Knight Frank Malaysia Unveils Real Estate Highlights for 2nd Half 2023: Report Launch

Knight Frank Malaysia Unveils Real Estate Highlights for Second Half of 2023: REH Report Released

In the third quarter of 2023, the Malaysian economy witnessed a growth of 3.9%, propelled by robust domestic demand, enhanced employment opportunities, a revival in the tourism sector, and heightened construction activities. Knight Frank Malaysia, a distinguished global property consultancy, has unveiled its Real Estate Highlights 2nd Half of 2023 (“REH”) report, offering comprehensive insights into the property market performances across key regions including Klang Valley, Penang, Johor Bahru, and Kota Kinabalu.

Residential Sector Shows Positive Momentum

Throughout the initial nine months of the year, Malaysia’s residential real estate market exhibited signs of improvement, with both transaction volume and value experiencing a year-on-year (YoY) increase of 1.3% and 3.5%, respectively. Notably, the primary market witnessed a substantial decline in the number of new residential properties offered for sale in 2023. This reduction effectively addressed concerns surrounding property overhang and market imbalance.

Developers are now actively promoting homeownership by collaborating with banks and offering additional post-sale services such as hassle-free fit-out, rental programs, and home care services to potential buyers.

Optimistic Trends in Malaysia’s Residential Property Market

Judy Ong, Senior Executive Director of Research and Consultancy at Knight Frank Malaysia, reports encouraging trends in the residential property market despite inflationary pressures and an elevated Overnight Policy Rate (OPR). She notes an uptick in sales volume, new property launches, and successful completions, indicating positive momentum.

Ong credits government initiatives and incentives aimed at promoting homeownership among citizens (Rakyat) and the recent relaxation of criteria for the Malaysia My Second Home (MM2H) Programme for sustaining optimism in the residential market as it enters 2024.

Enoch Khoo, Managing Director at Knight Frank Property Hub, shares a positive outlook on Budget 2024, highlighting significant measures targeting local land and property markets. Khoo emphasizes the impact of implementing a flat 4.0% stamp duty on Memorandum of Transfer (MOT) for non-citizens and foreign-owned companies effective from January 1, 2024. He believes this measure holds promise for stabilizing and controlling land and property prices, benefitting local residents.

Trends in Malaysia’s Office Sector

Throughout the review period, Klang Valley witnessed the completion of four new office developments, collectively contributing approximately 3.0 million square feet of leasable space to the market. While the KL City sub-office market grapples with persistent supply-demand imbalances, office markets in KL Fringe and Selangor demonstrate resilience, marked by steady leasing activities, especially in prime locations featuring Grade A buildings.

Five noteworthy office deals in KL City and Selangor, valued at RM837.8 million collectively, were announced during the review period. This slight uptick in office transactional activities and increased interest indicate a resurgence in confidence, with corporate entities seeking additional office space to accommodate their growth requirements.

Teh Young Khean, Executive Director of Office Strategy and Solutions at Knight Frank Malaysia, remarked on new government initiatives designed to attract venture capital and foster startup incubation. He also highlighted the growing presence of major multinational corporations in Klang Valley, which is expected to further stimulate interest and activity in the office market.

Insights into Malaysia’s Retail Sector

In the second quarter of 2023, Malaysia witnessed a downturn in retail sales, falling below market expectations by 4.0% year-on-year (YoY). This contraction is attributed to weakened consumer spending power amid heightened inflation. Consequently, the country’s retail sales growth for the full year of 2023 has been revised downward to 2.7%, down from the earlier projection of 4.8%.

Redefining the luxury retail landscape, The Exchange TRX made its debut on November 29, 2023, boasting over 500 experiential stores. Featuring a range of first-to-market foreign brands such as Gentle Monster, Maison Kitsune, Alo Yoga, and Drunk Elephant, The Exchange TRX is anchored by its centerpiece, a 10-acre rooftop public park, making it the largest of its kind in Kuala Lumpur. Earlier, on October 9, 2023, Phase 1 of the Pavilion Damansara Heights mall, within the larger integrated development, opened with an impressive occupancy rate of 80.0%. In 2024, the completion/opening of three more shopping centers/supporting retail components, totaling approximately 1.7 million square feet of retail space, is scheduled.

