Sulaiman Saheh
Rahim & Co International Sdn Bhd
Director of research for global real
estate consultancy
Strong rebound for 2022, moderate pace in 2023 and spill-over likely for 2024
Contributed by Sulaiman Saheh
Following the strong rebound of 2022 in property market transactions, 2023 came through at a more moderate pace. The year began with a slight slowdown as transaction activities recorded a 5.7% drop year-on-year for the first quarter. This was immediately followed by a growth of 1.8% in the second quarter and 3.7% in the third quarter, which ultimately pulled the nation’s market performance for the first nine months of 2023 on par with 2022. Though it is not yet known how the fourth quarter has performed at the time of writing, 2023 has positioned itself to be the highest in the number of transactions for the first nine months since 2012’s peak point. Market normalisation aside, 2023 remained coherent to the post-pandemic recovery pace and above pre-2020 performance.
Holding its position as the biggest sector in transaction share, the residential sector saw its portion normalising to pre-2020 proportion of the market underlined by increased activities in the commercial, industrial and agriculture sectors as the economy improves. House price growth, after having experienced some shake-up within the two pandemic-driven years, showed a more stable movement with positive growth seen from 2022 to 2023. Within the first three quarters of 2023, prices kept to a steady and moderating pace. Having faced a challenging period in the late 2010s, developers took a more cautious approach to new launches by way of smaller-scale phases and prioritising ongoing projects over newer ones.
Dwelling overhang numbers showed small but consistent improvement over the three quarters of 2023 with 3Q 2023 recording 49,364 dwelling units (residential units with serviced apartments and SoHo units included) worth RM36.9bil. This marks the first period that overhang dwelling stock has returned to below 50,000 since 2019. Overhang dwelling stock peaked in 4Q 2021 at 63,432 units worth RM44.5bil. As buyers inching up in their confidence in property purchases, be it for self-occupation or investment, established neighbourhoods with stronger and more consistent domestic demand displayed better growth compared to other hotspots that were more speculation-driven investments. Nevertheless, prices for these hotspots remain high in the market, albeit at a slower growth pace.
The outlook for 2024 remains cautiously optimistic as external factors continue to dampen investment confidence. A survey conducted by the Real Estate and Housing Developers' Association (Rehda) and released in August 2023 indicated developers had better confidence in 2023 for the residential sector as 1H 2023 had already accounted for 86% of 2022’s total new launches and 2H 2023 anticipating even higher numbers. Sales performance too showed improvement but still left room for higher expectations. But cost struggles remain as developers continue to face material price hikes, cross-subsidisation and high compliance costs.
The retail side of the commercial sector saw minor improvement as new completions had slowed down in the past two years from delays, giving way for demand to catch up but it is still not out of the woods yet as past delayed projects are coming online in the next 12 months. For Klang Valley, the opening of large malls such as The Exchange TRX and Pavilion Damansara Heights has brought more pressure to an already saturated market, each bringing an estimated 1 million sq ft of retail space. In the office segment, a similar competitive landscape is seen as new office towers present corporate tenants with even more options, enabling them to be more discerning in their choices with more priority placed on the quality of space that is green-certified. As hybrid working is here to stay, the demand for co-working spaces and flexible office spaces holds a significant portion of the overall demand for office space. Additionally, corporations are recognising the benefits of ESG factors, amenity-rich locations and convenient connections to existing and new railway lines.
For the industrial sector, interest remains for newer, integrated industrial parks and supply responding in return with new plans announced for several states, including new logistics hubs. On Sept 1, 2023, the New Industrial Master Plan (NIMP 2030) was unveiled with the plan aspiring to chart Malaysia’s industrial transformation from 2023 to 2030. Keeping in line with the New Investment Policy (NIP), the NIMP 2030 aims to enhance future exports of more complex products from five identified sectors, namely aerospace, chemicals/petrochemicals, digital economy, electrical and electronics (E&E) and pharmaceuticals. On the supply side, 2024 will see developers attempting to cater to specific industrial needs as the unique appeal factor as opposed to generic industrial offerings.
For investors and homebuyers, concerns mainly revolve around disposable income capacity and monthly expenses and commitments, on top of the lurking uncertainties raised by the lingering global economic situation coming from war conflicts and trade disruptions. Domestically, the Overnight Policy Rate (OPR) movement remains a key factor to affordability to many homebuyers, and although the levels had been stable of 2H2023, any further pushes for OPR may have a significant impact on homebuyers' appetite.
Moving forward, opportunities are seen for landed homes as they remain the top preferred choice and their popularity is evidenced in the successful sales of projects offering units at affordable prices. For high-rise developments, the value-added presence of a train station in close vicinity gives an advantage to investors looking to capitalise on the growing rental market, especially amongst public transport users living within transit-oriented developments. Despite the concern of rising prices and the seemingly furthering reach of homeownership, residential demand will always remain and will see continued shifts in terms of prices, design and locality. Due to the proximity of new buildings and malls within major commercial areas of Klang Valley, some cannibalisation effect is expected as establishments compete against one another for tenancy and visitors. Staying true to its stable performance, the industrial sector remains a steady pillar as interest holds strong for Malaysia as the current choice of hub for the Southeast Asia region.
Overall, the moderating pace of 2023 is likely to spill over into 2024 as the market recalibrates itself with an injection of long-delayed new offerings. Policy-based enablers such as the Malaysia My Second Home programme and perhaps the once-debated Residential Tenancy Act would be key to seeing more traffic for both the foreign and rental segments of the property market. Only with an even playing field would there be higher confidence from renters and investors in the tenancy market. As the property market is heterogeneous, opportunities are seen in several key areas – some of which are long-known hotspots that had dwindled as of late but recently invigorated through new catalytic infrastructures and policies.
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