Developers' focus shifts with the opening of the second Penang bridge

DESPITE a softening property market on Penang island and Seberang Prai, Kuala Lumpur and Penang-based developers will be undertaking projects to the tune of RM4.56bil this year, a check with various developers show.

The island, however, is seeing fewer residential property launches due to land shortage, higher land cost and a challenging property market environment. Nevertheless, Raine & Horne director Michael Geh says the gross development value (GDV) of the projects launched on the island this year will still be higher.

Geh says the price of vacant land in Batu Maung has increased to RM250-RM300 per sq ft.

Of this RM4.56bil, about RM1.86bil will be residential and commercial projects planned in Seberang Prai, while the remaining RM2.7bil will be on the island.

Although in value terms the island will have a lion’s share, much of the focus is expected to be on Seberang Prai, located on Peninsular Malaysia.

To a large degree, the focus on Seberang Prai has been triggered by the announcement of the second bridge by Malaysia’s fifth prime minister and Penangite Tun Abdullah Ahmad Badawi in the Ninth Malaysia Plan in August 2006. Since then, property prices in Seberang Prai and on the island have risen significantly. One can consider 2006 as the watershed where Seberang Prai is concerned.

The opening of the RM4.5bil second Penang bridge on March 1 is also expected to spur a second wave of interest.

The connectivity is expected to boost retail, for a start. There are plans to develop a RM200mil premium retail outlet known as Penang Designer Village and an integrated shopping mall which will be anchored by an IKEA store in Seberang Prai.

Fook says land prices in south Seberang Prai has jump to RM40-RM50 per sq ft.

PE Land Sdn Bhd will undertake the Penang Designer Village, while the integrated shopping mall with residential components will be developed by Aspen-Ikano.

Residential development is also expected to improve with the entry of big players into that area in terms of style and design.

Last December, Mah Sing Group Bhd acquired 30.9ha in Jawi, comprising 20 pieces of prime freehold contiguous land, for RM400mil. Its group managing director and chief executive Tan Sri Leong Hoy Kum says the group plans to introduce an integrated township called Southbay East.

Leong says the township is currently at the planning stage. He says the freehold township located just 6.6km from the Jawi toll plaza on the North-South Expressway is expected to attract those who work and live in Southbay East’s immediate surroundings. The property developer is proposing linked homes, semi-detached units and town houses. There will also be a club-house.

But land prices may become an issue. Henry Butcher Seberang Prai’s associate director Fook Tone Huat says vacant land prices in the area, especially those in south Seberang Prai where the second bridge is located, are now hovering between RM40 and 50 per sq ft, a huge jump from 2006’s RM8-RM9 per sq ft.

Land prices in Central and North Seberang Prai were then between RM20 to RM40 per sq ft, compared with today’s range of between RM50 and RM100 per sq ft. The increase in land prices has translated into higher property prices.

“New landed properties such as double-storey terraced units in South Seberang Prai are now priced between RM350,000 and RM400,000 compared with between RM150,000 and RM200,000 prior to 2006,” Fook says.

Double-storey terraces in prime locations in Central and Northern Seberang Prai have doubled from RM200,000-RM270,000 range to RM400,000-RM600,000.

“We are also seeing a lot of life-style condominium projects being planned in Bukit Mertajam this year with new units priced at at around RM300 per sq ft,” Fook says.

As for the secondary or sub-sales market, double-storey terraced houses have a wide price range of between RM250,000 and RM500,000, depending on location.

Landed properties in the sub-sales segment command the best pricing in Bukit Mertajam and Butterworth town.

Despite the interest in Seberang Prai, Fook expects the volume of property transactions to soften this year, due largely to the difficulty in obtaining housing loans.

“There will definitely be fewer transactions this year compared with about 12,000 registered for 2013.

“Since January, we have seen fewer enquiries for primary and secondary market properties as the rejection rate of housing loans is currently at about 60%. Property prices are expected to remain more or less the same as last year,” Fook adds.

