Saturday, 31 December 2016

(NST) Property mart expected to remain subdued

KUALA LUMPUR: A COMBINATION of cooling measures and disappointing economic performance continues to make for weak performance of the real estate market in much of Malaysia and Singapore, said independent global property consultancy Knight Frank. 

“In much of Southeast Asia and India, the story continued to be one of slow or sluggish performance,” 

Knight Frank said in its 2016 round-up and 2017 outlook for real estate markets across the Asia Pacific region. Knight Frank Malaysia Sdn Bhd said 2016 had been subdued and it expects the same next year. 

The company expects the commercial property market to see more sales activity with vendors having more realistic expectations and purchasers looking for bargains next year. However, the residential properties segment is likely to continue the weak performance next year. 

Knight Frank Malaysia managing director Sarkunan Subramaniam said transactions of commercial and investment properties are anticipated to be priced between 10 per cent to 20 per cent below perceived market value with realistic and increased yields. 

“Developers will face lower demand while implementing strategies to attract and improve sales,” he said. 

Knight Frank also attributed the softer industry performance in Kuala Lumpur and other Southeast Asian cities, including Singapore and Perth, to the reliance on commodities, banking and finance, oil and gas and shipping industries.

“These industries have all seen a knock-on impact on the commercial property markets and Kuala Lumpur is one of those to have seen weaker demand for commercial space over the last 12 months,” said the property consultancy.

(The Star) More hits than misses in 2016 stock selection

There were more hits than misses in the bag of stock picks by selected StarBizWeek writers and fund managers published on June 18.
Of the writers’ six choices, five outperformed the benchmark FBM KLCI, while among the fund managers’ choices, two out of four outperformed the index, which was up a marginal 0.6% during the period under review.
Using June 17 to Dec 20 as the period of review, semiconductor firm KESM Industries Bhd, picked by Afiq Isa, emerged the winner, posting a strong capital return of 104.8%.
After adjusting for dividends, the company’s stock saw its share price increase from RM4.84 to RM9.91.
This may have been partly due to the illiquidity of the stock, as well as KESM’s improved financials on a year-on-year basis.
For its full financial year ended July 31, 2016 (FY16), KESM distributed dividends amounting to 7.5 sen, translating to a dividend yield of 1.8%.
Destini Bhd, picked by Gurmeet Kaur, rose 14.7% over the period from 58 sen to 66.5 sen.
Its shares hit a high of 88 sen on Oct 24 before trending downwards in line with the softer market.
The engineering specialist company, which counts the Ministry of Finance Inc as a substantial shareholder and caters to the aviation, marine, and oil and gas sectors, is still one to watch for its growth story.
An earnings rerating could be in the offing for the stock if the possibility of securing sizeable new contracts for its marine and newly-diversified rail divisions materialises, giving its existing order book a significant boost.
For the nine months ended Sept 30, 2016, the firm recorded a 82% increase in net profit to RM21mil.
Despite a tough business environment, CIMB Group Holdings Bhd, picked by M. Shanmugam, saw its stock go up by 11.7% to RM4.60 during the period under review.
The stock was chosen partly because of Indonesia’s economic recovery since more than 20% of CIMB’s business comes from Indonesia.
The banking group has also been rationalising its cost, with the efforts beginning to show in its bottom line.
For its third quarter ended Sept 30, it made a higher net profit of RM1.02bil compared with a net profit of RM803.9mil for the same period a year earlier.
The group paid out eight sen per share in dividends during the period under review.
Century Logistics Holdings Bhd, a choice of Intan Farhana Zainul, saw its share price rise as much as 8.5% to 88.5 sen amid news that South Korea-based CJ Korea Express Asia Pte Ltd was buying a 31% stake in the firm.
The stock rose to RM1.04 on that news before profit-taking set in.
CJ Korea had offered RM1.45 a share for the 31% block in Century Logistics, which was almost a 40% premium.
Cafe chain operator OldTown Bhd’s stock, picked by Yvonne Tan, gained 7.4% over the past six months, ending at RM1.89 on Dec 20 after having hit a high of RM2.02 in November.
Over the same period or up to the six-month period ended Sept 30, OldTown had also rewarded its shareholders with total dividends of three sen per share.
The stock was chosen partly because of its fairly high dividend yields, given the volatile market conditions.
For FY16 ended March 31, OldTown paid out dividends totalling nine sen per share, translating into a decent yield of about 5%.
Despite a slower-than-expected recovery in overall consumer spending, the company still has a relatively resilient business model and a strong balance sheet.
IT company Palette Multimedia Bhd’s stock, picked by Tee Lin Say, lost 7.1% at the end of the review period.
It touched eight sen in late June.
The company had no borrowings and had cash of RM1.45mil as of its first quarter to Aug 31, 2016.
For its first quarter, it recorded a loss of RM516,000 on the back of RM222,000 in revenue.
There are no comparative figures as the company recently changed its financial year.
A turnaround for the company looks likely, as just last month, Palette proposed to acquire biomedicine and herbal medicine company Genopharma Sdn Bhd for RM1.53mil.
This acquisition comes with a profit guarantee over the next three financial years.
Palette also has a new income stream from iMedic.

