As Malaysia eases its Movement Control Order (MCO), the Malaysian property market is set for a major reboot as COVID-19 will forever change the way the industry operates. Here are our top eight predictions.
By Khalil Adis
The Malaysian economy has bucked the trend growing by 0.7 per cent in the first quarter of 2020 from the 3.6 per cent growth in the previous quarter, data from the Department of Statistics Malaysia (DOSM) showed.
However, the coronavirus pandemic has wreaked havoc in the job market with the unemployment rate increasing to 3.5 per cent compared to the 3.2 per cent recorded in the previous quarter.
"The increase in the unemployment rate was mainly attributed to the adverse impact of the Movement Control Order (MCO) on the labour market," said chief statistician Dato' Sri Dr. Mohd Uzir Mahidin
Meanwhile, employed persons in Malaysia increased to 1.6 per cent to 15.24 million persons in the first quarter of 2020.
The DOSM noted that the highest unemployment rate in Malaysia was in 1986 at 7.4 per cent.
Meanwhile, Bank Negara's Economic and Monetary Review 2019 stated that Malaysia's GDP growth is projected to be between -2.0 per cent to 0.5 per cent this year.
Noting that 2020 is "an exceptionally challenging year for the global economy", Bank Negara said global growth is expected to contract.
"While the Movement Control Order and measures to promote social distancing will dampen economic activity temporarily, they are necessary to contain the spread of the virus," Bank Negara said in a statement.
In terms of the construction sector, DOSM's data showed that it contracted 7.9 per cent from 1.0 per cent in the preceding quarter.
This is the lowest growth since the second quarter of 1999.
Moving forward, Dato' Sri Dr. Mohd Uzir Mahidin predicted that Malaysia is projected to record an unemployment rate of between 3.5 per cent and 5.5 per cent this year due to the impact from COVID-19
With the World Health Organization warning that COVID-19 "may never go away", a new normal in the property sector will emerge influencing how Malaysians will live, work and play.
Here are our top eight predictions arising from COVID-19:
#1: Property market will be extremely muted in 2020
The uncertainty arising from COVID-19 will have an impact on consumer spending.
Malaysia is expected to enter a recession this year resulting in job losses.
As such, consumers will prefer to hold on to cash amid the uncertainties ahead.
This will likely worsen the supply glut that Malaysia is already experiencing at the moment.
According to data from the National Property and Information Centre (NAPIC), as of 2019, Malaysia has an existing stock of 5,727,814 residential units.
In addition, it has an incoming supply and planned supply of 443,161 units and 441,309 units respectively bringing the total supply to a whopping 6,612,284 units.
Developers with unsold inventory, especially in the medium to high-end segment, will be faced with a double whammy.
They either have to drop prices to entice local buyers or continue to bleed as border controls imposed in the country means foreign investors are not allowed to enter Malaysia to view properties.
Either way, the prognosis does not look very good for the market.
Developers with strong branding, cash flow and who are offering affordable homes for locals will come out as winners amid this pandemic.
As we speak, some developers are currently rolling out Ramadan and Hari Raya packages with a low deposit of RM1,000 to continue enticing buyers.
However, whether or not buyers will be able to get a bank loan is another matter altogether.
#2: Office space demand will decrease
As businesses cut costs and working from home becomes the new norm, we can also expect a glut in office space supply to increase, particularly for Grade 'A' office.
According to data from NAPIC, as of 2019, Malaysia has an existing stock of 2, 549 office buildings with 22, 590, 473 sq m of space.
As more companies adopt the remote working model for good, existing office buildings will need to reconfigure their current space to factor in social distancing requirements.
Operators of coworking spaces and landlords will thus need to refurbish existing office spaces to continue attracting tenants.
New health requirements such as temperature takings and hand sanitisers may also translate to higher operating costs.
Meanwhile, developers with incoming and planned office supply in the pipeline will need to go back to the drawing board to redesign their office plans resulting in reduced floor density.
Data from NAPIC showed that Malaysia has an incoming and planned office supply of 51 buildings (2, 378, 131 sq m) and 15 buildings (398, 944) respectively as of 2019.
This sector will face downward pressure in their asking prices as more companies adopt a work from home policy.
Overall, the vacancy rate across Malaysia is expected to increase, further exacerbating the supply glut in the office market.
Developers who have already secured corporate tenants for upcoming office buildings in Kuala Lumpur such as Tun Razak Exchange (TRX) and Merdeka 118, before COVID-19 struck, are likely to emerge stronger from the crisis.
#3: Construction costs will increase due to late delivery of projects
The MCO restrictions have resulted in construction delays across all sectors of the property market.