Real Estate and Housing Developers’ Association (REHDA, Penang) chairman Datuk Jerry Chan says due to the tightening of bank loans, he expects the volume of property transactions to decline by about 30% this year.

“The overall transacted value will also fall by about 20%,” he says. Raine & Horne’s Michael Geh expects properties in the secondary segment to remain stable, while those in the primary market might soften slightly.

“There will definitely be a dip in the volume of transactions, due to the stringent loan conditions,” Geh says.

Despite issues about buyers getting the margin of financing they would like to have, this does not seem to have deterred developers from entering the Seberang Prai market in a fairly big way.

DNP Land, which is part of Singapore’s Wing Tai group, will be developing a RM250mil condomonium project known as Bukit Mertajam Mahkota and the RM550mil Jesselton Hills landed property scheme in Bukit Mertajam, located in Central Seberang Prai. Tambun Indah Land Bhd is also planning RM616mil worth of landed property launches for Bukit Mertajam and Pearl City in Simpang Ampat, south Seberang Prai.

DNP Land (North) general manager K.C. Tan says the Bukit Mertajam Mahkota project will be the town’s first high-end condominium development. As for Jesselton Hills in Alma, it will have 200 units of semi-detached and terraced houses.

“The projects are strategically located between the first and second bridges, and is close to Jalan Song Ban Kheng, a prime residential district. They are also surrounded by the Prai and Bukit Minyak Industrial Parks and Penang Science Park.

“We expect buyers from Kedah, especially from Kulim High Tech Park, as Bukit Mertajam is the main connecting point between Penang and Kedah,” Tan says.

IJM Land, known for its Penang island Light project, is also launching RM236.5mil worth of properties comprising double-storey houses in Jawi, south Seberang Prai, and double-storey linked bungalows in Bukit Mertajam, central Seberang Prai. One of Kuala Lumpur’s heavyweight, Sunway Bhd is also planning to launch some RM150mil worth of residential and commercial projects for the second phase of Sunway Wellesley in Seberang Prai, a mixed-development project in Bukit Mertajam, at the end of this month, while the RM60mil third phase, comprising resort condominiums, will kick off in October.

Sunway Bhd general manager Tan Hun Beng says the group will be launching more properties in Seberang Prai as the lower land prices there has allowed the group to price its properties affordably. In June this year, Sunway will launch the RM80mil Sunway Cassia third phase, double-storey semi-detached and three-storey terraced houses, in Batu Maung, in Seberang Prai.

The focus on Seberang Prai, by no means, mean that there is less interest on the island. In fact, property prices have grown by leaps and bounds the last several years. This year, however, will see less launches of landed units, due largely to land shortage and high prices.

Raine & Horne Malaysia director Michael Geh says the price of vacant land has increased to around RM250 to RM300 per sq ft in Batu Maung in the southern part of the island, where the second bridge is located, from about RM50 to RM60 per sq ft prior to 2006. This effectively means that in just eight years, land prices have increased by 400%.

However, Geh also says land prices depend on what the land is being zoned for, whether it is agriculture, commercial or residential usage. This increase in land prices coupled with other factors have resulted in higher property prices.

New two- and three-storey terraced houses on Penang island now cost about RM1.2mil in the south of the island, compared with about RM450,000 prior to 2006.

“New condominiums in similar locations are now priced at RM700,000-RM800,000, compared with RM250,000-RM300,000 prior to the second-bridge announcement in 2006. In the prime locations of the north-east districts such as Tanjung Bungah, Tanjung Tokong, and Pulau Tikus, new lifestyle high-rise units start from RM800,000 onwards, doubled what it used to be in 2006,” Geh says.

How sustainable are these prices? The reponse to launches will be an indication.