On Nov 17, Palette signed a partnership deal with Shanghai International Medical Centre in China (SIMC), where SIMC will adopt Palette’s Mobile Healthcare platform, iMedic, for all its doctors and specialists.

(The Star) Sunsuria optimistic about 2017 outlook

Developer going ahead with new launches
Property developer Sunsuria Bhd, which will be launching projects with total gross development value (GDV) in excess of RM1.55bil next year, is cautiously optimistic about the outlook of the market in 2017 – in spite of what the naysayers say.
Sales and marketing director Simon Kwan says the outlook for 2017 “should be good”, which is why the company is embarking on the launches.
“We are optimistic. Even though the market is challenging, the piece of cake will still be there – just a little smaller,” he tells StarBizWeek.
Among the projects in the pipeline is the first residential development of Sunsuria City, The Olive condominium, Bell Suites serviced apartments that face the main entrance of Xiamen University Malaysia and an upcoming landed residential development known as Monet Residences.
Apart from the township projects, Sunsuria will also focus on the second-phase expansion of its mixed commercial development, dubbed The Forum, in Setia Alam.
The company is targeting to launch phase two by the final quarter of 2017.
The mixed integrated development is situated in Sunsuria Seventh Avenue, within Setia Alam. Located on 6.6 acres of freehold land, the second phase will comprise retail units, an office tower (21 storeys), SoHo service suites (33 storeys) and service apartments (41 storeys).
“There will be 150,000 sq ft of lettable retail space in phase two. We sold the retail units in the first phase, but we’re holding the new units and will rent them out in the second phase, says Kwan.
The first phase of The Forum, which was launched in 2015, comprised 172 units of office space and 61 units of retail space.
“All of the office units have been sold, while about 40 units of the retail units have been snapped up,” says Kwan.
The retail portion of the first phase has been taken up by tenants such as Village Grocer, Secret Recipe, Baskin Robbins and Focus Point.
Kwan feels that these household names will help to attract new retail tenants in phase two of The Forum.
He says Village Grocer, which has taken up about 25,000 sq ft in the first phase, has taken 10,000 sq ft in the second phase.
Kwan is naturally optimistic about the prospects for The Forum.
“Setia Alam is a mature area already and we believe it is self-sustainable. The site is strategically located within the vicinity of Setia Alam commercial hub, Sunsuria Seventh Avenue, Setia Eco Park, Klang and Shah Alam.
“There is convenient access to major highways such as Persiaran Setia Alam, the New Klang Valley Expressway, Shapadu Highway, Elite Highway and the Federal Highway. We have 90 acres in Setia Alam and the second phase will be the last piece. So we want to do our best,” he says.
Kwan also feels that the Malaysian retail sector will still be steady in 2017.
“Malaysians like to go to malls. Online shopping is a new trend and, yes, it’s growing. But many families like to go to shopping centres and we believe this trend will continue.
“It’s a favourite pastime for Malaysians. A lot of us go to malls – we won’t necessarily shop but may spend the day at food and beverage or entertainment outlets.”
The Olive
Another highly-anticipated project for the Sunsuria group in 2017 is the company’s high-rise development, The Olive.
Initially slated for a 2016 launch, a delay in obtaining the advertising permit and developer’s licence has forced the company to push the launch to next year.
Located at Sunsuria City at Putrajaya South, Salak Tinggi, Kwan says the project, which comprises three blocks, is already open for booking and has been well received.
“Block A has been fully taken up, while Block C has achieved a take-up rate of about 75%. We will launch Block B next year,” Kwan says, adding that The Olive will comprise 21-, 19- and 18-storey blocks, housing a total of 240, 216 and 207 units respectively.
The units come with a built-up of 818 sq ft and each floor houses 12 units. The space within each unit has been carefully planned so as to construct living space that can be utilised effectively. Kwan says the non-bumiputra lots start from RM420,000.
“The take-up rate has been quite fast. We initially targeted the units to be fully taken up by September next year. But looking at the rate of acceptance, we expect it to be fully sold by the first quarter of 2017,” he says.
Kwan explains that the name “The Olive” was inspired by Ceferí Olivé, a Spanish watercolor painter.
“The Olive is the first high-rise residential development in Sunsuria City,” he says, adding that the company is targeting students and residents from within the Putrajaya and Cyberjaya areas for the high-rise project.
“We’d also like to target upgraders,” says Kwan.
It’s no coincidence that Sunsuria City envelops the G2G-initiated Xiamen University Malaysia campus, the first Chinese university campus on foreign soil.
Sunsuria posted a 137% growth in revenue of RM202.4mil and a 230% increase in net profit to RM43.8mil compared to the previous financial year.
This was attributed to the company’s strong sales force, customer-centric practice and the ability to deliver quality projects and developments, namely the upcoming Suria Residence in Bukit Jelutong, commercial development The Forum in Setia Alam and several new commercial projects situated in Sunsuria City, such as Bell Avenue and Jasper Square.