Sunway Group remains committed to environmental, social, and governance (ESG) practices, launching the Sustainability Collaboration Alliance Network (SCAN) to facilitate collaborations and introducing a 3-tier learning program, ReX (Retail Extended Learning), aimed at enabling retailers to enhance their knowledge.

Yuen May Chee, Director of Property Management at Knight Frank Malaysia, expressed concerns about the impending Sales and Service Tax (SST) rate hike, effective March 1, 2024, coupled with the introduction of a luxury tax ranging from five to ten percent and the restructuring of subsidies. These changes may dampen growth in the retail market, leading to higher tax liabilities for retailers and subsequent increases in operational costs, potentially impacting profit margins and prompting price adjustments that affect consumers.

Nevertheless, the government remains committed to easing the burden of the rising cost of living, allocating RM200 million for the ongoing ‘Payung Rahmah’ initiative. Additionally, the government has increased cash assistance and incentives by 25.0% from the previous year to RM10 billion, aimed at boosting consumer spending. With vibrant tourism-related activities, healthy institutional and foreign investments, and steady growth in wages and employment, the local retail market is expected to sustain in the coming year.

Insights into Malaysia’s Industrial Sector

Throughout the first nine months of 2023, the industrial property market in Malaysia saw a notable increase in sales value by 7.6%, despite experiencing a slight decline in transaction volume of approximately 4.6% compared to the previous year. This suggests that although there were fewer transactions, larger ticket size deals were conducted, indicating a relative stability in the industrial sector.

Allan Sim, Executive Director of Land & Industrial Solutions at Knight Frank Malaysia, highlights the industry’s resilience amidst global challenges. Factors such as ongoing geopolitical tensions, trade disputes between major economies like the United States and China, conflicts in regions like Russia and Ukraine, and military conflicts in the Middle East have impacted Malaysia’s overall economic stability. Consequently, investors remain cautious, awaiting the outcomes of significant upcoming elections, particularly in the United States, Indonesia, and Taiwan, which could influence investment decisions.

Sim further emphasizes the trend of industrial manufacturing relocation, which has been prevalent since the onset of the COVID-19 pandemic. To mitigate disruptions in the global supply chain, industries are increasingly relocating manufacturing operations, with Southeast Asia emerging as a highly favorable destination due to factors like access to raw materials, cost advantages, skilled labor availability, political stability, market size, and economic growth prospects.

With the subsidy rationalization program launched under the national Central Database Hub (PADU), the Malaysian government aims to channel more resources towards economic growth initiatives. Additionally, a positive outlook for Foreign Direct Investment (FDI) is anticipated, particularly with the promising leadership of Sultan Ibrahim Sultan Iskandar, evidenced by the significant growth in real estate investments in Johor over the past decade.

“We believe that with the evolving global landscape and Malaysia’s strategic vision, the industrial sector will continue to play a pivotal role in the real estate market, albeit at a moderate pace,” concludes Allan.

Insights into Penang’s Property Market

As of the third quarter of 2023, Penang’s high-rise residential sector, particularly in the serviced apartment category, demonstrated improved performance with higher annual transaction volumes and values. This positive trend was observed across most districts in the State, notably in the Timur Laut District. However, in the condominium/apartment category, although there was an increase in sales volume by 1.4%, the corresponding sales value decreased by 4.7% compared to the same period last year.

On the office front, selected privately-owned purpose-built office buildings in Penang maintained stable rental rates and occupancy levels. Notable upcoming developments in the office sector include Sunshine Tower in Air Itam, expected to receive its Certificate of Completion and Compliance (CCC) in the first quarter of 2024. Sunshine Tower is part of Sunshine Central, a mixed-use project comprising serviced apartments, offices, retail spaces, and hotels. Additionally, GBS by The Sea and a commercial tower within The Light City are slated for completion next year, further enhancing Penang’s office space offerings.

