the various ‘freebies’ provided - which the buyer may not even want or like.
As a result, many newly completed partially furnished homes are usually heavily renovated before the
owner even moves in. According to Sarkunan Subramaniam, this is wasted cost as the buyer is actually
paying an inflated price for ‘free’ home structures and furnishings that they do not even want.
So if developers are able to build shell homes, meaning just the walls and structures of the homes itself,
then the owner will be able to renovate the home as they wish without tearing down unwanted built-in
cabinets, island tables and disliked sanitary ware. This way, buyers will save a hefty sum of money on
purchasing the property and renovations.
4
7. Looking at the official numbers, it is also confirmed that the total number of transactions for housing
volume has decreased from 119,446 properties in H1 2015 to 102,906 properties in H1 2016.
An insufficient level of income is usually what renders most first time home buyers unable to procure
a mortgage loan - which resulted in an over 50% rejection rate by banks according to Real Estate and
Housing Developers Association (REHDA) in March 2016.
The estimated percentage for salary increment in 2017 has not yet been announced, but based on trend
which in 2015 salaries all around were increased by an average of 5.6% and in 2016 by an average of
5.8%, 2017 might perhaps bring a minimum salary increment of 5.5%. The latest household debt-to-gross
domestic product ratio remains high at 89.1% as recorded in 2015 as opposed to 86.8% in 2014.
Mortgage loan rejection rates are expected to remain high in 2017. Bad CCRIS records
(inconsistent PTPTN and credit card repayment, low DSR and lack of credit records) is the
main reason for high mortgage loan rejection rates.
According to statistics retrieved from Bank Negara Malaysia (BNM), it would appear that as compared to
1H 2015 the number of mortgage loans applied have decreased by 0.4% - but the rate of approvals have
dropped by approximately 20%. The disbursed loans are also slightly lower in 1H 2016 by approximately
5%. Conclusively, approximately only 40% of the mortgage loan applications are being approved.
1k
2015 Oct
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2016 Jan 2016 Apr 2016 Jul
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Loans Approved by Sector LoansDisbursed by Sector
This graph shows the number of loans applied, approved and disbursed by sector from
September 2015 to September 2016. It is clear that loan rejection rates are high.
06
Loan Rejection Issues
5
8. 07
The main reason behind the high rejection rates are not only due to low income levels, but are also due to
bad credit scores in CCRIS - which are affected by bad credit card repayment records and most recently
by bad PTPTN repayment records.
An improvement in this situation is not foreseeable, as according to Dato’ Ar. Aminuddin bin Abdul Manaf
the COO of Perbadanan PR1MA, the only thing they can do is to open PTPTN counters for customers
when promoting their development and ask their buyers to check their CCRIS before they apply for a
mortgage loan.
The other top reasons that mortgage loans are being rejected almost as fast as they are submitted are
because:
i. Applicants apply at banks that do not fit their set of criteria (e.g. minimum income band and minimum
DSR limit)
ii. De-Cheque (in the event that you have 2 or more bounced cheques in the last 12 months)
iii. Insufficient credit score (lack of credit records)
REHDA members are pushing for banks to ease up on mortgage loan requirements in order to help young
and small families afford their first home.
Showing the cost of living statistics from January 2010 to July 2016, the cost of living, especially cost of F&B, has increased significantly over the years.
Food & non-alcoholic beverages
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Housing, water, electricity, gas & other fuels
Overall CPITransport
9. 08
2017 Outlook
Based on the combined data from the PropertyGuru Price Index and official statistics, 2017 is expected
to be another slow year for the property market. With the completion of all the new developments
flooding the market in 2017, there may be an occasional drop in selling price from property investors with
the lack of holding power.
Gary Chua, CEO of Smart Financing however states that the occasional drop in price, otherwise known
as price correction, is normal and healthy.
With loan approval rates being on a declining trend and with no let up on the mortgage loan guidelines,
the year 2017 is also expected to see a high rate of loan rejections.