The roots of the Sunsuria group dates back to 1989, when its founder and owner, Datuk Ter Leong Yap, started to develop various residential, commercial and industrial property projects in the Klang Valley.

(The Star) Turnaround for equities in 2017?

Analysts expect better showing with the next general election among major catalysts
What does 2017 hold for the FBM KLCI?
Malaysian investors have had a rough ride.
It’s been three years of consecutive declines for Bursa Malaysia. Besides the lacklustre equity market, the weakening ringgit and oil prices have not been spared.
The ringgit retreated to its 14-month low against the US dollar, lingering at the 4.47 level on prospects of further US interest rate rises next year. Not helping the situation were the oil prices, which stagnated at the US$45 levels for the better part of 2016. Globally, there were black swan events like Brexit and Donald Trump’s victory as US president, which further rattled the market.
It’s been shocks and speed bumps all year round.
Will the misery come to an end?
Areca Capital chief executive officer Danny Wong is, however, positioning for a rebound.
Khoo: ‘The FBM KLCI should deliver some excitement in the first half.’
Khoo: ‘The FBM KLCI should deliver some excitement in the first half.’

“We think that the domestic market has priced in a lot of negative events. The downside should be rather limited. We are optimistic about 2017. There is always sunshine after the rain,” he says.
Wong says that 2016 turned out to be another challenging year, while meaningful market recovery failed to gain traction.
“For 2014, 2015 and 2016 year-to-date, the local index has declined -5.66%, -3.90% and -3.68%, respectively, or a cumulative loss of 12.68% since 2014,” says Wong.
Nonetheless, indicators are pointing towards a better 2017 and he foresees long-term investors accumulating in advance.
UOB Kay Hian Research head Vincent Khoo is also seeing opportunity amid the bleakness.
“Yes, 2017 remains a challenging year for emerging-market equities amid rising US interest rates, and growing protectionism in the western world, while the global economic growth prospects remain lacklustre. On the home front, the ringgit continues to be besieged by a major confidence issue.
“Nevertheless, the FBM KLCI should deliver some excitement in the first-half of 2017, led by a firmer ringgit outlook, investors pricing in a potential general election (GE), and a modest realignment of corporate earnings growth to gross domestic product growth, after four consecutive years of earnings contractions,” says Khoo.
MIDF Amanah Investment director of corporate investment banking Sherilyn Foong is also more positive on the market.
She says that most people forget that the real economy and the stock market are different animals.
“The stock market is forward-looking and is prone to swings of exuberance to either side, hence, the often-used phrase ‘fear versus greed’.
“While signs are pointing to a tough year ahead, emerging data supporting a resilient and well-diversified Malaysian economy, especially when compared with the Asian crisis, could mean an unexpected stock market rebound spurred by unique local catalysts.”
She says that 2017 is going to be a stock-picking year. “Initial public offerings (IPOs) are a segment to watch and be invested in,” she says.
Several signs
Areca’s Wong says there are a few factors that support the case for a turnaround in the Malaysian economy.
“There are signs of corporate earnings having bottomed out after many quarters of decline with cost-rationalisation efforts. Consumer sentiment as measured by the Malaysian Institute of Economic Research has also bounced off its lows.”
Wong says that cashed-up local institutional funds are primed to deploy their cash after the certainty of the Trump election and US rate hikes.
There are heightened expectations that the 14th GE will be in 2017. Potential election spending may benefit certain stocks. There are also expectations that 2017 will be a turnaround year for new issuances, IPOs and mergers and acquisitions of some big conglomerates and Government-linked companies,” he says.
Chan: ‘In short, we reckon that 2017 will be another range-bound year.’
Chan: ‘In short, we reckon that 2017 will be another range-bound year.’

Kenanga Investment head of research Chan Ken Yew, meanwhile, says that the market is likely to be volatile in view of the more aggressive rate hike decision in the US.
“The policy and direction of the Trump presidency could spark more uncertainties. The good news, however, could be the emergence of the GE theme play, which could uphold the local equity market’s investment sentiment. In short, we reckon that 2017 will be another range-bound year,” he says.
Chan adds that the play on Bursa Malaysia will not be broad-based and most likely be stock-specific.
Khoo thinks that the FBM KLCI could stretch to the 1,750 to 1,800-point level in the first half, before easing back to the 1,730-point level at end-2017, as investors refocus on Malaysia’s subdued long-term economic and corporate earnings trends.