Eastern & Oriental Bhd will be launching its RM800mil Andaman Edition 18 East condominium scheme on the island in the first half of this year. IJM Land will introduce its RM125mil Trehaus@Bukit Jambul. This comprises condominium villas and semi-detached villas, and a yet-to-be-named medium and low-medium cost project, which has a RM177mil GDV, in the fourth quarter of this year.

S P Setia will launch in the second half the RM300mil Setia Sky Vista, a condominium project, in Relau.

These launches will be keenly watched. - The Star

Consumer groups call for transparent house buyer selection

PETALING JAYA: There must be transparency in the selection of qualified buyers and the final balloting under the MyHome Scheme, said consumer groups. 

“We must hold true to the principle that whoever deserves a house (under the scheme) should get it regardless of race,” said National House Buyers Association honourary secretary-general Chang Kim Loong said.

“The Housing and Local Government Ministry should also ensure that buyers meet all the eligibility criteria for the loan before they grant the incentive,” he added.

Fomca secretary-general Datuk Paul Selvaraj stressed the importance of transparency in the selection process.

“We must ensure that those who qualify would be entitled to a house. The process must be transparent so that those who do not get the incentive or house will still feel the selection process was carried out fairly,” he said.

Paul added that the scheme would help more Malaysians, especially the younger generation, to realise their dream of owning their first home.

Chang commended the inclusion of a 10-year moratorium, which prohibits a buyer from re-selling or transferring ownership of the home unless it was transferred to immediate family members.

“This will make sure there will be no flipping of properties,” he said.

Property developer Mah Sing Group Bhd also lauded the scheme.

“We are keen to find out if we meet the conditions (to file an application for the scheme),” said its corporate communications general manager Lyanna Tew. - The Star

MyHome requests to start on April 1

PUTRAJAYA: The MyHome Scheme, which provides a RM30,000 incentive for each affordable house, will be open for applications starting April 1.

Private sector developers and house buyers interested in the scheme may file their applications online via http://ehome.kpkt.gov.my.

The scheme, announced by Prime Minister Prime Minister Datuk Seri Najib Tun Razak last year, consists of a RM300mil incentive allocation offering 10,000 units of affordable homes nationwide.

“MyHome is part of a continuous effort by the Federal Government to provide affordable homes to the rakyat (people) of all levels,” said Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan at the launch of the scheme here yesterday.

Under the scheme, qualified private sector developers will receive an up front incentive of RM30,000 per affordable home sold.

The incentive would cover the 10% deposit required of buyers after the sales and purchase (S&P) agreement is signed.

A 10-year moratorium would apply from the effective date of the S&P agreement, prohibiting a buyer from re-selling or transferring ownership of the home except if the latter is carried out to immediate family members.

The scheme is expected to benefit two categories of households. While MyHome1 is open for households with an income of between RM3,000 and RM4,000, MyHome2 is for those with a household income of between RM4,001 and RM6,000.

Houses under the MyHome1 would cover a minimum of 800 square feet of space with a market price of between RM80,000 and RM120,000 in the peninsula and between RM90,000 and RM120,000 in Sabah and Sarawak.

MyHome2 prices would range between RM120,001 and RM200,000 in the peninsula and between RM120,001 and RM250,000 in Sabah and Sarawak for homes measuring a minimum of 850 square feet.

MyHome2 houses will have three bedrooms and two washrooms as well as basic amenities such as parking spaces, a community hall, a surau and a playground.

Interested buyers must be Malaysians aged 18 years old and above who are buying a property for the first time.

“Qualified buyers will be reviewed by the ministry and a selection will be done through a balloting process,” Abdul Rahman said. - The Star

Paramount buys land in Batu Kawan to build university college and mixed development

PETALING JAYA: Paramount Corp Bhd has purchased 30 acres of freehold land in Batu Kawan, Penang for RM67mil from Penang Development Corp (PDC) to build a university college and mixed development project

The land for the future KDU College Penang was priced at RM40.50 per sq ft while the land for the proposed mixed development was priced at RM55 per sq ft. It is located 5 minutes from the Second Penang Bridge at Bandar Cassia, a new township in Province Wellesley.

