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Monday, 18 June 2018

(NST) People in East Coast still hopeful for ECRL


KUALA LUMPUR: People from the East Coast are still hopeful that the East Coast Rail (ECRL) project, which is currently being reviewed by the new government, will continue as scheduled as it will ease time and cost for those travelling from that part of Malaysia.

Suraya Omar, a single parent who hails from Kelantan, said the ECRL transportation project was much-awaited because of its many benefits.

The mammoth RM55 billion budget ECRL project will become the longest railway track in the country, when completed. The rail link, scheduled for completion in 2024, would connect Port Klang in Selangor to Pengkalan Kubor in Kelantan, cutting across Pahang and Terengganu.

The project has come under scrutiny because of its burgeoning cost.

“Right now I am travelling back and forth by car, accompanied by an employee, to visit my three children who are being looked after by my sibling. I travel back almost every week,” said Suraya who cannot afford a flight back home although she resides in Subang Jaya which is not far from the airport.

The petty trader said she was overjoyed when she heard the news that the government was going to build the ECRL as it will make things easy for her and many others who are working outside the state.

“I hope the newly-formed government will favourably consider the plight of many of us from the East Coast. The people and country will accrue many benefits and advantages from this project if it is implemented,” she added.

Echoing her views, Mohd Faris Azmi from Pasir Puteh, who travels home once in every two weeks, opined that the ECRL will not only be convenient but also cut travel time compared with driving by car.

The 33-year old private sector employee said travelling time is only between two and three hours.

“I can relax and sit back and enjoy the journey all the way back to my destination. For those working like me, we only get to take in the sights and destress ourselves on journeys like this.

“It saves time, money, energy and will create many business opportunities especially for Kelantanese who like to do business. The 688 kilometre rail link will not only serve as a medium to attract tourists to Malaysia but also benefit state coffers through the economic propulsion of trade, enterprise and development,” said Mohd Faris.

It’s a different story with Fatin Syahirah Mohd Yusri, a tertiary student, felt that the number of road accidents can be considerably reduced especially during festive seasons.

“With the ECRL, the percentage of accidents will definitely decrease. Right now, public awareness of the dangers of long-distance driving in Malaysia is still low.

“On the average, people want to go home and get to their destination quickly,” she said, adding that attitudes cannot change. In fact with the passage of time, streets thugs and bullies are rearing their ugly head, making road journeys dangerous.

One way to minimise such undesirable occurrences, she said, would be to have an alternative means of transportation to the East Coast.

“As future graduates, there will also be ample employment opportunities for us especially with the ECRL. The country’s economy and tourism sector will continue to flourish and communication with different countries will be further enhanced,” said Fatin.

Meanwhile, Kelantan Chief Police Officer Datuk Hasanuddin Hassan said more than one million outstation vehicles were expected to enter Kelantan via Pasir Puteh, Gua Musang and Jeli during this year’s Hari Raya Aidilfitri exodus.

For the record, in 2016 the Kelantan Road Transport Department reported that three million vehicles entered and exited the state for the Hari Raya Aidilfitri festive season.

Given the numbers, it’s will be worth investing in an alternative transportation mode besides beefing up the Sultan Ismail Petra Airport in Pengkalan Chepa, Kota Bharu, which also experiences heavy air traffic, during festive seasons, as airlines offer many attractive packages, from time to time, to lure travellers.

Infact, the Sultan Ismail Airport, one of the busiest airport in Malaysia handling outgoing and inbound traffic besides being a transit hub, is now undergoing a RM483 million extension work to be upgraded into an international airport to receive more direct flight from neighbouring countries.

It will also attract investors and boost the state’s economy once it is completed in three years.

However, how effective can it be as there are still many Kelantanese who abstain from using air transport, as a mode of transportation, for reasons best known to them.

For those residing in Gua Musang and the interiors of Kelantan, air transport will be out of the question as getting to the airport alone will take two to three hours. They will resort to bus or train service instead.

This is where the ECRL will come in as an efficient transport system, as it will serve stations and routes which are densely populated.

Senior Lecturer, Faculty of Communications and Media Studies, Universiti Teknologi Mara (UiTM), Ahmad Faisal Mohamed Fiah said the ECRL project will be viable especially in the East Coast and should be carried out.