The year-end 2017 target still implies a valuation premium to the historical mean price earnings multiple of 14.7 times, after taking into account ample domestic liquidity.
Khoo says that should even the US 10-year treasury yield rise to 3%, he foresees a relatively benign global interest rate climate, inclusive of the key European countries’ long-term Government bond yields.
“Effectively, subdued global economic growth prospects would eventually mitigate the current uptrend inflationary pressures,” says Khoo.
More importantly, Khoo does not foresee heavy portfolio outflows from Malaysian Government Securities (MGS), as most of the short-term investors have probably sold down their holdings. The foreign holdings of MGS is equivalent to about 45% of Malaysia’s foreign reserves.
“The long-term foreign investors continue to like the MGS’ high rate relative to the sovereign bond rates in the advanced economies,” he says.
Khoo’s expectations for a firmer ringgit, which is an important market rerating catalyst, reflects the sustained recovery of crude oil prices to the US$55-per-barrel range, following production cuts by the Organisation of the Petroleum Exporting Countries (Opec) and key non-Opec producers, and Bank Negara’s recent requirement for exporters to effectively retain a substantial proportion of export proceeds in ringgit.
“This scenario relieves pressure on Malaysia’s fiscal deficit and helps preserve the country’s foreign-currency reserves. Eventually, we foresee some confidence returning on the currency front, benefitting from the cumulative effect of Malaysian exporters’ forced repatriation.
“Second is the acceptance that today’s form of capital controls would not degenerate and extend to foreign portfolio funds, and thirdly, Malaysian banks providing adequate facilitation for US-dollar hedging for both the real economy and capital markets,” explains Khoo.
Wong: ‘The domestic market has priced in a lot of negative events.’
Wong: ‘The domestic market has priced in a lot of negative events.’
While Wong feels the ringgit will likely remain volatile, there are a few catalysts that could rerate it upwards.
Firstly, the ringgit has decoupled from oil prices, and if it starts moving in tandem with crude oil again, it should be poised for a sharp recovery.
Also, Prime Minister Datuk Seri Najib Tun Razak’s visit to China has resulted in projects close to RM143bil being signed. The RM55bil East Coast Rail Line, set to be built and financed by China, is also expected to start next year.
From Bank Negara’s foreign-exchange measures, analysts estimate that there could be around RM90bil held by local exporters in foreign currency. The conversion of such funds will bolster the country’s foreign reserves. Bank Negara’s international reserves stand at RM405.5bil.
Investment themes
Areca’s Wong maintains an “overweight” call on big caps and high-dividend yielders.
“We see even more value emerging after Trump’s victory and rate hike sell-offs. We are positioning ourselves for a market rebound,” he says.
Investment strategy-wise, Khoo advocates a trading strategy as he foresees a choppy equity market, given the many geo-political events. He continues to be partial to selected small mid-caps.
Investment themes in 2017 include infra and building material plays, electrical and electronics trend riders, quality dividend plays and GE picks.
Khoo is overweight on the construction, building materials, electrical and electronics, and utilities sectors. He also sees selective outperformers within the rubber glove and real estate investment trust or Reit sectors. “However, we continue to be underweight on cyclical sectors such as automotive. The outlook for the property sector remains subdued. We are market weight on the oil and gas (O&G) sector, as the recovery in crude oil prices would still not rekindle or accelerate most of the shelved or deferred O&G projects in Malaysia. Nonetheless, higher oil prices should rerate some overly depressed O&G stocks,”
Khoo’s top picks include large-caps such as BIMB Holdings BhdGamuda BhdGenting Bhd and Tenaga Nasional Bhd. For the small caps, he likes Ann Joo Resources BhdBumi Armada Bhd, Hume Industries BhdKerjaya Prospek Group BhdKim Loong Resources Bhd, MRCB Quill Bhd and VS Industry Bhd.
Foong: ‘Initial public offerings are a segment to watch and be invested in.’
Foong: ‘Initial public offerings are a segment to watch and be invested in.’
Meanwhile, Kenanga’s Chan likes the plastic packaging segment. In general, he likes players such as Scientex BhdSLP Resources Bhd and SCGM Bhd.
“We are also positioning ourselves for the O&G sector and plantations, in particular when crude oil and crude palm oil prices become more sustainable. We are also looking at some yield stocks and stocks that were heavily sold down by foreign investors recently, for example, the telco sector,” he says.
Chan is still cautious on the property sector, given the tighter liquidity and credit lending.
Nonetheless, he likes affordable housing developers like Matrix Concepts Holdings Bhd. For the O&G sector, apart from sustained oil prices, Chan will only turn more optimistic should Petroliam Nasional Bhd start to revise its capital expenditure.

