Malaysia property outlook and predictions for 2023

​While recent official visits from both Singapore’s and Malaysia’s foreign ministers will see both sides committed to completing the Johor Bahru–Singapore Rapid Transit System (RTS Link) and improve connectivity, more needs to be done to resolve its chronic property overhang.
By Khalil Adis

Buying activity is picking up in Malaysia fuelled by local buyers. Photo: Yulia.

In less than six years, Malaysia has seen five different  prime ministers and the cancellation of several mega projects including the Kuala Lumpur–Singapore high-speed rail (HSR).

Combined with its weakening ringgit, they have had an impact on the perceived political stability of the country and affected investors’ confidence.

While Singapore’s and Malaysia’s foreign ministers have recently reaffirmed ties and announced the completion of the Johor Bahru–Singapore Rapid Transit System (RTS Link), buying activity among Singaporeans particularly in Iskandar Malaysia remains muted.

Nevertheless, demand for the mass market housing segment will continue to be robust across Malaysia in 2023 judging by the volume of new launches for affordable homes in the third quarter of 2023, data from the National Property and Information Centre (NAPIC) showed.

According to NAPIC, of the 8,226 units launched during the quarter, 48.2 per cent (3,996 units) were priced below RM300,000 suggesting that they were geared towards local buyers.

Of this, 67.8 per cent (5,581 units) comprised high-rise development while 32.2 per cent (2,645 units) are landed properties.

Despite this, property overhang continues to be a serious issue across Malaysia that appears to have been further exacerbated by the impact of Covid-19.

From Johor to Kuala Lumpur, the number of unsold residential units has continued to remain consistently high with no sign of relief, since NAPIC started tracking the data.

Nevertheless, buying activity has rebounded strongly from 61,283 units transacted in the third quarter of 2021 to 105,204 units transacted in the same quarter in 2022, suggesting a recovery in the property market.

Of the 105,204 units transacted, 64,989 units or 61.8 per cent are in the residential sector followed by commercial and industrial at 8,570 units (8.1 per cent) and 2,213 units (2.1 per cent) respectively.

Johor

Bungalows at East Ledang in Iskandar Puteri, Johor. Photo: Khalil Adis Consultancy.

Johor continues to be the leading state for residential overhang at 5,348 units followed by Penang and Selangor at 5,222 and 4,386 units respectively as of the third quarter of 2022.

In the serviced apartment sector, Johor also had a whopping 14,780 overhang units followed by Kuala Lumpur and Selangor at 5,346 and 2,586 units respectively in the same period.

This suggests there is a severe mismatch between what buyers can afford versus what developers are offering.

In Johor, the supply glut has affected prices in the secondary market.

For example, at the peak of the market, condominium units in Iskandar Puteri, Danga Bay and Medini were launched at an average price of around RM1,000 per sq ft.

Country Garden Danga Bay, for instance, is now listed on property portals with an asking price of around RM600 per sq ft.

Over Iskandar Puteri, Teega @ Puteri Harbour was launched at around RM600 per sq ft and is now asking for around RM630 per sq ft.

Similarly, Meridin @ Medini is now asking for around RM580 per sq ft.

The only exception is Ujana which was launched at around RM250 per sq ft and is now asking for around RM450 per sq ft.

Nevertheless, the data suggest that the oversupply situation has stunted capital appreciation for residential properties.

With many good deals to be sought in the resale market, this may favour first-time homebuyers who are looking for a completed property in move-in condition.

The auction market is also another place that investors may want to look into for below-market-value (BMV) as such deals at public auctions have become ubiquitous due to the impact of Covid-19.

While such properties may offer good deals, due diligence is important as there are inherent risks involved. 

Still, there are bright spots in Johor once the RTS Link is scheduled to be operational by the end of 2026, following a meeting on 16 January 2023 with Singapore's Foreign Affairs Minister Dr Vivian Balakrishnan and Malaysia’s Zambry Abdul Kadir.

Connected to the Thomson-East Coast MRT line (TEL), properties around the Bukit Chagar and JB Sentral areas may see their resale value increase due to the enhanced connectivity that will spur cross-border investment in tourism, real estate and retail industries.

Unfortunately, we are unlikely to see the resumption of the Kuala Lumpur–Singapore high-speed rail (HSR) project anytime soon.

As such, the outlook for properties around the Gerbang Nusajaya, Iskandar Puteri, and Medini as well as around the planned areas in Batu Pahat and Muar will continue to be muted.

We are also unlikely to see robust buying activities for residential properties among Singaporeans and foreign investors like those seen in 2010.

Selangor

Selangor's real estate sector will benefit immensely from the Putrajaya Line. Photo: Deva Darshan.

The growth areas in Selangor will be those along the Putrajaya Line spanning from Kwasa Damansara through the Klang Valley and to Putrajaya Sentral.

The second line of the Klang Valley MRT Project to be developed, full service is expected to start in January 2023.

Kwasa Damansara, in particular, will be home to transit-oriented developments (TODs) that will include affordable homes, three shopping centres and a hotel.

Spanning 64 acres and with a gross development value (GDV) of RM8 billion, the township will be served by Kwasa Damansara and Kwasa Sentral MRT stations.