He said the project will indirectly develop the three east coast states of Pahang, Terengganu and Kelantan and place them at par economically with other states in the peninsula.

“At the same time, it can provide ease of travel and convenience plus reduce dependence on car journeys especially for those who travel back to their hometowns during festive seasons.

“What’s more, tourism will flourish rapidly in these three states,” he said, adding that the ECRL will compliment the entire land transportation system in Malaysia.

As such, the government should seriously consider carrying out the project if not now, at least in the future, ” he added. --Bernama

(NST) The country's retail sector shows positive growth since zero-rated GST


KUALA LUMPUR: The retail sector in the country is showing positive growth since the begining of this month after the implementation of zero rate for the good and service tax (GST).

Global Retail Ventures (GRV) Sdn Bhd chief executive officer Mustakim Manaf said the consumer market and sentiments are now showing better improvements.

"The impact of GST varies by industry but at present (after zero GST), the situation shows better situation.

"Some policies implemented by the government are functioning well and has shown great impact and stimulating the local retail sector.

"We are projecting a more positive outlook for the next six months," he said after a meeting with the Council of Eminent Persons in Kuala Lumpur yesterday.

GRV is the franchise operator of Hamleys Toy Store in Malaysia and Singapore.

Commenting further, Mustakim said the industry is seen to be more encouraging with their respective expansion plans and in opening more stores.

"After the zero rate of GST, more traders are seen operating in supermarkets, and even GRV businesses are getting better.

"Such factors provide a good indication of the retail sector in the country," he said.

At the same time, he argued that the implementation of the sales and service tax (SST) at lower rates would help traders, thereby benefiting consumers.

"Actually the SST is the same idea (when it was previously implemented), so it is necessary to ensure that it is at an affordable rate.

"Therefore, the SST rate to be set should be less than 10 percent," he said.

Previously, Malaysia implemented SST at 10 per cent before being converted to GST at six per cent.

He also agreed with Mydin Mohamed Holding Bhd's managing director Datuk Ameer Ali Mydin earlier that lower SST rates would make more traders compliant to its implementation.

(NST) Moody's has stable outlook for Malaysian banks


KUALA LUMPUR: Moody's Investors Service says the outlook for Malaysia’s banking system is stable (A3 stable) over the next 12-18 months, while supported by robust macroeconomic conditions, within and outside the country.

According to Moody's Vice President and Senior Analyst, Simon Chen, such an environment is favourable to Malaysian banks, while helping stabilise asset quality and profitability.

He said in a statement today that at the same time, faster loans growth would be seen, remaining at a pace that was slower than the profit retention of the banks, leading to stronger capital buffers.

Moody's conclusions are contained in its just-released report on Malaysian banks titled, "Robust Macro Conditions and Improving Capitalisation Support Stable Outlook," and authored by Chen.

The stable outlook is based on Moody's assessment of six drivers, namely operating environment (stable), asset quality (stable), capital (improving), funding and liquidity (stable), profitability and efficiency (stable) and government support (stable).

On the operating environment, Moody's says that while macroeconomic conditions will prove robust, policy uncertainty poses a risk and has forecast Malaysia's real Gross Domestic Product to expand by 5.4 per cent in 2018, and loans growing 6-7 per cent in the same period.

The removal of the Goods and Services Tax could boost private consumption and benefit domestic businesses in the near term.

However, uncertainty over future policy changes by the new government, will weigh on investor and business sentiment over the course of 2018.

On asset quality of banks, Moody's said it would stay stable, against the backdrop of easing stress among troubled corporates and slowing growth in household debt levels.

New non-performing loan formation will remain slow amid a moderate rise in interest rates, as corporate profitability improves and growth in risky household loans eases.

As for capitalisation, such levels will improve, as capital generation exceeds asset growth, and prove sufficient to cushion one-time adjustments to capital ratios to meet the MFRS 9 standard.

Moody's also said the funding and liquidity of banks would stay stable.

In particular, the banks' loan-to-deposit ratios will rise as loan growth accelerates, but such ratios would remain below 100 per cent.

In addition, the banks will remain well positioned to comfortably meet minimum requirements under Basel III liquidity and funding rules.

On profitability, Moody's said revenue improvements — driven by faster loan growth — would underpin the profitability profiles of the banks.

Faster loan growth will boost pre-provision income, although stiffer deposit competition will limit improvements in net interest margins.