(The Star) Will the market pick up?

It’s not all doom and gloom as 2017 beckons with several mega catalytic developments emerging
As 2016 draws to a close, there seems to be some level of uncertainty about what 2017 holds for the local property sector.
It’s true that while many are cautious about the outlook for the year ahead, it won’t be all doom and gloom – far from it, in fact.
Hong Leong Investment Bank (HLIB) Research in a recent report points out that with the multitude of rejuvenation projects taking place currently, several large-scale catalytic developments have emerged.
“These include the Tun Razak Exchange (TRX), Warisan Merdeka, Bukit Bintang City Centre, Bandar Malaysia, Kwasa Damansara and Cyberjaya City Centre.
“Collectively, these six catalytic developments have a gross development value (GDV) of at least RM275bil over 3,355 acres.”
Foo: ‘There’s demand due to population growth and new house buyers coming into the market.’
Foo: ‘There’s demand due to population growth and new house buyers coming into the market.’
The research house adds that all the catalytic developments have government participation as the master developer, be it directly (Finance Ministry) or indirectly via its related entities – Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF).
“As such, we reckon that much effort will be accorded to ensure its success. Tax incentives will be given for developments such as TRX and Bandar Malaysia.
“Take-up rates will also be supported by the relocation of government offices there (for example the EPF relocating its headquarters to Kwasa Damansara and PNB to Warisan Merdeka).”
With a host of projects in the pipeline, how will the outlook for the different property sub-sectors be like in 2017?
Residential sector
CBRE|WTW managing director Foo Gee Jen says he is cautiously optimistic about the landed and affordable housing sub-sectors.
“There’s demand due to population growth and new house buyers coming into the market,” he tells StarBizWeek.
PPC International Sdn Bhd managing director Datuk Siders Sittampalam concurs, emphasising that prices for landed residential units will hold next year.
“Landed properties – they are a rare commodity and developers are just not building enough of them, unless it’s within the outskirts of the Klang Valley.
“I believe that prices of landed properties will hold in 2017.”
Siva: ‘Everything is a cycle and 2017 will see the market finding its level.’
Siva: ‘Everything is a cycle and 2017 will see the market finding its level.’
In terms of the affordable housing sub-segment, Siders is certain that demand for such units will increase in 2017, given the poor economic fundamentals and weak consumer sentiment.
“The question is whether there will be enough (affordable) units in the Klang Valley. The 1Malaysia People’s Housing Programme (PR1MA) is below its target,” he says.
As of October, more than 12,000 units of PR1MA housing worth RM3.3bil have been booked, while 85,000 units are at various stages of approval.
In Malaysia, prices began its steady rise from 2009. This eventually invited complaints about high property prices from various quarters.
Stringent lending rules and the 2014 ban on interest bearing schemes led to demand drying up.
According to the National Property Information Centre (Napic), since 2008 the value of properties transacted priced from RM500,000 and above doubled from 31.74% in 2008 to 57.16% in 2014.
In terms of the residential high-rise sub-segment, Foo says the high-end and small office/home office (Soho) units will experience pressure in terms of pricing due to oversupply.
“Over the last three to four years, a lot of these units have come into the market and occupancy rates have been low,” he says, adding that 2016 has seen a drop in the gap between asking and transacted prices.
“The gap between the two has been dropping. We believe that this sub-segment will experience a correction of between 15% and 25%.”
HLIB Research notes that the Kuala Lumpur city centre is experiencing a potential excess supply situation within the condo and office segments.