Rental Market Expected to Grow
Due to the high cost of purchasing a property, many may still opt to rent a property instead as they
will have the bargaining power with an ample supply of rental properties. 2017 is still expected to be a
renters market with many expats leaving the country due to the subdued oil and gas sector.
As the Malaysian census is taken only once every 5 years, it is not clear as to whether expats have been
leaving the country between the years. However, the available numbers make clear that Malaysia is no
longer as popular a country to migrate to as it used to be.
According to the World Bank, there were a total of 1,722,344 immigrants living in Malaysia in the year
2005. In 2010 when the next census was taken, the numbers increased sharply to 2,405,011 immigrants.
The number of immigrants have however not changed significantly between 2010 and 2015 with a total
of 2,514,243 immigrants in 2015, lending credit to the assumption that expats have been leaving the
country due to the slow oil and gas industry performance.
If expats were to leave the country in significant numbers which translates to less rented residential
properties needed, rental rates in areas such as KLCC which has a total expat population of 46% from
the total KLCC population will be the most affected.
6
2017 property market expected to remain slow with high mortgage loan rejection rates.
Market is also expected to face temporary oversupply as new developments are completed.
Price of newly launched developments may increase slightly due to cross subsidising and
increasing land costs.
10. 09
Factors That May Push
Property Prices Up in 2017
Cross Subsidising
According to a study, the average Malaysian house price has experienced a compounded annual growth
of 7.8% between the years 2009 and 2014. While Malaysians are afraid of property prices increasing
due to cross subsidising, developers say that it “shouldn’t be a problem”. Other property experts such
as Siva Shanker the Head of Investments in Axis REIT Managers Berhad say that cross subsidising is
inevitable in order to house the lower income group.
Cross subsidising happens when developers build low cost homes that are in actuality more expensive
than what they are selling for. For example, a low cost landed property costs approximately RM75,000 to
build and a low cost strata development approximately RM105,000 to build; excluding the land cost. But
both their controlled selling price is set to RM42,000.
Hence the additional costs to build the low cost homes will be cross-subsidised over to other homes
not under the affordable home schemes - which will in the long run increase the prices of medium and
high end properties so that the developers involved can continue to sell the affordable homes at their
stipulated prices.
Increasing Land Costs
Property developers claim that they do not make much profits in property development; only an average
of approximately 15% per project. Developers’ profit margins are however expected to decrease
with increasing compliance costs which vary from state to state, and which are still increasing. In fact
according to Dato’ Steve Chong the Chairman of Real Estate Housing Developers’ Association (Johor),
land cost has risen three to four times in the last 15 years.
Another issue developers grouse about is the rising cost of building materials which now have GST
tagged on to them.
The government wishes to cut down the price of properties, but according to Rehda Selangor Chairman
Zulkifly Garib, unfortunately, the developers by themselves are unable to reduce the prices. They need
the cooperation of all stakeholders including the federal and state government.
If the cost of development increases significantly, developers will pass on part of the costs to the buyer.
6.1
11. 10
International Interest in Malaysian Property
Data have shown that Malaysia is popular with China citizens, with juwai.com noting a five and a half
times hike in interest from Chinese investors in October 2016.
Reported in the Bangkok Post, Forest City has also sold 500 pre-sales units of a residential
development that is not meant to be completed until the year 2035, with their sales executive selling
10 properties in one sitting to a Chinese businessman.
Malaysia’s neighbouring countries however do not see the potential of property investment in
Malaysia, with the majority of Singaporeans still preferring to invest in Australia, Indonesia in Italy
and Thailand in Laos.
Malaysia is clearly not the preferred country for property investment among Singapore, Thailand and Indonesia.