Credit costs will rise because of the new MFRS 9 standard, but only slightly, because of continuously benign credit conditions.

Government support for banks in times of stress will continue to prove strong. Recent legislative reforms have not suggested any shift in the government's policy for the resolution of troubled banks outside liquidation, with a lack of legislation to force bank creditors to bear the cost of any bank bailouts.

Moody's rates 11 banks in Malaysia - eight conventional commercial, one investment, one Islamic and one government-owned development financial institution.

The rated commercial banks accounted for some 85 per cent of total loans and deposits in the Malaysian banking system at end-2017.

Moody's has also maintained a stable outlook on the Malaysian banking system since 2010. -- BERNAMA

(The Edge Financial Daily) Transport sector faces various headwinds


Transport sector Maintain neutral:
We are neutral on the transportation sector over the next 12 months. While there are plenty of opportunities in store for players, particularly, in the tourism and e-commerce space, we are mindful of various headwinds such as the increased regulatory risk on the back of the change in the political landscape following the 14th general election, potential dial-back of certain major initiatives by the preceding administration and rising fuel costs.

Tourism Malaysia has projected Malaysia’s tourist arrivals to surge by a whopping 28% to 33.1 million in 2018 from 25.9 milliom in 2017, and to hit 36 million in 2020 in conjunction with the Visit Malaysia Year 2020 campaign. We find the projection a tad optimistic given that the numbers had stagnated at about 26 million over the last three years.

Nonetheless, we do agree that the trend for tourist arrivals in coming years is upwards, as Malaysia is slated to host a series of high profile international events including the Commonwealth Heads of Government Meeting, the Asia-Pacific Economic Cooperation summit and World Congress of Information Technology. Low-cost carrier AirAsia and airport operator Malaysia Airports are the main beneficiaries of the growing tourist arrivals.

The rapidly expanding e-commerce sector, particularly, online shopping, has created huge opportunities for parcel delivery service providers such as Pos Malaysia. Malaysia’s presence in the regional and global e-commerce market is on the cusp of a quantum leap, driven by the Alibaba-backed Digital Free Trade Zone (DFTZ) project in the KLIA Aeropolis. The DFTZ will serve as a regional e-fulfilment centre as well as an e-commerce logistics hub. Apart from Malaysia Airports, we believe local logistics players are poised to garner a slice of action in the physical zone of the DTFZ.

On the other hand, regulated businesses may face a higher regulatory risk, as the new administration strives for better deals for the rakyat, as promised in its election manifesto. Under these circumstances, it is unlikely, for instance, for airport operator Malaysia Airports to secure an upward revision in passenger service charges (PSC).

In fact, in the run-up to potentially new rates in 2019, the transport ministry now says that PSC should be determined in accordance with the quality of facilities in the airport, which means certain smaller and older airports may even see a reduction in PSC.

Also, there are concerns over whether the DFTZ project, a China-Malaysia initiative of the preceding administration, will go ahead as planned. All China-Malaysia deals signed in recent years will now come under scrutiny. This follows the revelation of unconventional contractual terms the preceding administration entered into with Chinese lenders and contractors with regard to the East Coast Rail Link and two multi-product petroleum pipeline projects, where the payment schedules are based on timeline milestones (which are effectively automatic), versus the industry’s norm of percentage of completion. This has resulted in the payments being way ahead of the actual work done, which is nonsensical.

Meanwhile, trans-shipment seaport operator Westports will still feel the negative impact from the recent reorganisation of the global shipping alliance, resulting in the diversion of trans-shipment cargo volumes to Singapore. On a brighter note, we expect gateway cargo volumes to continue to grow in coming years, thanks to Malaysia’s robust exports and imports. Meanwhile, Bintulu Port will be weighed down by startup costs at its newly completed Samalaju Industrial Port.

We may upgrade our “neutral” stance on the transport sector to “overweight” if tariffs are adjusted upwards, volume performance beats expectations, yields surprise in the upside on reduced competition, and fuel cost comes down on weaker crude oil prices.

We may downgrade our “neutral” stance on the transport sector to “underweight” if volume performance misses expectations, yields surprise in the downside on heightened competition, and fuel cost goes higher on stronger crude oil prices.