“Traditional developments will have to compete with the catalytic ones which have an edge as transit oriented developments and government backing. Nonetheless, most developers under our coverage have a diversified product mix spread across several states.”
Citing Napic data, HLIB Research says there is an incoming supply of 33,000 high rise units.
Soo: ‘The general feeling is that 2017 would not be any better.’
Soo: ‘The general feeling is that 2017 would not be any better.'
“Assuming the completion period to spread across five years, this will add 6,700 units per annum or 4.2%, which is almost double the compounded annual growth rate of 2.2% in the past five years.
“This increase will be even higher if planned supply is taken into consideration, which will add 73,000 units or 46%. We believe it would be challenging to absorb this incremental supply, especially for the high-end segment, in view of the current soft property market condition.”
Foo believes growth in value for the residential segment will likely be flat in 2017.
“Overall, it will be a flat year. Should there be any growth at all, it will likely be less than 5%.”
Siders believes that the market will likely start “inching up” by the fourth quarter of 2017 – or early 2018.
“Although oil prices are going up, the ringgit has continued to depreciate and transaction volume has dropped. Launches is 2016 will be slower next year than it did in 2016.
“I personally think that financing will continue to be an issue and developers will come up with more incentives or freebies. Some projects may also be deferred.”
Office sector
In spite of the large number of office space coming into the Klang Valley, the outlook for the sector is not as bleak as some make it out to be.
Axis REIT Managers Bhd head of investments and Malaysian Institute of Estate Agents immediate past president Siva Shanker says the economy should continue to remain stable with support of domestic consumption and investment.
“Although things look bad now, it won’t be like that forever. Everything is a cycle and 2017 will see the market finding its level,” he said during his presentation at Rahim & Co’s property research seminar earlier this month.
Siva noted that the property market remained “unexciting” in the first half of this year, and was expected to show some improvements by the end of 2016.
“But that didn’t happen due to the current political and economic scenario,” he says.
Siva says some 5.8 million sq ft of office space is expected to come into the Klang Valley within the second half of this year.
He said this included space within Public Mutual Tower, JKG Tower, Menara Ken, Menara Hong Leong at Damansara Heights, Iconic Tower and Signature Tower at Empire City.
“Occupancy rates remained flat at 83%, falling from nearly 90% in the second half of 2015,” Siva said.
He said the market will “start to level out” by 2018 or 2019 and start peaking by 2020 or 2021.
Siders: ‘I believe that prices of landed properties will hold in 2017.’
Siders: ‘I believe that prices of landed properties will hold in 2017.’
“With the additional office space expected to complete by end-2016 on top of the still available space in the Klang Valley, the general market will continue to be a tenant’s market.
“Landlords or building owners have become more aggressive in marketing to attract tenants,” says Siva.
He added that reducing rentals was not the key to attracting tenants.
“Rent reduction may not be the answer. Lowered rents mean less money for maintenance. Pretty soon your building will run down and it would then be difficult to bring up standards again.
“If you must reduce rents, make sure your services are up to mark. This will enable you to raise rents when the market improves.”
Quoting Savills Malaysia executive chairman Chris Boyd, StarBizWeek reported earlier this year that a total of some eight million sq ft of office space is expected to be completed within the Klang Valley this year.
Boyd said he expected some two million sq ft of office space to enter the market next year, with another eight million expected in 2018.