During the MCO, construction sites were closed while materials which were sourced from overseas were impacted from the shut down of the global supply chain.
With the MCO now eased, construction has now restarted but with temperature screenings, staggered working hours and social distancing in place.
With construction now delayed by two to three months and with new safety requirements, we can expect construction costs to increase.
This will likely be passed on to consumers.
Whether or not such new projects can attract buyers with a higher per sq ft price remains to be seen due to the uncertainty in the economy and the job market.
Buyers with cash in hand may instead look to the secondary market where prices are more realistic.
#4: Tourism, food & beverage, transportation, travel, retail and hotel industries will be adversely affected
The MCO has seen a knock-off effect on the tourism, food & beverage, travel, retail and hotel sectors due to international and local travel restrictions.
According to the Malaysian Association of Hotels (MAH), approximately 15 per cent of hotels in the country may have to shut down their operations.
Data from NAPIC showed that as of 2019, Malaysia has an existing stock of 3,404 hotels with 266, 972 rooms.
Several of these hotels, located in tourism hot spots such as Kuala Lumpur, Ipoh and Melaka, have now ceased operations or are in the process of being auctioned off.
With a planned and incoming supply of 114 hotels with 24,161 rooms and 74 hotels with 14,810 rooms respectively, we can expect demand for the hotel sector to remain muted.
As it is, hotel operators are already facing stiff competition face from owners of Airbnb units.
So, until a vaccine is found, the hotel and Airbnb sectors will continue to bleed.
For hotels that are in the planned and incoming supply, they are faced with a dire situation to continue operations but where demand from tourists are far and few between.
It remains to be seen whether the construction of such hotels will continue or if they will be cancelled altogether.
Either way, they will be likely operating in the red.
The only exception is hotels which have been gazetted as quarantine areas.
For Airbnb owners, you might want to convert your units to long-term leases or student accommodations in the time being.
#5: Retail sector will see many businesses cease operations
While shopping centres can now operate, the damage is already done.
The MCO that kicked in on March 18 means that businesses are greatly impacted as malls are forced to closed.
Combined with running overheads such as cleaning costs, rent, wages, refurbishing damaged goods and other operating costs, shop owners are under great financial stress to either continue operation or wind down their business for good.
Either way, human traffic will not return to normal due to social distancing requirements.
As such, we can expect small to medium retail outlets and F&B outlets, particularly those leasing spaces at high-end malls to shutter.
Instead, they will switch to online shopping.
#6: Digital-related, food, healthcare, pharmaceutical and wellness sectors will thrive
Digital-related sectors such as online shopping, delivery, technology and website hosting will thrive amid the pandemic as working from home now becomes the new norm.
Developers and agents will need to adapt to changing market situation via contactless procedures such as conducting online viewings and meetings to close sales.
For instance, online property portals such as iProperty.com are coming up with innovative ways to help their clients sell property online.
In a post-pandemic world, Zoom meetings have now become ubiquitous.
This is also an ideal time for individuals to start a side hustle such as small home-based business selling cookies online to supplement their income
COVID-19 also means increased demand for food, healthcare, pharmaceutical and wellness industries.
On March 27 2020, the Malaysian government announced a second stimulus package to combat COVID-19.
For instance, an extra RM500 million has been allocated to purchase medical equipments, such as ventilators, personal protective, lab and ICU equipments.
Meanwhile, another RM1 billion is allocated for the purchase of medical equipment and expertise from private healthcare services.
#7: Tenants from healthcare industry will drive the rental market
With RM1.5 billion in total allocated to support the healthcare sector, this presents good news for investors who are holding on to vacant Airbnb units or landlords who are located close to such industries to seek out such tenants.
Having said that, the rental market in Malaysia is very soft at the moment so the rental income may or may not cover your mortgage.
As data from NAPIC showed earlier, Malaysia has an existing stock of 5,727,814 residential units as of 2019.
This will increase in 2020 arising from the supply from incoming and planned units.
While some investors may have to top up cash, having a negative cash flow is better than leaving your units untenanted.
Investors should seize this opportunity.
#8: 2020 is about business consolidation
As long as there is no vaccine found, business activities will never return to normal.
Forget about whatever business plans that you have planned in 2019.
Instead, brace yourself for a long, cold, winter ahead.
Consolidation will be the new normal for this year as many developers and industry players will focus on conserving cash.
Leveraging on digital technology will be the new norm.
We can expect pay cuts, hiring freezes and retrenchments as businesses cut losses on non-revenue generating departments.
We have already seen certain developers doing this and establishing working from home permanently.
This is the time to learn a new skill, read books and focus on self-development to continue staying relevant in your respective fields.
An independent analysis from yours truly