Our top pick for the sector is AirAsia. AirAsia is a good proxy for the growing low-cost air travel market in the region, underpinned by rising per capita incomes and a young demographic. Its strong market presence enables it to compete effectively against its rivals. It has struck a chord with investors with its plans to monetise some of its auxiliary businesses. — AmInvestment Bank, June 14



(The Edge Financial Daily) ‘HSR postponed, not scrapped’ comes as a relief to construction companies


These developments indicate that the infrastructure spending cuts may not be as severe as initially portrayed.

Construction sector
Maintain neutral:
The ongoing reviews of public-sector infrastructure projects have raised uncertainties over the status of ongoing and planned infrastructure projects. This has led to volatility in the share prices of construction stocks. Prime Minister Tun Dr Mahathir Mohamad said the Kuala Lumpur-Singapore high-speed rail (HSR) project has been postponed, and not scrapped as stated previously, leading to a relief rally for impacted firms.

These developments indicate that the infrastructure spending cuts may not be as severe as initially portrayed in statements made by the new government previously. We believe part of the reason is due to costly cancellation clauses in government-to-government contracts signed for the East Coast Rail Link (ECRL) and the HSR. If the HSR is revived, companies involved such as Gamuda Bhd, Malaysian Resources Corp Bhd, YTL Corp Bhd and HSS Engineers Bhd are potential beneficiaries.

If construction of the ECRL project continues, Malaysian contractors pursuing subcontracts such as IJM Corp Bhd, WCT Holdings Bhd and Advancecon Holdings Bhd are potential beneficiaries. The cancellation risk for HSS’ ECRL contracts, worth about RM130 million (19% of its order book of RM673 million), is also reduced.

There was good investor interest in our recent macroeconomics/construction-sector outlook analyst meetings. We met up with 23 foreign institutional investor firms in Singapore and Hong Kong. Most investors were concerned about the short-term impact from the transition to a new government but acknowledged the good long-term prospects of a more transparent and efficient government.

We reiterate our “neutral” call on the construction sector due to potential delays in implementation of infrastructure projects and a reduction in government infrastructure spending. This will reduce the order book replenishment prospects of contractors. Our top buys are IJM (large-cap), Sunway Construction Group Bhd (mid-cap) and HSS (small-cap). — Affin Hwang Capital, June 14


(The Edge Financial Daily) UEM Sunrise to expand rent-to-own scheme


It aims to ease the burden of first-time house buyers

BY ROSEMARIE KHOO MOHD SANI

KUALA LUMPUR: Property developer UEM Sunrise Bhd plans to expand its rent-to-own (RTO) scheme, as it aims to ease the burden of first-time house buyers.

Its managing director and chief executive officer Anwar Syahrin Abdul Ajib described the scheme as a value-added solution for those planning to buy a house but were in the midst of building their careers.

“This will enable the young buyers to plan their finances and facilitate their borrowings.

“The scheme will also help to mitigate projects/developments being empty and untenanted, which may result in unnecessary maintenance costs,” he told Bernama.

The developer launched its own RTO scheme, the UEM Sunrise — Easy Own Plan, in August last year and recently began collaborating with Malayan Bank Bhd (Maybank) through the latter’s HouzKey scheme.

UEM Sunrise offers two key projects under its RTO scheme — Verdi Eco-dominiums in Symphony Hills, Cyberjaya, and Residensi Ledang in East Ledang, Iskandar Puteri, both of which were completed in 2016.

“Our collaboration with Maybank has been encouraging as we have managed to generate interest and conclude a few sales.

“Projects under this collaboration include Serene Heights, Bangi, [Acacia Begonia & Dahlia] and Verdi Eco-dominiums,” Anwar Syahrin said.

Asked how the property sector would be affected by the government’s plan to ease the procedure for housing loan applications, he pointed out that it would not solve the core problem.

“About 25% of housing loan applications were rejected with the most common reasons cited being insufficient income to support debt repayment, adverse credit history and inadequate income or financial documentation.

“Banks are remaining vigilant in assessing the sustainability of borrowers’ sources of income and financial commitments,” he explained.

Stressing that about 80% of cancelled purchases were due to loan applications being rejected by end financiers, Anwar Syahrin said the RTO scheme would be very helpful to property purchasers, especially first-time homebuyers.