12. 11
Long Term Plans That Will Affect the Property Market
i. LRT (Kelana Jaya Line Extension) will include 13 new stations from Kelana Jaya towards
Ara Damansara, Subang and USJ, before ending at Putra Heights. The additional stops will be
operational in stages beginning Q4 2016.
ii. LRT3 (formerly known as Shah Alam Line) will have 26 new stations. Ten of the stations are
expected to have park-and-ride facilities, and 13 of them have the potential to be future Transit
Oriented Developments (TOD). Expected completion date is 2020.
iii. MRT Line 2 (Sungai Buloh-Serdang-Putrajaya Line) first phase is to be operational by July 2021
and the rest to be operational by 2022.
iv. MRT Line 3 (still under planning and evaluation) is to be the Circle Line that will encompass key
areas such as Bandar Malaysia, KL Ecocity and Sentul.
v. High Speed Rail (HSR) project connecting Malaysia to Singapore in less than 99 minutes to be
completed in 2026 (estimated). KL station site to be in Bandar Malaysia.
vi. Singapore-Kunming Rail Link (SKRL) discussions ongoing, outcome is expected to be good.
The rail will stretch from China to Singapore and is expected to eventually stretch to Malaysia
and Thailand.
vii. HSR from Kuala Lumpur to Bangkok talks have commenced. Target deadline is 2026.
13. MYR 0.00
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Value of Property Transactions
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0
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12
• Number of property transactions dropped from 6,939 in H1 2015 to 5,541 in H1 2016 for residential properties
• Number of property transactions dropped from 2,056 in H1 2015 to 1,615 in H1 2016 for commercial properties
• Number of property transactions dropped from 111 in H1 2015 to 110 in H1 2016 for industrial properties
• Value of property transactions dropped from RM5,091.09 million in H1 2015 to RM4,237.08 in H1 2016
for residential properties
• Value of property transactions increased from RM3,507.59 million in H1 2015 to RM4,107.84 in H1 2016
for commercial properties
• Value of property transactions dropped from RM238.17 million in H1 2015 to RM218.73 in H1 2016 for
industrial properties
KL 2017 Outlook
Sourced from Napic
6.2
14. 13
Grade A Office Rental Rates Remain Flat
Since the oil price slide in 2014, the rental rates in KLCC have gradually reduced due to expats
leaving the country. The most affected areas are those near and around Petronas. As O&G
companies look to cutting costs via reducing their workforce, they also need smaller offices with
their smaller workforce.
According to a Knight Frank report, in MNC companies 50% of the costs are taken up by payroll
while real estate take up approximately 15% to 20%. Hence if building owners do not reduce their
rental rates, they may face losing their tenants.
The rental rates for KL City as reported in Q1 2016 showed a slight dip of 0.3%, and as of May 2016
Menara TH Platinum at Platinum Park was rented out at RM5 psf even though its market rate was
RM11 psf.
As of H1 2015 the occupancy rate of offices in Kuala Lumpur was 80.6%, while in H1 2016 the
occupancy rate was 79.7%. The total available office space for occupation was 1,611,205 sqm in
H1 2015, which increased to 1,717,304 sqm in H1 2016.
The property market in Kuala Lumpur is expected to remain flat in 2017 with a stagnant
or reducing transaction volume. Prices of properties in this region are also expected to
remain stagnant, as the average price psf of properties in Kuala Lumpur in April 2015 was
RM752, while in August 2016 it was RM743. The rental market may further dip for more
commercial developments, as office supply increases, new developments are completed,
and competition becomes tighter.
15. MYR 0.00
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0
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14
Selangor 2017 Outlook
• Number of property transactions dropped from 28,919 in H1 2015 to 24,839 in H1 2016 for residential properties
• Number of property transactions dropped from 4,195 in H1 2015 to 2,719 in H1 2016 for commercial properties
• Number of property transactions dropped from 1,136 in H1 2015 to 735 in H1 2016 for industrial properties
• Value of property transactions dropped from RM12,332.40 million in H1 2015 to RM11,243.50 in H1 2016
for residential properties
• Value of property transactions dropped from RM3,723.64 million in H1 2015 to RM2,319.98 in H1 2016 for
commercial properties
• Value of property transactions dropped from RM3,159.26 million in H1 2015 to RM2,434.63 in H1 2016 for
industrial properties
Sourced from Napic
6.3
16. Transit Oriented Developments Are the Future
Prasarana is building 7 Transit Oriented Development (TOD) projects in Selangor over the next
4 years with a combined GDV of RM4 billion. The developments will be integrated with LRT and
monorail systems. The targeted LRT stations for the TOD developments are Dang Wangi LRT
station, Kelana Jaya, Awan Besar, IOI Puchong Jaya and Ara Damansara. The monorail station to be
utilised is Tun Sambanthan in Brickfields.