Mark Saw, Executive Director of Penang Branch at Knight Frank Malaysia, notes a gradual recovery in Penang’s retail segment, with overall occupancy rates improving. The completion of Sunshine Mall in the first quarter of 2024 is anticipated to contribute approximately 820,000 sq ft of retail space to the existing supply, bolstering the retail landscape in the State.

Penang also experienced a significant surge in approved manufacturing investments, totaling RM38.9 billion from January to September 2023, marking a four-fold increase year-on-year. This surge in demand for industrial parks is expected to continue, with projects like Penang Technology Park witnessing encouraging take-up rates. Ideal Capital Bhd, the developer of Penang Technology Park, has secured 23 local and foreign companies as of September 2023, reflecting a sales rate of 35.0% for the first phase of the industrial park. This promising development is poised to generate approximately RM500 million or 12.0% of the entire industrial park’s Gross Development Value (GDV), with more companies expected to sign agreements in the coming months.

Insights into Johor’s Property Market

As of October 11, 2023, the construction of the Johor Bahru – Singapore Rapid Transit System (RTS) Link has reached 52.0% completion and is on track for full completion by December 2026. The high-rise residential sector in Johor Bahru has shown promising developments, with the launch of new projects garnering significant interest. Particularly, properties near the RTS Link project have seen increased purchase enquiries, while demand for landed residential properties remains robust, especially in established townships.

Throughout the review period, rental rates for office spaces in Johor Bahru City Centre, Johor Bahru City Fringe, and Iskandar Puteri remained steady. Lee Kun Thye, Director of Johor Branch at Knight Frank Malaysia, notes, “The progress of the RTS project has attracted attention from property players and investors not only from central and northern Malaysia but also from Singapore. Besides the high demand for development lands, we have observed a rising interest in office spaces, particularly fitted or co-working spaces, as well as green buildings.”

The industrial property sector in Johor continues to thrive, with developers actively acquiring land to expand their portfolios. Foreign investments play a crucial role in sustaining the sector’s growth. Despite challenges in securing sufficient power supply, particularly for data centers, the industrial property market remains optimistic, aligning with the objectives of NIMP 2030. Moreover, growing concerns about environmental, social, and governance (ESG) issues are expected to drive the development of eco-friendly businesses like solar farming and water treatment initiatives in the region.

Exploring Sabah’s Property Market

In the first half of 2023, Sabah recorded 4,553 transactions valued at RM2.3 billion (compared to 5,013 transactions worth RM2.7 billion in 1H2022), with notable activity in the development land and industrial sub-sectors. The development land sub-sector saw 614 transactions valued at RM416.0 million, marking a significant increase of 88.9% in volume and 21.4% in value compared to 1H2022.

The housing sector in Sabah continues to favor buyers, with new launches of high-rise and landed schemes. As of the third quarter of 2023, Greater Kota Kinabalu (encompassing Kota Kinabalu, Penampang, Tuaran, Putatan, and Papar districts) had a total of 136,332 residential units. Condominiums/apartments represented the majority of the existing stock, accounting for approximately 54,119 units (39.7% share).

Alexel Chen, Executive Director of Sabah Branch at Knight Frank Malaysia, commented, “The review period saw the entry of several notable retailers into the Kota Kinabalu market, particularly in F&B, fashion, and sports apparel categories. Furthermore, the retail components of prominent mixed-use developments in the city center are gaining traction with their F&B offerings, attracting high footfall from both local consumers and visitors.”

In addition, the introduction of a 5-star resort in Melinsung, Papar, and the launch of water chalets in Semporna signify growing confidence in the recovery of Sabah’s tourism sector.

Forecasting the Outlook for 2024

Looking ahead to 2024, Keith Ooi, the Group Managing Director of Knight Frank Malaysia, foresees continued economic growth driven by domestic demand. He also anticipates a further rebound in tourist arrivals and increased investment activity, bolstered by the positive effects of measures and initiatives outlined in Budget 2024. With these factors at play, the outlook for the upcoming year appears promising, promising a landscape of economic expansion supported by a range of factors conducive to growth and stability.

Greg Swanson
Greg Swanson
Articles: 74

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