According to Savills World Research on the Kuala Lumpur office market for the first half of 2016, demand for offices is traditionally driven by the oil and gas (O&G) and finance sectors which typically require extensive office space located in the central or strategic areas of KL City.
“The market absorption in KL (excluding Selangor) was much less active in 2015, compared with the past three years. Only 1.12 million sq ft of Grade A offices was taken up in 2015, about 50% of the average annual absorption recorded from 2012 to 2014.
“Low global oil prices, along with the sluggish financial markets, in particular the banking industry, has triggered a revision or consolidation of office space requirements for the affected tenants as part of their cost-cutting measures,” it said.
RAM Ratings in a report earlier this year said it had retained a negative outlook on the office sector in the Klang Valley, due mainly to lethargic economic conditions, as well as subdued consumer and business sentiment.
“This is compounded by the caution weighing on the finance and O&G sectors – traditionally key take-out sources for office space in the Klang Valley. With the finance and O&G sectors affected by the decelerating economy and the plunge in crude oil prices, both sectors have been trimming their workforces and, consequently, their office space requirements,” RAM said.
RAM expected occupancy rates of the office sector to fall two percentage points this year.
Retail sector
On the retail side, Savills Malaysia managing director Allan Soo says businesses have been experiencing a slowdown since 2015, with some already experiencing a drop as early as 2014, mainly due to the two Malaysian airline tragedies which affected tourist arrivals that year.
“While we have seen an increase in Chinese tourist arrivals in 2016, and regional stability has improved, things in Malaysia don’t seem to be getting better.
“The general feeling is that 2017 would not be any better.”
Soo says that many retailers are worried about hidden costs, especially due to the depreciation of the ringgit.
“A lot of seafood is imported and many retailers can’t expand. This will result in them cutting cost or lose profit margins.
“However, the arrival of tourists might help. But if you’re planning on opening a mall next year, it might be difficult,” he says.
Malaysian Association for Shopping and High-Rise Complex Management past president Richard Chan says that at the end of the day, it comes down to how one manages the mall.
“It all comes down to the basics – it’s how you manage it. A lot of shopping centres are not planned or well designed. They don’t do their homework from day one, such as studying the market or if there will be an impact of traffic congestion, for instance.
“If there is a problem, it should be rectified from day one,” he says.
Chan says performance in the fourth quarter of this year has been surprisingly good, with some high-end brands performing well.
He believes, however, things may slow down next month after Chinese New Year and pick up again towards the Hari Raya festive holidays in June.
Based on reports, about 40 malls would be entering the market in Greater Kuala Lumpur by 2020, of which a dozen would have a net lettable area of one million sq ft.
According to Napic’s 2015 Property Market Report, the retail sub-sector recorded a slight improvement in occupancy from 81.8% in 2014 to 82.4% in 2015, with a take-up rate amounting to more than 8.39 million sq ft.
HLIB Research says there is currently a total of 65 million sq ft worth of retail space within Greater Kuala Lumpur, 47% of which is in Kuala Lumpur.
“While the current retail space per capita of nine sq ft within Greater KL is higher than the ideal retail space of five sq ft per capita, this is at parity with Bangkok and lower than 12 sq ft per capita in Singapore.
“However, zooming into Kuala Lumpur, the retail space per capita is significantly higher at 17.8 sq ft, suggesting that it may be tough for the area to stomach even more retail space supply.”
Greater Kuala Lumpur refers to an area covered by 10 municipalities surrounding Kuala Lumpur, each governed by local authorities, namely Kuala Lumpur City Hall, Perbadanan Putrajaya, Shah Alam City Council, Petaling Jaya City Council, Klang Municipal Council, Kajang Municipal Council, Subang Jaya Municipal Council, Selayang Municipal Council, Ampang Jaya Municipal Council and Sepang Municipal Council.