Subsidised Boutique Office Units and Serviced Apartments in Selangor
SoHo, SoVo and SoFo units will become very much more affordable in Selangor in the coming year.
The Selangor Housing and Property Board (LPHS) came up with a radical move in September 2016
to allocate up to 30% of their boutique offices and serviced apartments as affordable units.
Projects which have 500 units and below must have 10% allocated as affordable units, while
projects with 501 to 1,000 units must have 15% allocated as affordable units. Any project with over
1,000 units must have 20% allocated as affordable units.
The price cap for affordable SOHO/SOVO/SOFO is RM230,000, while prices for affordable serviced
apartments are capped at RM270,000. The sizes of the former category will be a minimum of 450 sq
ft and the latter 550 sq ft.
15
The property market in Selangor is expected to remain flat in 2017 with a stagnant or
reducing transaction volume. Prices of properties in this region are also expected to
remain stagnant, as the average price psf of properties in Selangor in April 2015 was
RM489, while in August 2016 it was RM470.
However if the trend from 2016 continues, terrace and link homes will be the least
affected with this category’s price drop being the most minimal at from RM436 to RM428,
compared to the other 3 categories of high rises, bungalows and semi-detached houses
which have average price drops of RM24 psf.
17. 0
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H1 2015 H1 2016
Number of Property Transactions
Residential Properties Commercial Properties Industrial Properties
MYR 0.00
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H1 2015 H1 2016
Value of Property Transactions
Residential Properties Commercial Properties Industrial Properties
• Number of property transactions dropped from 7,743 in H1 2015 to 6,698 in H1 2016 for residential properties
• Number of property transactions dropped from 1,228 in H1 2015 to 776 in H1 2016 for commercial properties
• Number of property transactions increased from 427 in H1 2015 to 197 in H1 2016 for industrial properties
• Value of property transactions dropped from RM3,142.14 million in H1 2015 to RM2,648.92 in H1 2016 for
residential properties
• Value of property transactions dropped from RM1,305.79 million in H1 2015 to RM539.28 in H1 2016 for
commercial properties
• Value of property transactions increased from RM444.38 million in H1 2015 to RM464.42 in H1 2016 for
industrial properties
Penang 2017 Outlook
16
6.4
Sourced from Napic
18. 17
Penang May Begin to Impose Rent Control
Rental rates within the heritage areas of Penang are increasing due to investors looking for the best
rental returns, which has in turn forced many elderlies out onto the streets as they can no longer
afford the rental rates of their lifelong homes.
The government is considering reinstating rent control in response to the outcry, but according to
Mark Saw the executive director of PPC International Penang Sdn Bhd, the last time rent control
was implemented property values were stagnant until the government lifted the law.
The property market in Penang is expected to be stable in 2017. Prices of properties
in this region may see a slight appreciation, as the average price psf of properties in
Penang in April 2015 was RM654, while in August 2016 it was RM673.
If implemented the rental control will affect property rental rates, but as of Q4 2017 the
Penang market is the healthiest among Johor, Selangor, Kuala Lumpur and Penang.
The average price psf for high rises, bungalows, semi-detached homes and terrace
homes have all increased by an average of RM17.50 psf. Semi-detached homes enjoyed
the most increment at RM30 psf between April 2015 and August 2016, while high rises
enjoyed the least increment at RM7 psf.