“Our RTO scheme will offer property buyers an alternative pathway to owning a house and provide a buffer period for potential house buyers to sort out their personal finances and build up their credit standing, before they start applying for a loan,” he added. — Bernama


(The Edge Financial Daily) Analysts see further upside for retail stocks


BY TAN XUE YING

KUALA LUMPUR: More upside is seen for locally listed retail stocks which received a major shot in the arm with the zero-rating of the goods and services tax (GST) two weeks ago.

Analysts said the stocks have more room to run at least until the tax-free holiday comes to an end with the reinstatement of the sales and services tax (SST) on Sept 1.

They said the effective removal of the GST meant the masses have bought, or are planning to buy, more items that were previously subjected to the tax.

“I believe this window of a tax-free period will spur spending, typically in retail and luxury or household products such as cars and furniture,” said Areca Capital Sdn Bhd chief executive officer Danny Wong.

“Some stocks have seen a change in trends. I believe almost all consumer stocks will see some upside this quarter,” Wong said when contacted, adding that the upside differs only in the extent.

The government’s announcement on the reduction of the GST rate from 6% to 0% effective June 1 was made on May 16. Within five days post-announcement, the Bursa Malaysia Consumer Product Index had risen nearly 3% to an all-time high of 743.22 points. The index settled at 740.16 points last Thursday.

Wong said the improved sentiment could continue post-tax holiday, depending on the strategies adopted by retailers in maintaining sales from plunging on a high-base effect.

The SST has been hailed as a less painful tax for consumers as it has a straightforward taxation concept, unlike the GST which involves multiple stages.

Another analyst, speaking on condition of anonymity, said that of the retail stocks under his coverage, the “clear-cut winner” is Aeon Co (M) Bhd, which is enjoying good sales, thanks to the zero-rating of the GST and Hari Raya festivities.

“It is one of the few retail stocks that have ‘legs’, ” he said. “But this remains contingent on not just how well they do in sales these two quarters, but also on how well they undertake their cost optimisation in efforts to improve margins.”

The share price of Aeon Co — which operates 34 stores and 26 shopping malls in Peninsular Malaysia — has appreciated 37.5% year-to-date. The stock closed one sen higher at RM2.42 last week, and is currently trading at a price-earnings ratio (PER) of 33.43 times.

The retailer, which has been in operations for more than three decades, turned in a record high revenue of RM4.09 billion for the year ended Dec 31, 2017.

According to another analyst, Bonia Corp Bhd is also a counter worth taking a look as its shares could benefit from the higher spending by consumers.

“But it is unsure how much could be translated into the company’s bottom line, considering that Bonia is currently undergoing store consolidation,” he told The Edge Financial Daily.

This is despire the fact that Bonia shares are trading at a PER of is warranted given the company’s lacklustre corporate earnings in the past few quarters.

The fashion retailer, which mainly sells leather goods such as foot-wear, handbags and accessories, saw its net profit for the third quarter ended March 31, 2018, contract 73% to RM1.28 million, from RM4.76 million a year earlier.

Its share price has fallen 34.7% from its high of 65.8 sen in October 2017 to 43 sen at the close of trading last week.

Areca’s Wong said the higher demand seen by retail stocks could also be driven by investors switching from counters that were once the “darling” of the stock exchange to new counters, besides the zerorisation of the GST.

With the government reviewing mega projects, investors are left with little choice due to the lingering uncertainties in stocks that are especially related to construction and building materials, he said.

Wong advised investors who have jumped on to the retail bandwagon to keep a close eye on further announcements, as it is expected that sales will slow down after the tax-free period.


Sunday, 17 June 2018

(NST) All housing projects to be streamlined, abide by build-and-sell basis


KUALA LUMPUR: The Ministry of Housing and Local Government will streamline all housing projects to ensure that they adhere to a build-and-sell concept.

Its minister Zuraida Kamaruddin said the move was to ensure the polemics of abandoned housing projects stretching for long periods to be thoroughly addressed.

“We will adjust (this accordingly) so that it follows a build-and-sell concept, rather than have bookings made available to buyers when the project has not even reach 10 per cent completion.

“I have encountered a lot of cases in the country where housing project are not completed even after eight to 10 years, but the buyers still need to service their bank loans.

“Many are upset because a sales policy such as this is senseless. So we’re going to streamline everything,” she said in an exclusive interview recently.

