Market to consolidate in 2014

THE EDGE WEEKLY ISSUE#995

THE WEEK OF DECEMBER 30, 2013 – JANUARY 5, 2014

City & Country Section

LOCAL CONSULTANTS’ POLL: By THE CITY & COUNTRY TEAM

The property market was fraught with challenges in 2013, according to consultants polled by City & Country.  Developers, sellers and buyers played the “wait-and-see” game prior to the 13^th general election.  Transaction values and volumes in the first nine months shrank from the previous corresponding period as a result (see Table 1).

Even though the market shrank, some launches performed well.  As expected, these launches comprised landed homes in the prime suburbs or fringes and smaller units in sought-after localities.

The aftermath of the election did not bring much clarity and relief as pressure mounted on the government to enable potential home owners priced out of the market to buy homes, either by introducing affordable units or bringing prices down.  While the market picked up around June, Budget 2014 announcement in October dampened the market. 

Affordable homes and infrastructure were 2013’s key themes.  Under Budget 2014, a raft of cooling measures was introduced to curb runaway prices in hotspots such as Kuala Lumpur, Penang and Johor.

Some of the measures include doubling the Real Property Gain Tax on property sales to 30% for the first three years, 20% in the fourth year, 15% in the fifth year and exemption thereafter (for citizens and permanent residents), while imposing a 30% rate on disposals in the first three years by foreign owners and companies, and 5% thereafter.

Other rules meant to address the distortion of property prices such as the abolition of the developer interest-bearing scheme (DIBS), more transparency in developers’ sales packages and the use of net property values to determine loan-to-value ratios were also announced.

In Johor and Penang, a “consent fee” of 2% and 3% respectively will be imposed on transactions involving foreign ownership.  Meanwhile, to address the supply of affordable homes, the government plans to jointly develop with private sector 223,000 homes for the low- and middle-income groups.  Private sector developers were also offered RM30,000 per unit to develop affordable homes.

Consultants largely lauded these moves to rein in runaway prices of selected areas, although it remains to be seen whether these moves will work in the long term.

Infrastructure projects, most notably the LRT extensions and the MRT, still buoyed the Klang Valley property  market.  Some consultants noted that they created new hotspots and it was no surprise that properties with some measure of integration with the LRT and MRT enjoyed strong sales.

Over at Iskandar Malaysia, the numerous catalytic projects came into fruition and their spillover effects became more apparent, with no signs of the market slowing down.

Despite the mixed sentiments, however, a number of landmark deals were struck this year (see Tables 2 and 3).  Meanwhile, significant projects were planned (see Table 4).

Next year (2014), the market will likely be subdued as the various cooling measures instituted by the government coupled with other issues such as subsidy rationalisation and the new goods and services tax (GST) – from which residential properties are exempted – will raise construction cost.

The abolition of DIBS and other interest capitalisation schemes is expected to reduce the volume and value of transactions, especially in the primary market.  Overall, the market is expected to consolidate, with some properties and locations expected to face price corrections.

The office market, however, is expected to face even stiffer competition from a number of mega-projects that are either underway or will commence soon.

City & Country asks property consultants for their outlook for the market for 2014 and their hopes going forward.

Admin: Stay tuned for the next 10 postings for the consultants’ views.