Property outlook rosy in 2014 despite cooling-off measures - Part 1

Focus MALAYSIA WEEKLY ISSUE 055

THE WEEK OF DECEMBER 21 – DECEMBER 27, 2013

Review 2013 / Outlook 2014 --

By: FocusM

This year was generally a positive and vibrant one for the property sector, with the low-interest regime, special schemes like developer interest-bearing scheme (DIBS) and higher loan margins of up to 90%, despite some house-buyers holding off on the purchasing decision before the general election in May.

The recent cooling measures announced in Budget 2014 and those taken by Bank Negara Malaysia to end special schemes offered by developers are seen by many as timely moves to curb speculative activities.

As the market takes time to digest and absorb these measures, will there be renewed interest in the property sector, given that demand outstrips supply?  Will this be the right time for potential property buyers to go into the market, more so with the implementation of the GST on April 1, 2015?

FocusM spoke to developers, the Real Estate and Housing Developers’ Association, the House Buyers Association and an analyst on the performance of the property sector in 2013 and the outlook for next year.

How did the year pan out for your company?

It has been a very good year for us, as the company performed according to expectation.  In the first three quarters of the year, for example, we achieved RM2.25 bil in sales en route to achieving our annual sales target of RM3 bil.  The group’s unbilled sales of RM4.18 bil as of Sept 30 are about 2.7 times the revenue of the property development division in 2012, providing us with strong earnings visibility moving forward.

The group has also grown in terms of land we own.  With five land deals with a combined gross development value (GDV) of about RM8.95 bil, we have exceeded our entire 2012 landbanking amount of RM7.38 bil by 21%.  Projects acquired this year include D’ Sara Sentral in Shah Alam, Lakeville Residence in Taman Wahyu, KK Convention Centre in Kota Kinabalu and M Residence 3 in Rawang.

What are your expectations for your company and the property sector in 2014?

We aim to achieve 20% growth from our 2013 sales target or a total of RM3.6 bil in property sales in 2014.  Our current remaining GDV for 1,084 ha is RM24.19 bil and unbilled sales of RM4.19 bil, which brings the total remaining GDV and unbilled sales to RM28.38 bil.

For the property sector, post-Budget 2014 sees the implementation of measures aimed at removing speculative elements from the market.  However, we believe the strong fundamentals that drive the property sector’s growth remain a key force in the performance of the property market.  This is especially true for property buyers purchasing for their own consumption or buying to invest for long-term rental income.

Among factors that contribute to the strong fundamentals are the large supply-demand gap, as supply growth for properties has been decreasing since 2003, with Malaysia’s supply growth in the second quarter of 2013 standing at 0.8%.  This has contributed to appreciation in house prices and a strong take-up of properties.  Malaysia’s young demographic, that leads to new household formation, a growing middle-income group, the supply-demand gap and stable employment conditions will all contribute to the growth of the property market in the coming year.

Where the removal of the DIBS is concerned, Mah Sing has stopped offering it since the beginning of this year for our new projects in all four regions in which we are active.  Despite this, we have seen strong take-ups of all our projects: for example in Southville City @ KL South, the first four towers of Savanna Executive Suites saw 78% of the total available units of 1,532 pre-selected.  This shows us developers with properties in well-placed, highly-accessible locations, reasonably priced, will thrive with or without DIBS.

On the raising of the floor price for foreigners purchasing Malaysian property, foreign buyers make up about 7% of our purchasers of properties above RM1 mil mark.  Most of our buyers are locals.  In fact, Malaysia’s property market remains largely domestically-driven.

What do you think will be the key events and challenges that will shape the outlook of the property sector next year?

We remain selectively optimistic on the overall outlook of the property sector next year.  This is because the middle-income group and large domestically-driven property market continue driving the demand side of the equation.  We are very focussed on products to meet the needs of this group and we have a host of well-designed properties at attractive price points appealing to the mass market.  Our landbanking strategy in the last two years has been focused on locking in larger tracts of township land, to offer affordable mid-end products.

In addition, the general lending environment is conducing, as financing liquidity is still attractive; interest rates are still low due to a competitive mortgage space, with banks offering BLR minus 2.4%, from BLR minus 2.1% to 2.2% a year ago.