19. 18
Subsale Properties in Penang Remain Bullish
While statistics show that the overall number of transactions have dropped, Penang’s market still
remains active in good locations. Nevertheless, the Penang property market recorded a 14% drop
to 6698 transactions valued at RM2.65 billion as compared to the same time in 1H 2015 where
recorded transactions were valued at RM3.14 billion.
Industrial Properties in Penang Expected to Remain Stable
While all other property types in Penang have seen a decline in property transaction and value,
the industrial property sector has seen a growth in both. Reported by Henry Butcher Penang
in September 2016, the value and transaction of industrial properties in Penang is expected to
experience stable growth as Penang is export-oriented, contributing to nearly 20% of the Malaysian
Foreign Direct Investment (FDI).
Further attracting trade and investors’ attention to Penang is the signing of the Trans-Pacific
Partnership Agreement (TPPA) that is a comprehensive free trade agreement involving 12 countries.
The TPPA was negotiated for 7 years, with Malaysia negotiating for 16 rounds before finally signing
the agreement on 27th January 2016. The TPPA will involve 12 countries including Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States of
America and Vietnam.
20. MYR 0.00
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0
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19
• Number of property transactions dropped from 15,368 in H1 2015 to 13,693 in H1 2016 for residential properties
• Number of property transactions dropped from 2,383 in H1 2015 to 1,583 in H1 2016 for commercial properties
• Number of property transactions dropped from 683 in H1 2015 to 358 in H1 2016 for industrial properties
• Value of property transactions dropped from RM4,576.36 million in H1 2015 to RM4,302.42 in H1 2016 for
residential properties
• Value of property transactions increased from RM1,663.41 million in H1 2015 to RM1,769.82 in H1 2016
for commercial properties
• Value of property transactions dropped from RM1,294.43 million in H1 2015 to RM930.62 in H1 2016 for
industrial properties
Johor 2017 Outlook
6.5
Sourced from Napic
21. Johor and China Cements Relationship
China is definitely making its presence known in Johor with their mega development projects.
Country Garden was one of the first to penetrate Johor with their purchase of 22.26ha land in Danga
Bay, followed by R&F which purchased 47ha in Johor Bahru. One of the latest headlines is Forest
City which will span 1,386ha of reclaimed land, and will house international schools, a shopping
mall, medical facilities, hotels and even convention centres.
Pasir Gudang to Undergo Major Facelift
Pasir Gudang which is located in Zone D of Iskandar Malaysia and has an approximate population
of 100,000 will be undergoing a major facelift with Mah Sing building its largest township of 531.1ha
in the district. The development will comprise of 5 phases, which the first phase is expected to be
completed by 2018.
Singaporeans Are Looking for Landed Homes in Johor
New developments that are located strategically close to the borders of Singapore are being
snapped up by Singaporeans looking for landed homes across the border. Melia Residences by
UEM Sunrise was fully sold out within 2 days of its launch, with the majority of its buyers being
Singapore permanent residents from Malaysia.
Prices of Property in Iskandar Expected to Surge in 10 Years
Property experts expect property prices in Iskandar to surge within the next 10 years and become
the world’s most prosperous regions. The upcoming HSR and Johor Bahru-Singapore Rapid Transit
System (RTS) is expected to contribute significantly to the price hike.
20
22. 21
Conclusion
Property Market to Remain Flat
The Malaysian property market is expected to remain flat in the year 2017 due to several reasons, with
some of them including:
i. New cooling measures to reduce property flipping
ii. An increasing supply of residential properties
iii. A continuous low average of gross monthly household income
The cooling measures the government put in place as explained will begin to deter property flippers. On
top of that, official statistics show that the sales of newly launched projects have dropped from 29.8% in
H1 2015 to 25.6% in H1 2016 from the total number of units available in the new project launches during
the respective time frame.
Extracting the statistics of the mean monthly household gross income from previous years and
combining them with Malaysia’s GDP growth rate, it is also forecasted that the average household
income in 2017 is not going to rise by much - hence property affordability is going to very much remain
stagnant.
Accumulatively, all the data indicate that the year 2017 is expected to be another slow year.