Under the agreement, Paramount will build Penang’s first university metropolis in Batu Kawan. The metropolis will be developed by Paramount Property, the property development arm of Paramount, and will be anchored by a new purpose-built campus for KDU Penang, owned by Paramount’s KDU Education Group.

The acquisition will be funded through internally generated funds and bank borrowings.

“In addition, Paramount is required to complete and commence the development of the education component within 5 years. It is also required to complete the integrated development within 10 years, both from the agreement date. It is to obtain all approvals from relevant authorities and complete the development at its own cost,” Paramount said in a statement.

Paramount told Bursa that the rationale for the deal is to increase the group’s land bank at locations with strong growth potential and to strengthen the group’s long-term sustainability by synergising the two core businesses of property development and provision of educational services.

The deal is in line with PDC’s policy to promote and sell land to attract catalyst projects in Bandar Cassia, and to provide services that will help complement the area’s industrial and housing development sectors. - The Star

House prices expected to stabilise as a result of measures

PROPERTY professionals, especially developers, continue to grumble about the challenging first six months of this year as a result of various government and banking measures kicking in with some developers delaying launches to the second half of the year.

A survey by the Real Estate and Housing Developers’ Association (Rehda) reveals that 87% of 150 respondents are “pessimistic or neutral” about the first half of the year.

While the situation may indeed be in a flux for some developers, especially the smaller ones as buyers turn cautious, all is not lost when one considers the big picture.

In an earlier seminar on the property sector, Valuation and Property Services Department deputy director-general Faizan Abdul Rahman said house prices were expected to stabilise as a result of these measures. He was speaking at the 7th Malaysian Property Summmit 2014 organised by the Association of Valuers,Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia late last month.

The distress among developers is understandable. Because of Malaysians’ general interest in this sub-segment, developers have focused on meeting this demand over the years. This focus on the residential market escalated considerably between 2010 and 2013, accounting for multiple launches among developers.

Faizan said residentials formed the bulk of transactions for the first nine months of last year, or 64% of about 280,000 transactions. In terms of value, it accounted for RM51.51bil of total value amounting to RM105.7bil, or 49%.

Faizan said the residential sub-segment would continue to drive the market in the months ahead with prices moving on a more even and moderate keel.

One of the speakers, property consultancy C H Williams Talhar & Wong managing director Foo Gee Jen said that looking ahead, property investment would continue to be relatively more popular than other forms of investments with rising demand for affordable housing.

“Genuine demand will lead the market. There will be no more double-digit price increases,” he said.

Analysing prices for the first nine months of 2013, Foo said serviced apartments had the highest price on a per square foot basis at RM609 per sq ft while terraced housing were the lowest, at RM327 per sq ft.

“In the landed segment, he said most prices had doubled over the years. Bandar Utama’s double storey housing was priced at RM280 per sq ft in 2005. It was RM620 per sq ft in 2013. The overall landed sector had average percentage increase of 8% between 2005 and 2010 but hit 18% a year for three consecutive years between 2011 and 2013.”

He came to this conclusion after analysing prices in Taman Tun Dr Ismail, Bandar Utama, Bukit Jelutong, Kota Kemuning and Bandar Kinrara.

Foo said gated and guarded housing experienced the greatest increase, averaging 10% between 2005 and 2012 with selected developments having a higher annual appreciation of 14.4%. Detached houses had the highest return at 27.2% per annum followed by semi-detached houses at 17.3%.

“Gated and guarded housing was introduced into the Malaysian market more than 10 years ago. In 2013, this segment outperformed the rest of the other types of housing. In 2005, a detached house in a gated and guarded community was RM600 per sq ft (2013: RM1,200 per sq ft), a semi-detached house was RM400 per sq ft in 2005, doubling to RM975 per sq ft last year,” he added.

