market overview - · pdf fileresidential tower. outside the city centre, naza ttdi planned...
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PROPERTY INSIGHTS
Tighter lending to cool market
Malaysia Quarter 1, 2012
Market Overview
The economy grew by 5.1% in 2011. The forecasted
growth for 2012 is 4.0%-5.0% and is expected to be
driven by domestic demand and with support from
public expenditure.
The residential market was relatively quiet with
no new completion recorded and no launches seen
due to the seasonal effects of various public holidays.
Although 2012 will be a challenging year globally,
as tighter lending bites into demand especially
speculative buying based on little upfront cash under
Developer Interest-Bearing Scheme (DIBS).
Retail sales are expected to grow more moderately
driven by relatively cautious consumers’ spending
and tourist arrivals. With more retail space entering
the market and uncertainty in the global economy,
filling up the additional retail space that is being
completed will be a challenge. Nevertheless, retailers
are selective as reflected in the pre-commitment rates
of good upcoming malls.
The office market showed resilience with both
capital and rental values holding firm despite
increasing new supply (Figure 1). The market is likely to
see greater challenges with slower economic growth
and an anticipated oversupply in the coming months,
as the pressure to find tenants gather more intensity.
Figure 1
Average prime office gross rents
0
1
2
3
4
5
6
7
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
RM per sq ft per month
Source: DTZ Research
Trends & Updates
Economic Overview
The Malaysian economy expanded at 5.2% year-on-
year (y-o-y) in the fourth quarter last year compared
with 5.8% in the third quarter, higher than market
expectations of 4.9% (Figure 2). For the whole 2011, the
economy grew by 5.1% which was within the forecasted
range of 5.0%-5.5%. Domestic demand will continue to
be the key driver with strong support from the private
sector. Public expenditure is also expected to contribute
to the economic growth. The growth for 2012 has
recently revised downward by Bank Negara Malaysia to
4.0%-5.0% from 5.0%-6.0% in view of weaker external
conditions.
Bank Negara Malaysia (BNM) is likely to keep the key
interest rate - Overnight Policy Rate (OPR) - unchanged at
3%. The OPR has been maintained at 3% since May 2011
after four rate hikes from 2% in March 2010. According
to analysts, lower inflation allows BNM to hold the rate
steady and allows room for monetary easing. Despite
the slower economic outlook, the current interest rate
is deemed accommodative enough to support domestic
demand.
Household debt had edged up to 76.6% of the
country’s gross domestic product as at end of 2011
compared with 75.8% in the previous year. According
to BNM, it was not an alarming figure as there had been
a declining trend in non-performing loans in that sector.
Outstanding household debts grew moderately at 12.5%
in 2011 compared with 13.7% a year earlier, following
stringent measures imposed by BNM to curb speculation
in the property market. The largest household debt
category was loans for the purchase of residential
properties (45%). The bulk of these loans went to the
purchase of residential units priced over RM250,000.
On the same matter, Malaysian Rating Corp Bhd
(MARC) voiced its concern on the lending by non-bank
institutions and its contributions to household debts
which was on an increasing trend in the past few years.
This increasing level of household debts could create
risks on the housing market in a downturn.
The headline inflation rate reflected by the Consumer
Price Index (CPI) eased to 2.2% y-o-y in February. Food
& non-alcoholic beverages (2.9%) and non-food (1.8%)
increased the most.
The Consumer Sentiment Index (CSI) remained above
the key benchmark 100-point level, notwithstanding that
the latest CSI plunged to two-year low of 106.3 points
with growing concerns on finances and jobs as well as
inflation.
The unemployment rate remained low at 3.0% as
at January 2012, compared to 3.1% at December 2011.
Nevertheless, jobs remained one of the main concerns
as reflected in the CSI.
Despite global economic uncertainties, as at January
2012, Malaysia registered 60 approved projects in the
manufacturing sector amounting to RM2.5bn with
RM1.4bn or 56% from Foreign Direct Investment (FDI).
According to CIMB Research, the total value of approved
investments is expected to slow down from RM56.1bn
in 2011 to RM50bn this year due to the weak external
situation.
Figure 2
GDP growth and unemployment rate
-10
-5
0
5
10
15
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
GDP growth (y-o-y) Unemployment rate
%
Source: DTZ Research
Residential
No new completion was observed in the quarter.
However, almost 3,000 units of condominiums are
expected to enter the market by end of this year. A
majority of about 86% or 2,565 units are located in
the city centre whilst the remaining 14% or 432 units
are outside the city centre. Prominent projects to
be completed in the year include Verticas Residensi,
Sky Residence and St. Mary Residences (Figure 3).
Although 2012 will be a challenging year globally,
developers are confident that the demand for
residential properties in Kuala Lumpur will remain
selectively strong, as developers focus on smaller
and therefore more affordable units as well as
packaging launches with attractive Developer
Interest-Bearing Scheme (DIBS).