Another area to watch out for is around Sierra MRT station which is developed by IOI Properties.
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Located on the southernmost tip of Puchong, Sierra is poised to enjoy the economic spillover benefits from three major government projects - KLIA Aeropolis, Malaysia Vision Valley and Cyberjaya City Centre in Cyberjaya.

Speaking of Cyberjaya City Centre, Cyberjaya City Centre MRT station is a TOD project to be developed by Malaysian Resources Corp Bhd (MRCB) with a development plan spanning 20 years.

Phase one is expected to generate a gross development value (GDV) of RM5.35 billion.

It will feature a 200,000 sq ft convention centre, a 300- to 400-room business hotel, low and high-rise office buildings and a retail podium.

Kuala Lumpur

The vibrant shopping enclave of Bukit Bintang, Kuala Lumpur. Photo: Khalil Adis Consultancy.

With travel restrictions now lifted, Kuala Lumpur will continue to see strong interest for high-end properties among local and foreign buyers in KLCC, Bukit Bintang, Bangsar, Mont Kiara, Sri Hartamas, Bukit Jalil and Damansara Heights.

Like Johor, the good deals are in the secondary market where their prices are significantly lower compared to new launches.

This is partly due to the 5,346 overhang units for serviced apartments in Kuala Lumpur as NAPIC’s data showed.

Nevertheless, the rental yield for such properties will likely be below 3 per cent due to the high purchase price versus their asking rent on property portals.

Investors are also likely to face a negative cash flow as the rentals will not be able to cover the mortgage.

For example, a property priced at RM880,000 will have a mortgage of RM3,609 over 30 years at an interest rate of 4.6 per cent. 

With an asking price of around RM3,000 in Kuala Lumpur, this means investors will have to top up the difference in cash.

Additionally, properties along the MRT3 Circle Line will be highly sought after. 

Unfortunately, developers will continue facing difficulties in off loading their high-end developments in Kuala Lumpur unless high-impact transportation  project like the HSR is implemented.

Penang

A charming colonial-era building in Georgetown, Penang. Photo: Khalil Adis Consultancy.

The growth areas in Penang remain unchanged in Batu Kawan and some parts of Seberang Perai.

Since the opening of the Second Penang Bridge, Batu Kawan has seen rapid developments from several renowned developers such as EcoWorld and Tropicana as well as the opening of IKEA.

While connectivity remains patchy at Batu Kawan, there is a planned Bus Rapid Transit (BRT) system for Batu Kawan as part of the Penang Transport Master Plan.

In Seberang Perai, the growth areas will be along the planned Raja Uda-Bukit Mertajam Line to connect the northwestern region to the southeastern region.

For those who can afford to buy a property on the main island, areas along the Bayan Lepas LRT line will be the new growth corridor.

However, the LRT project has been hit with a series of delays since it was announced in 2015 as part of the Penang Transport Master Plan.

Comprising 19 stations along a 22 km line, the project was supposed to begin in 2018 but has yet to begin construction due to issues of funding between the state and federal governments.

So until this political issue is resolved, we are unlikely to see the full implementation of the Penang Transport Master Plan.

Conclusion

View of downtown Kuala Lumpur. Photo: Khalil Adis Consultancy.

The Malaysian economy is still reeling from the impact of Covid-19.

Against a weakening ringgit and an RM1.5 trillion national debt, improving connectivity between Singapore and Malaysia may resolve its woes, particularly in Johor.

Unfortunately, Malaysia also has a history of flip-flopping on its policies such as having a rival special economic zone in Forest City (as opposed to the one that was initially planned for Medini) and the cancellation of the HSR project.

As we speak, the Johor state government recently announced that it is exploring the possibility of ferry services between Puteri Harbour international terminal and Singapore.

However, according to local sources who were involved in the development of Puteri Harbour, this idea had been in the pipeline since 2010 but was shelved as Singapore did not see a viable need for the ferry service.

With Malaysian Prime Minister Anwar Ibrahim now in Singapore making an official visit, we could perhaps see the ferry service and HSR project being discussed.

“Connectivity, some long-standing issues, which we think are ripe for resolution, hopefully, and opportunities for the future in both the digital and green economy space. I expect it will be a very useful, significant meeting. As I said, it will set the agenda, set a timetable for the ministers and the respective ministries to follow up,” concluded Dr Balakrishnan on his recent bilateral trip to Malaysia on 17 January 2023.

In addition, Malaysia also needs to resolve its severe oversupply of residential properties by regulating the market to prevent a mismatch in demand and supply.

The government could also offer incentives to local developers to build affordable homes. 

To learn from Singapore's case study, the Local Government Development Ministry is inviting experts from the Housing & Development Board (HDB).

"The ministry will examine case studies for best practices on housing policies in other countries including neighbouring countries such as Singapore that have shown success in providing the public with affordable housing,” the ministry said in a statement.

However, as land is a state issue, implementing this will be a challenge for the federal government as they do not have a central government body like Singapore’s Urban Redevelopment Authority (URA) and HDB.

Such is the case for Medini whose special economic zone was planned by the federal government and Khazanah Nasional while the one in Forest City was mooted by the state government.