Terraced housing averaged RM480 per sq ft in 2005 and increased to RM600 per sq ft last year, he said.

As for the condominium market, Foo said total stock had grown considerably over the years and as at 2013, there was more than 355,000 units. Of this, about 27,000 units are luxury condominiums. He did not defined what he considered as a luxury condominium.

Foo said: “The supply of luxury condominiums grew at an average rate of 20% a year between 2008 and 2013 with a vacancy rate of 25%.” He cautioned that more than 32,000 units are expected by the end of this year.

“It will be a challenging market for developers in 2014. Residential property market is expected to cool down, prices stable and secondary sales slow,” he said.

The trend for developers to seek development in fringe areas continue to escalate with developers now building in areas with a radius of about 40km away from the city centre.

Mah Sing Group Bhd is building M Residences in Rawang and Southville City in Bangi. In Shah Alam, Sime Darby group is development the Elmina township andIJM Land Bhd in Bandar Rimbayu. Puchong and Semenyih have the highest concentration of new launches.

With affordability being the main issue the last few years, Foo says this is expected to change with the government’s programme on affordable housing. The government aims to build 300,000 units of affordable housing for the next five years, of 60,000 units a year. - The Star

Consumer confidence props up residential market

PRICES in Penang’s residential market continue to rise, although the overall volume of transactions has fallen, says Raine & Horne International Zaki + Partners director Michael Geh when presenting the Penang Housing Property Monitor for 4Q2013. This was gleaned from the National Property Information Centre’s data for Penang from 1H2010 to 1H2013, he adds.

In 1H2010, transactions on the island’s primary and secondary markets totalled 8,301. Sales grew to 13,832 in 1H2011, but declined to 11,889 in 1H2012 and 8,547 in 1H2013.

“The fourth quarter of 2013 saw a continuous downward trend on the primary and secondary markets in terms of units sold,” remarks Geh. “One of the main reasons was that loans were hard to come by. This factor alone pulled the Penang developer-direct market down during the quarter. The secondary market was still active, but a little down in terms of units sold.

Geh: There was good take-up of anything less than RM500,000 as people are looking for affordability now. I would describe the market as price-sensitive.

“There was good take-up of anything less than RM500,000 as people are looking for affordability now. I would describe the market as price-sensitive.”

The 4Q2013 data shows there was double-digit year-on-year price growth in many of the areas sampled, which could spill over into 1Q2014.

“January would have seen strong activity because Penangites who work overseas or in KL come home for the Chinese New Year holidays and usually purchase properties for their family or help them upgrade,” Geh explains.

Overall, consumer confidence is strong, he comments, attributing this to the soon-to-be-opened second bridge, the RM1.25 billion worth of investments pumped into the state by the federal government and the opening of IKEA and the Penang Designer Village in Batu Kawan, among others. News that Sunway Bhd is buying acres of land on the island from Lee Rubber Co Ltd, which, once developed, will have an estimated gross development value of RM1.5 billion, has also boosted optimism in the property market.

As a result, consumers are on the hunt for good buys in the Penang housing market, says Geh, highlighting several hot developments and areas on the island and the mainland.

One is E&O Bhd’s Seri Tanjung Pinang in the northern part of the island while the 152-acre The Light Waterfront by IJM Land Bhd is another. Parts of the latter, which is very close to the first bridge, have been completed and handed over to the owners. According to Geh, The Light Waterfront properties have seen a lot of rental activity and secondary market sales in the last three to four years.

In the south, near the second bridge, Teluk Kumbar and Teluk Tempoyak are creating a buzz, he says, adding that areas south of Butterworth, such as Juru, Bukit Tambun, Batu Kawan and Sungai Bakap, are getting much attention, also thanks to their proximity to the second bridge.