Zuraida said other aspects to be revised were loan processes from banks to ensure that the people would be able to own a home.

The matter, she said, would be resolved through discussions with the Finance Ministry and Bank Negara Malaysia (BNM) in the near future.

“Some people have side income, but this is not included in the criteria for determining the approval of housing loans based on the requirements of the banking industry.

“Therefore, we want to have this included so that it can be properly considered and taken into account, with the condition of its validity proven through documentations.

“Secondly, income from spouses and siblings should also be taken into consideration,” she said.

Other considerations, she added, should also include housing loan approvals based one one’s forecasted salaries in a certain time frame, especially for the youths.

This, she shared, is because one’s salary will increase over time, thus qualifying buyers to apply for a higher loan amount.

(NST) Glass-bottom bridge at Crocodile Adventureland Langkawi in the pipeline


LANGKAWI: Crocodile Adventureland Langkawi, one of the tourist attractions in this resort island developed by Taman Buaya Langkawi Sdn Bhd, plans to build a glass-bottom bridge set to be the first and the longest of such kind in the country next year.

Proposed to be about 300 metres long spanning a large pond filled with gigantic crocodiles at the park in Jalan Datai here, the bridge would add thrills and excitement for visitors, said Taman Buaya Langkawi general manager Adam Fuaad.

“We’re looking at somewhere between April and June to carry out this project and expect to deliver it within the second half of next year,” he told Bernama.

According to him, the glass-bottom bridge would be a new element to be injected into their operation to maintain Crocodile Adventureland’s position as one of the best tourist spots in Langkawi.

“We’ve been carrying out rebranding and intensive marketing efforts over the last three years and this year, we were awarded a Certificate of Excellence by TripAdvisor (a leading travel-related website),” he said.

Adam said the park, which has a population of about 4,000 crocodiles, had also been listed by TripAdvisor as among the top attractions for tourists on the island.

“We’re very grateful for the good reviews and votes that we’ve been getting from tourists that have enabled us to be accorded these recognitions. We always welcome constructive comments from our visitors,” he said.

Besides its status as a leading tourist attraction, Adam said Crocodile Adventureland had also become a focal point for those from within and outside the country requiring specialised consultancy on the reptile.

He said the park’s most recent engagement was with the Sarawak government which was eyeing a collaboration to set up a crocodile sanctuary in the state which faced an overpopulation of the reptile.

“We’ve been invited to become the consultant and to carry out educational campaign among the local community in Sarawak on how to deal with crocodiles,” he said, adding that the crocodile park also served as a research site for several local universities. - Bernama

Thursday, 14 June 2018

(NST) Purpose-built office: 'Sector still stable'


THE purpose-built office sector in the Klang Valley has witnessed a significant increase in supply over the past few years.

This has begun to put pressure on occupancy rates as well as rentals. Nevertheless, the situation is currently still in a stable state, but the projected additional floor space from the mega commercial projects undertaken by several government-linked companies (GLCs) as well as private companies eg. The Exchange 106 and a few other buildings in Tun Razak Exchange (TRX) and Merdeka PNB 118 will increase the supply of office space substantially and this has given rise to fears of an acute oversupply situation in the coming years.

EXISTING & INCOMING SUPPLY

The supply of purpose-built office space provided in privately-owned buildings in Kuala Lumpur increased to approximately 95.9million sq ft(8.911 million sq m) last year, based on statistics from National Property Information Centre (NAPIC).

There is another 10.1 million sq ft (944,530 sq m) in incoming supply which will add onto the space available with another 6.2 million sq ft (577,455 sq m) in the pipeline, comprising projects with planning approvals. Outside Kuala Lumpur, there is a stock of about 23.4million sq ft (2.177million sq m) supplied by buildings in Putrajaya while Selangor contributes another approximately 38.9 million sq ft (3.621 million sq m).

More than 77 percent of the existing office space in Kuala Lumpur is located within the city centre (Sections 1-100 Bandar Kuala Lumpur) with the balance located outside the city centre and the proportion is expected to remain the same with the incoming and planned future supply.

There are a number of major office developments due for completion over the next few years and these are tabulated on chart 2.