HLIB Research estimates that 2.9 million sq ft worth of mall space recently opened this year, with another seven million sq ft coming soon and eight million sq ft beyond 2017.
“We feel that the malls under the catalytic developments, particularly the four Kuala Lumpur ones, will only worsen the current supply glut situation.
“This would dilute footfalls across a larger base of malls and inevitably put pressure on rental reversions.”
According to the Retail Group Malaysia (RGM) in its latest retail report, next year will remain a challenging year for Malaysian retailers with a significant recovery in retail sales only expected during the second half of 2017.
For 2017, it forecasts a 5% growth in retail sales. In its retail industry report, the group said Malaysia’s retail industry recorded a dismal growth of 1.9% in the third quarter ended Sept 30, 2016, from a year ago as the department store sub-sector reported disappointing sales.
For the entire 2016, RGM has revised downwards the retail industry’s sales growth rate from 3.5% to 3% or to RM99.1bil in retail sale value. Notably this is the second revision for 2016 on the retail sales growth rate due to the poor performance of sales during the third quarter.
Industrial sector
Unlike the rest, the industrial sector may just be the bright spark of the Malaysian property market in 2017, as observers believe that this segment has good potential for growth.
Siva says the rapid growth of online businesses is spurring demand for larger warehouses, especially units above 500,000 sq ft.
“We’re going to see more 500,000 sq ft, to up to one million sq ft units, coming in. Logistics is becoming a serious player in the marketplace, driven by online marketing.
“There is a lot of room for growth and many of these online marketing players will need larger facilities to store their products and supplies.
“Some of them may even need more than one facility.”
According to reports, there are more than 20 million Malaysians, or two-thirds of the country’s population, who are active Internet users. This high Internet usage is rapidly fueling the boom in online shopping.
Siva nevertheless says that despite the rising demand for industrial space, a portion of the segment has still been adversely affected by the current property glut.
“The portion of the industrial sector that’s been suffering this year are the small cookie-cutter units, namely the rows and rows of terrace and semi-detached units. When you drive by these units, many of them are still empty.”
Siva says the bigger units, between 100 sq ft and 200 sq ft, are generally purpose-built and already have a pre-committed tenant.
“These units are still doing okay. They are also not sold with speculation in mind. Hence, supply and demand has actually been in good equilibrium within the local industrial sector.”
Napic’s 2015 Property Market Report showed that the industrial property sector recorded 7,046 transactions worth RM11.97bil in 2015, down 13% in volume and 17.5% in value from 2014.
Selangor continued to dominate the market with 28.9% of the nation’s volume, followed by Johor and Perak, each with a 16.1% and 9.6% market share, respectively.
Napic said the industrial overhang saw a slight increase to record 243 units worth RM240.57mil, up by 7.5% in volume and nearly triple the value of 2014.
“The significant increase in value was contributed by cluster industrial property, which accounted for 45.6% of the national overhang value and was solely in Johor.
“The unsold under construction also observed a similar trend, up by 29.7% to 1,731 units, whereas the unsold not constructed reduced to 87 units, down by 41.2%.”
Napic said the sector’s construction front was sluggish compared to 2014.

“Completions, starts and new planned supply were down by 11.6% (927 units), 32.7% (2,294 units) and 65.1% (1,104 units), respectively. As at end-2015, there were 103,868 existing units with another 11,206 units in incoming supply and 9.981 units in planned supply.