A view of Penang taken from Komtar Tower

State housing policy and auctions
While the outlook is rosy, a possible roadblock is the state government’s new housing policy to curb speculation. It states that properties priced RM400,000 and below on the island and RM250,000 and below on the mainland can only be sold after the fifth year of purchase. There are also restrictions on the resale of low-cost (RM42,000) and low-medium-cost (RM72,500)homes within the first 10 years of purchase.

Then, there is the 3% levy on purchases by foreigners and 2% levy on the seller of any property within three years of the date on the sale and purchase agreement. The new policy was to have taken effect on Feb 1, but has now been postponed to March 1. However, the 3% levy, on top of the 30% Real Property Gains Tax, on foreign buyers took effect this month.

Geh feels that the new policy will impact the Penang residential market, although it is too early to say by how much exactly.

In 4Q2013, house transactions in the mature residential areas of the island were still strong. According to Geh, this was because people wanted to buy houses that were near their family homes or place of work.

Besides buying on the primary and secondary markets, Geh advises homebuyers to consider auctions. However, this can be a tedious process. “Auctioning is slow because the people who really need a house or want to buy something don’t get the relevant information easily to make a purchase,” he explains. “Information is not easily disseminated, like through a website, and people still need to look through the newspapers. It is still an adventure. When auction information is offered to purchasers efficiently, the market will get off the ground.”

Fourth-quarter performanceThe 4Q2013 Penang housing property monitor shows that the prices of houses in well-established suburbs continued to grow quarter on quarter while in other areas the prices held steady.

The prices of 1-storey terraced houses in Green Lane, for example, rose to RM650,000 for the highest q-o-q growth of 13.85% compared with such homes in the other areas sampled. Development in Green Lane began in the 1960s, transforming the small farming village into a bustling neighbourhood. One-storey terraced houses in other areas that showed price growth include those in Jelutong (+12.31%), Sungai Dua (+7.69%), Bandar Bayan Baru (+6.25%) and Sungai Ara (+4.76%).

Y-o-y, all types of houses cost more in the areas sampled except two. The prices of 1-storey terraced houses in Seberang Perai Tengah dropped 6.25% to RM160,000 while those of 2-storey terraced houses in Sungai Ara held steady at RM750,000.

Demand for houses in Seberang Perai Tengah is much less than that for houses in other areas of Seberang Perai, says Geh, adding that houses to the west of Bukit Mertajam, nearer Perak, are considered hot. The areas to the east of Bukit Mertajam are less developed, he points out, although it is just a matter of time before development reaches there and has a positive effect on prices.

As for Sungai Ara, Geh finds it to be a very stable residential area. “It is like Subang Jaya or Cheras, where property prices don’t go up or down quickly.”

Rents and yields in 4Q2013 remained relatively stable q-o-q and y-o-y. “Market values were at a record high in 4Q, so rents did not go up much on account of affordability. Thus, yields did not increase,” Geh points out. “In some places, yields came down but values went up. Rents cannot be increased in line with capital values because this could lead to tenants moving out.”

Penang’s housing market continues to be strong on the island and mainland. Will it react to the state’s new policy that takes effect on March 1? Only time will tell.


This article first appeared in The Edge Malaysia Weekly, on February 14, 2014.

Economic factors and the property market

RECENTLY there have been several articles on the high prices of properties, household income, household debt, Budget 2014 and their impact on each other.

The property market can be divided into two sectors, namely: i) property which is meant for occupation either by an owner-occupier or a tenant and ii) those meant as an investment in the short term.

Investment in or acquisition of a property that is meant for occupation is almost always safe and profitable in the long term for the buyer, seller, lender and developer due to normal population growth, migration to the urban areas, increase in new households/companies, increase in savings, increase in number of households/companies who want to upgrade, increase in salaries/business turnover, expansion of business, etc.

Chart 1 shows the relationship between household income and property prices.

There is, therefore, a direct relationship between household income and the price of a property that a purchaser can afford. There is also a direct relationship between property price and whether the income used by the bank is the net or gross income. There are also direct relationships between the amount of savings (and therefore, downpayment), average lending rate, loan tenure and price.