No new launches were noted in the quarter, due
to the seasonal effects of various public holidays.
After recording an encouraging sales rate of 80%
to 90% for its Platinum Suites, the developer,
Platinum Victory Sdn Bhd, is planning to launch the
second phase of its high-end project called Platinum
Victory Face in Q3 2012. This phase will comprise
serviced apartments priced from RM1,650 per sq ft.
G Residence, a condominium development by
Tan & Tan Development Berhad and located at Jalan
Desa Pandan, a suburb at the fringe of the embassy
row of Ampang Hilir/U-Thant location, recorded a
good sales rate since its preview in December last
year. About 80% of the 474 condominiums sized
between 1,080 sq ft and 1,545 sq ft and priced at an
average of RM650 per sq ft were snapped up.
Other new launches are being planned for
this year. In the city centre, proposed launches
include 288 Jalan Raja Chulan and the Platinum
Residences@Platinum Park, the latest residential
project around KLCC.
Quill Group is said to plan to launch its Quill 15
integrated development at Jalan Sultan Ismail this
year, where one of the components is a 45-storey
residential tower. Outside the city centre, Naza TTDI
planned to launch 175 units of condominium in its
KL Metropolis project in 3Q 2012.
Figure 3
Future supply of high end condominium in Kuala Lumpur
0500
1,0001,500
2,0002,5003,0003,5004,0004,500
20
12
20
13
20
14
20
15
Po
st2
015
units
City centre Outside city centre
Source: DTZ Research
According to the International Trade and Industry
Minister Datuk Seri Mustapha Mohamed, the realised
private investment is forecasted to increase to RM110bn
in 2012 from RM94bn last year with a significant
contribution from the oil and gas sector as government
continues the implementation of ETP’s projects. It is
estimated that about 40% of the private investment will
come from oil and gas sector.
The economic environment is expected to attract more
private investments with continuous implementation of
mega projects such as Mass Rapid Transit, Light Rail
Transit extension, Kuala Lumpur International Financial
District, Banting-Taiping Highway, Bandar Malaysia and
100-storey Menara Warisan Merdeka to cushion the
expected economic slowdown.
The average capital value of high-end
condominiums in Kuala Lumpur increased
marginally by 0.5% q-o-q to RM634 per sq ft, whilst
the average rental value rose 3.1% q-o-q to RM3.62
per sq ft per month (Figure 4).
The government initiative, My First Home
Scheme, to encourage lending to first home buyers
for properties valued at a maximum of RM220,000
(for single applicants) or a maximum of RM400,000
(for joint spousal applicants with a household
income of below RM6,000 per month cumulatively)
was reported to fail with few loans approved.
With the imposition of stricter guidelines on
personal lending to individual households in general,
developers are likely to feel the impact of slower
sales in the coming months. Effective January 1,
under the responsible lending guidelines, loans
will be approved based on net income compared
with gross income previously. This will cool an
over-heated market that has run up substantially
in terms of pricing in the last two years as well as
focus developments toward the more affordable
housing segment.
Retail
According to Retail Group Malaysia, retail sales
growth in the first quarter of 2012 is estimated at a
conservative figure of 10% after achieving 11.5% in
the fourth quarter 2011. For 2012, RM88.2bn of sale
is anticipated with a projected slower growth of 6.0%
compared to 6.5% in 2011, in view of the European
debt crisis, job uncertainties and an anticipated
reduction in credit card spending.
Nielsen’s Global Survey on Consumer Confidence
and Spending Intention revealed that Malaysians were
more cautious with their spending. They are spending
less new clothes and out-of-home entertainment,
switching to cheaper grocery brands and curbing
telephone spending due to growing concerns over
the economy, job security and increasing food prices.
The recent revision in civil servant pay package
and the proposed country’s minimum wage which is
indicatively set at RM900 would benefit the retail
industry as these measures will boost household
incomes especially as the lower income group will
have extra Ringgit to spend.
The retail stock in Kuala Lumpur stood at 23.5
million sq ft, a decline of 0.8% from the preceding
year (Figure 5) due to the closure of two retail malls
Figure 5
Retail new supply (NLA) in Kuala Lumpur
0
5001000
15002000
25003000
3500
20
06
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14
Completed Supply New Supply
sq ft (000s)
Source: DTZ Research
Figure 4
Rents and capital values of high end condominiums in Kuala Lumpur
0100200300400500600700
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05
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Q1
11
Q2
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Q3
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Q1
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0
1
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Capital values (LHS) Rents (RHS)
RM per sq ft RM per sq ft per month
Source: DTZ Research
The office market was largely stable with an
average occupancy rate of 86%, a slight improvement
from 85.8% recorded in the previous quarter (Figure
6). Although net absorption was low at only 129,110
sq ft, no new offices was completed in the quarter
(Figure 6).
