WHILE uncertainties of the pandemic continue to loom, experts are optimistic that the Penang residential property market is already on its path towards recovery.
Knight Frank Malaysia’s Penang branch executive director Mark Saw says the Penang residential market is expected to slowly grow and recover towards the end of 2021 and into 2022.
“Any recovery will depend on initiatives under various stimulus packages, the Home Ownership Campaigns (HOC), pandemic control and developer incentives, as well as overall market sentiment,” he tells StarBizWeek.
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Saw adds that the residential sub-sector will continue to dominate the Penang property market, especially the affordable housing sector.
“Foreign buying activity is unlikely to recover, especially now with the latest Malaysia My Second Home (MM2H) programme policies recently announced.”
The recently reactivated MM2H programme has come under fire for its new, updated pre-conditions, as it now makes the applications even harder.
According to reports, it is estimated that more than 90% of the current visa holders do not meet the new criteria. Many have urged that the new pre-conditions either be revised or reverted to the same ones prior to the suspension of the programme.
Applications for MM2H were frozen when Malaysia closed its borders due to the Covid-19 pandemic last year.
Rahim & Co Research says the implementation of the nationwide lockdown since May this year has had an adverse impact on the property market.
“This has very much affected the second half of the year’s prospects and yet hope is still held for pent-up demand to be released in time as the government has just announced the reopening of several more sectors with the proactive administration of vaccine doses to the public.”
For the Penang market, Rahim & Co Research says demand may still hold up and be merely delayed from the lockdown, as developers are still actively looking to launch and develop new products into the market via digital marketing, virtual viewings and proptech mediums.
“But the international segment may still be at a standstill as international border movements remain tightly controlled.
“But further progress in the vaccination administration will be a big factor in seeing the return of this particular market segment.”
On the expectation of volume and value of transactions, Rahim & Co Research says performance for the second half of 2021 is dependent on the management and implementation of the National Recovery Plan (NRP) for the remainder of the year.
Movement restrictions
Saw says the implementation of various movement restrictions had affected the residential market in Penang, much like the rest of the country.
“With estate agents not considered essential services providers, they have been the hardest hit as they rely on viewings to close deals.
“Although there has been a shift towards more virtual viewings to continue to close deals, not everyone has been able to transition to the new norm of working.”
As a result, Saw says the market has been generally flat, with transactions mainly restricted to the affordable range of properties.
Rahim & Co Research says developers too have been weary with new launches and are concentrating on their leftover stocks, as buyers are more cautious of their financial position and income, as well as job security.
“Furthermore, property transaction processes had to face the challenge of disruption due to financing issues. Sadly, property consultants and valuers are not included in the essential services list despite it being a crucial part in the financial and banking industry supply chain.
“For property-backed loans to be processed and disbursed, it is a requirement to determine the banks’ exposure and this requires a qualified independent valuer to prepare valuation reports.”
Rahim & Co Research emphasises that loan approvals and timing of disbursements are very important for borrowers under the current environment, as it comprises not only property sales and purchase but also refinancing.
“Under the challenging pandemic situation, a significant number of existing borrowers are going for refinancing to get the extra cash to survive after facing a pay cut, while sellers are trying to sell to monetise their properties in order to survive after losing their jobs.
“They can’t get the loans disbursed due to valuation reports not being able to be prepared to complete the bank’s due diligence processes, as valuers are also not allowed to operate.”
Based on July and August numbers, Rahim & Co Research says the number of cases received for residential valuation have dropped by between 30% and 50%.
“Moreover, there are a higher number of refinancing cases that could be for borrowers who are in need of cash during this challenging period.”
Spurring the market
However, Rahim & Co Research says the situation could have been worse if the government did not introduce stimulus and financial assistance measures like the extension of the HOC, real property gains tax exemption and the relaxation of loan margin ratios.
“The loan moratorium has helped many in need. Foreclosure cases are still kept at bay although concern remains on the pressure imposed after the end of the moratorium period.
Saw says the successful implementation of the National Immunisation Programme will be a key measure to enable more economic sectors to gradually reopen under the NRP.
“Developers continue to actively sell their existing stock with attractive incentives, rebates and free gifts to boost sales.
“Developers are also adapting to digitalisation, which comprises creative solutions through innovative technology, by having virtual viewing in order to build buyers’ trust to purchase.”
The HOC was initially kicked off in January 2019 to address the overhang problem in the country.
The campaign, which was initially intended for six months, was extended for a full year.
It proved successful, having generated sales totalling RM23.2bil in 2019, surpassing the government’s initial target of RM17bil.
The government reintroduced the HOC in June last year under the Penjana initiative to boost the property market after it was adversely affected by the Covid-19 pandemic.
The campaign has been extended to the end of this year, with property consultants and developers fully supporting the move.
In March this year, during the Real Estate and Housing Developers’ Association’s briefing on the property market for 2021, its president Datuk Soam Heng Choon revealed that since the HOC was reintroduced last June, a total of 34,354 residential units valued at RM25.65bil had been sold as at Feb 28, 2021.
Meanwhile, Knight Frank in its Real Estate Highlights Research for the first half of 2021 says the Penang property market is expected to remain challenging, as strict containment measures to curb the spread of Covid-19 since early this year will further delay construction, project completion and transactional activity among others.
It says the supply of affordable housing will remain the main focus of the Penang state government.
Knight Frank adds that the new regulation for developers to provide fibre optic infrastructure as a basic utility to enhance the coverage of high-speed Internet access will be a bonus for home buyers who are able to work remotely from home.
With no impending new office supply during the review period, Knight Frank says the office segment is expected to maintain its occupancy and rental levels.
“The continued closure of international borders, interstate travel restrictions and re-imposition of movement control orders to contain the spike in Covid-19 cases will continue to weigh on footfall to shopping malls, leading to a longer recovery period of the retail industry.
“Building owners are expected to continue to offer rental waivers and implement stringent standard operating procedures in order to sustain their businesses while more retailers will embrace e-commerce to capture the growing online shopping trend.”
Additionally, Knight Frank says Penang’s industrial sector continues to attract the attention of local and foreign investors, with Batu Kawan Industrial Park remaining a preferred destination for high-quality investment.
“The state’s initiative to develop Batu Kawan Industrial Park 2 in Byram Estate, the 10th industrial park in Penang, will cater to growing demand in the next decade or so.
“Penang continues to promote high-technology industries and some 700 acres of reclaimed land on Island A of the Penang South Island project will be designated as a Green Tech Park.”
Knight Frank also says the gazettement of the North Butterworth Container Terminal as a free commercial zone earlier this year will have a positive impact on the industrial sub-sector, with incentives that will be able to attract foreign investors and boost manufacturing activities in the state.
“The logistics sector is also expanding with more investors looking for quality warehousing space.”