Similarly there is also a direct relationship between rent paid or payable and property value.

Thus, when a property is acquired for “occupation” purposes the monthly mortgage payment and/or rent payable are still under the “control” of the buyer/tenant of the property which then will determine the value of the property.

This is, however, not the case when a property is purchased purely as an investment i.e. a financial instrument or commodity to be traded over the short term (as it was in the subprime crisis) to make a quick capital profit on the difference between the purchase price and the sale price.

Here, powerful “external factors” that affect the demand, supply and prices – whether singularly or jointly – take over control of the investment. The external factors are dynamic and dictate whether the investment leads to a profit or loss at the end of the short term cycle.

External factors include the following: Real Property Gains Tax and tenure, restrictions on foreigners, foreign direct investments (FDIs), national and local GDP growth rates, average lending rates, Bursa Malaysia movements, private capital fund inflows/outflows, rebates and developers interest-bearing schemes (DIBS), freebies, block purchases by speculators, investment/wealth management clubs and parties friendly to the developers, loan policies by banks with regard to gross/net income and gross/net price, loan tenure, downpayments, interest rates, favoured/unfavoured property sector, etc.

Changes in these external factors impact on the market.

In 2007, compared to 2006, changes in the external forces were positive and market values/transactions increased by between 25% and 65%. In 2009, changes in the external forces were negative and market values and volumes decreased by 20% to 40% compared to 2008.

Between 2010 and 2013, many positive changes took place. These include: increase in private capital flows, boom in the KLSE, increase in FDIs, drop in the average lending rates to below 5%, increase in the amount of loans to the broad property sector and in particular to the high end residential market, DIBS and freebies by developers, loan to value ratios based on gross prices and active participation in the primary market by block buyers, speculators and foreigners.

As a direct consequence, prices increased by 10%-15% each year on a cumulative basis and new schemes of all types of properties were launched at the highest possible prices in every available parcel of land.

With the anti-speculation measures introduced in Budget 2014, the external factors have again changed. What then will be the consequences in 2014?

i) A reduction in primary market transactions due to drop in the effective demand and the curtailment of the arbitrary price increase for each subsequent phase.

ii) Removal or reduced speculation. Upward push on prices will cease in the primary and secondary markets.

iii) Prices of properties which cannot be rented or resold quickly will drop first. The quantum depends on one’s holding power. The comparison method will continue the downward trend started by the first property to drop its price to all other subsequent properties even if they are not being offered for sale immediately.

iv) The number of high value properties launched will reduce as the long term effective demand is more for the owner occupier and tenant market which is based on actual net income and affordable rents. Launches will be postponed.

v) Developers will start to plan and build more affordable units as their revenue will have to come from sales.

vi) Rentability, in addition to the saleability, will take greater importance. A resale cannot take place if the property is not rentable or occupied.

These consequences will happen in varying degrees until the external factors change again. New external factors can be anything from the MRT/LRT routes, completion of KLIA2, interest rates increase, the interest of Chinese and Singaporean developers and investors in Malaysian properties (due to the cooling measures in their own countries). Other factors include government incentives for developers and occupiers of buildings in Tun Razak Exchange (which will suppress the existing office market) and the introduction of GST which will push costs up.

In conclusion, if a property is planned, built, financed, sold and bought for occupation by owners or tenants to either stay or to conduct business, the fundamentals then dictate that the property investment will be secure and profitable as the occupier is in control and the market will adjust itself with just the right supply, prices, rents and profits.

However, if the property market is allowed primarily to become a short-term investment vehicle for quick profits, there will be a sharp rise in household debts, foreclosures, social unrest, misallocation of the nation’s savings and wealth, unjust distribution of hard earned income to a small group, unless the government steps in, as it has done in Budget 2014, or the external factors change again.

• P.B. Nehru is the managing director of City Valuers and Consultants Sdn Bhd. - The Star