Apart from the projects mentioned above, there are a few other major office developments which are part of massive integrated commercial developments in the city which have been announced and which, if launched and completed, will add significantly to the future supply of office space in Kuala Lumpur. Some of these projects involved demolishing old buildings and redeveloping the sites to take advantage of higher plot ratios now allowed by the authorities:

• Lot 185 KLCC - 500,000 sq ft of retail & office space & a hotel;

• 88 storey Signature Tower, Bukit Bintang City Centre (BBCC) by Eco World Group;

• Former Brickfields District HQ Seni Nadi;

• Tradewinds Square, Jalan Sultan Ismail (redevelopment of Kompleks Antarabangsa & Crowne Plaza Hotel)-proposed 110-storey corporate tower, 61-storey mixed use tower and a retail mall;

• Tradewinds Towers - 50- and 26-storey office towers to be built on the former Menara Tun Razak site, Jalan Raja Laut; and

•New80-storey office tower to be added to Menara Dayabumi

OFFICE OCCUPANCY RATES & RENTALS

The office occupancy rates provided by NAPIC’s report for last year overall do not show the detailed breakdown for Kuala Lumpur according to areas.

But overall, the figures indicate that the occupancy rate is around 80 per cent with buildings located within the city centre enjoying a higher occupancy than those outside the city centre. Meanwhile, the occupancy rates of office buildings in Putrajaya was reported to be 93.4 per cent, while in Selangor the figure is 75.5 per cent.

Nevertheless, the substantial supply of office space due to come onto the market is expected to result in vacancy rates rising significantly and this has prompted Bank Negara Malaysia, in its report for Q3 2017, to issue a warning of an impending glut of office space which may result in one in three offices to be vacant by 2021.This has led to the government deciding to impose a blanket freeze on all new approvals of office buildings as well as shopping malls and luxury condominiums priced above RM1 million. However, the authorities have since relaxed the freeze and developments which can be justified by the developers will now be allowed (refer to chart3and 4)..

Overall, average rentals in the various sub-markets in Kuala Lumpur’s office sector registered a slight decline. We note that newly-completed buildings which have just come onto the market are of better specifications and therefore fetch higher rentals and this could have propped up the average rentals. Further, the rentals have not taken into account the incentives offered by the new buildings eg. longer rent free periods.

Older buildings which have not carried out any refurbishment exercises are affected by the stiff competition and some have lowered their rentals to arrest the drop in occupancy rates as tenants are enticed by the attractive rentals and incentives offered to relocate to the newer and better quality buildings.

MAJOR OFFICE SALES TRANSACTIONS

There were not many transactions of office buildings last year. The following were the major transactions that were noted. The highest price per sq ft was recorded by the sale of Menara Selangor Dredging at RM 1,323psf (refer to chart 6).

OUTLOOK FOR OFFICE SECTOR

The supply of office space has increased substantially over the past six years and this has raised concerns of a serious glut which may have a drastic impact on the office market.

Newly-completed buildings are taking a longer time to fill up and more incentives have to be offered to attract tenants. Older buildings, which have not been upgraded to meet the needs of modern businesses, lose out as tenants take advantage of the attractive rents

and incentives to relocate to newer buildings with better amenities and higher quality specifications.

As vacancy rates rise, rentals have come under pressure. The completion and commencement of the MRT line as well as new LRT extensions have made areas which are served by the enhanced public transportation links more attractive as office locations and this has spurred the trend of decentralisation as well as flight to better quality new buildings in city fringe areas like Damansara Heights and Mutiara Damansara/Damansara Perdana. One bright spark in an otherwise subdued office market is the growth of co-working space in the Klang Valley where operators have expanded in terms of numbers as well as floor space taken up and progressed from cheaper premises located in the outskirts of the city to prime buildings in the city centre.

Overall, rentals have weakened slightly in the face of higher vacancy rates and, although generally still stable, will come under increased pressure when the huge supply of space from the few mega projects undertaken by the GLCs eg. Merdeka PNB 118 and TRX are completed in the coming years. The alarm bells raised by Bank Negara Malaysia of the glut in supply and the ramifications it has on the market as well as the banks which finance these projects have put all the stakeholders on high alert. The government’s proposed freeze on new approvals, if enforced, will help to avoid worsening the oversupply situation and buy some time to allow the market to digest the new supply. Burdened by these structural issues, the outlook for the office market certainly looks challenging in the coming years.

Story courtesy of Henry Butcher Malaysia