Recently completed buildings such as Petronas
Tower 3, Bank Islam Tower and Menara Prestige
recorded improvements in occupancy rate recording
100%, 50% and 30% respectively, up from Q4 2011
occupancy rates of 70%, 45% and 20%.
The total supply of office space in Kuala Lumpur
currently stood at 64.6 million sq ft and will see
a growth of 19% in the next three years, with an estimated 4.8 million sq ft expected for the rest of
the year.
Offices
namely Plaza Warisan and UDA Ocean located at Jalan
Sultan which were acquired for the development of a
Mass Rapid Transit (MRT) station. There was no new
major completion of new retail space in Q1 2012.
Retail centres in Kuala Lumpur (KL) registered a
decline in occupancy rates. Average occupancy rate
in KL decreased to 90.6%, a drop of 0.1 percentage-
point quarter-on-quarter (q-o-q) and 1.4 percentage-
points y-o-y.
Nevertheless, new upcoming major retail centres
continued to attract retailers who are selective and
would still lease space in centres that are expected to
see high footfall.
Setia City Mall in Shah Alam with over 740,000
sq ft of net lettable area (NLA), due to open in May
2012, recorded overwhelming response with about
95% of its retail outlets already leased out. KLIA2 at
the new low cost carrier terminal (LCCT), adjacent to
Kuala Lumpur International Airport (KLIA) in Sepang
with an approximate NLA of 350,000 sq ft has
received strong interest from international and local
concessionaires. It is planned to open in April 2013
and is expected to achieve RM1.6bn in retail sales
once the new LCCT is in full operation. Nu Sentral at
transit hub KL Sentral with 650,000 sq ft NLA has
registered about 70% pre-commitment rate to date.
It is slated to open in March 2013 (Table 1).
The proposed IOI City Mall in Putrajaya with 1.3
million sq ft NLA reported that it had secured two
major tenants to its mall. Scheduled for completion
in 2014, the mall is part of a mixed project which
also features an entertainment park and two office
towers, and a hotel to be added in 2015.
Looking forward, the retail sector is likely to
continue to grow moderately supported by relatively
cautious consumers’ spending and tourist arrivals.
With more retail space entering the market and
uncertainty in the global economy, in the next five
years, there will be a challenge to fill up the additional
retail space that will be completed.
Figure 6
Office net absorption and vacancy rate
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
Q1
09
Q2
09
Q3
09
Q4
09
Q1
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Q2
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Q3
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Q4
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Q1
11
Q2
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Q3
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Q4
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Q1
12
3456789101112131415%
Net absorption (LHS) Vacancy rate (RHS)
sq ft(000s)
Source: DTZ Research
Table 1
Opening of selected upcoming retail centres in Klang Valley
Name of development NLA (sq ft) Opening
Setia Alam Mall, Shah Alam 700,000 2012
Nu Sentral, Kuala Lumpur 700,000 201 3
KLIA2, KLIA 350,000 2013
IOI City Mall Putrajaya, Putrajaya 1,300,000 201 4
Source: DTZ Research
Prime rents stood at RM6.25 per sq ft per month,
unchanged from the last quarter, exhibiting resilience
despite weakening market conditions (Figure 7).
Major leasing activities noted were from oil and
gas giant Technip continuing their expansion with
97,000 sq ft at Wisma Dijaya, and Nomad Service
Office relocating their operations to Menara Prestige
from Etiqa Twin. Meanwhile, some of the existing
tenants in Petronas Tower 2 relocated to Petronas
Tower 3 to make way for the return of Tower 2 for
Petronas own occupation.
The quarter saw Multimedia Development
Corporation, the regulatory authority for the
multimedia industry, liberalising their guidelines for
the siting of MSC status companies by allowing such
companies to be located within areas designated as
“Cybercities” without necessarily being in a specific
MSC designated building. This provides flexibility to
such companies whilst landlords of properties within
such designated areas will benefit from this move
without putting additional capital investments to
upgrade them to the approved specifications.
As part of the development of the Greater Kuala
Lumpur Region under the Economic Transformation
Plan, the Government is likely to expedite the
implementation of the Kuala Lumpur International
Financial District in the near future. This will involve
the launching of a key landmark office tower. Whilst it
will be exciting for the market to see the emergence
of a rival office district to KLCC, it will ratchet up the
competitive pressure on rents by several notches at
a time when oversupply is a major concern.
The market is likely to see greater challenges
with slower economic growth and an anticipated
oversupply in the coming months, as the pressure to
find tenants gather more intensity.
Figure 7
Average prime office gross rents
01234567
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
RM per sq ft per month
Source: DTZ Research
GENERAL DISCLOSURE
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© DTZ April 2012
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