Malaysia Property Market 2008 - The Times Ahead

What has happened in 2007?

The Year 2007 was a significant year for Malaysia as the country celebrated its 50 years of independence. The Malaysian property market enjoyed a flying start in 2007 as it inherited the spill-over effects of strong market sentiments after the launching of the ninth Malaysia Plan (9MP) and the establishment of the Iskandar Development Region on 4 November 2006. The government has also introduced several incentives and implemented numerous measures to enhance competitiveness, spur economic activities, and improve the country’s attractiveness to foreign and domestic investors. These incentives have directly and indirectly affected the property market especially in the first half of the year. Among the notable measures pursued by the government are inclusive of the following: -

a. Establishment of Economic Corridors
- The Master plan for the Northern Corridor Economic Region (NCER) was launched on 30 July 2007 and encompasses Kedah, Perlis, Penang and northern Perak.
- The East Coast Economic Region (ECER) which covers states of Kelantan, Terenganu, Pahang and the north of Mersing district of Johor was launched on 30 October 2007.

b. Amendment of rules and regulations in relation to the property sector
- The waiver of the Real Property Gains Tax (RPGT) effective from 1 April 2007;
- The introduction of a few measures to relax the forex rules by Bank Negara Malaysia effective 1 April 2007 has further liberalised Malaysia’s foreign exchange policy;
- The introduction of Certificate of Completion and Compliance (CCC) to replace the Certificate of Fitness for Occupation (CFO) with effect from 12 April 2007;
- The set-up of the new One-Stop Centre to ensure that development projects are given fast-lane approval within four months;
- The introduction to the Building and Common Property (Maintenance and Management) Act 2007 which was gazetted on 12 April 2007;
- The amendment of the Housing Development (Control and Licensing) Act 1966 to incorporate service apartments;
- The amendment of the Strata Titles Act 1985

c. Transport Infrastructure
- Expansion of the local bus route, RapidKL, in the Klang Valley
- Announcement of the Penang Monorail Project scheduled to take off in Year 2008 undertaken by Syarikat Prasarana Nasional Berhad (SPNB)
- Extension of the LRT network to be implemented in Selangor’s prime urban areas
- The announcement by the Cabinet Committee to revive the shelved Ipoh-Padang Besar double tracking project

The second half of the year has been relatively slow compared to the first half of the year. The property market was dramatically affected by some global issues toward the second half of the year. The US Sub-prime mortgages crisis has resulted in the decline of stock markets worldwide. The effects of this meltdown has spread beyond housing and disrupted global financial markets. Besides, crude oil prices have been creeping higher and higher in recent months. The persistently high crude oil prices have impacted the global economic performance significantly. Towards the end of the second half of the year, the market generally adopted a more cautious approach.

Market View on 2008 – Break the trend?
The Malaysian Property Market has shown some positive surprises in the past few years. Can this trend continue or will it be broken in the year 2008?

Generally, market analysts and economists have predicted that the year 2008 will have a tough start globally due to the twin Macro stresses of weakening US consumption and China’s policy tightening. The global economic outlook could be affected by the fallout of the US Subprime mortgage crisis. The excessive mortgage-related losses and the downturn in US housing market will potentially push the country into recession. In addition, economists also extend their worries over the possibility of China continuing to implement measures to tighten its national policy in order to rein in accelerating inflation. If China implements the tightening measures at the same time that the US economy is weakening, the risks of a sharper-than-expected deceleration in China’s growth are higher, which would also have ripple effects regionally. The two Macro impacts and the persistently high oil prices, which is another threat to the world economy, will create significant dampening effects towards the global market inclusive of Malaysia. These effects will also translate into the real estate sector in the form of slowdown in sales volumes, low confidence amongst investors and substantial price increase in construction material.

Notwithstanding the above mentioned risks, the global economy is anticipated to continue expanding at 5.2% in 2008 (5.2% in 2007) with Japan, Europe and emerging Asia, in particular China and India, counterbalancing a possible moderation of the US Economy. Malaysia is well positioned to take advantage of the growing external market as well as the increasing trade and investment opportunities, supported by continuous efforts to enhance national competitiveness and resilience.

Business Opportunities
In view of the potential global market challenges, we must adopt a very cautious strategy in any financial commitment. Having said that, there is also good potential magnitude, path and direction in the real estate market that we can seriously consider: -

a. High levels of equity capital particularly from Middle-East Countries continue to pour into the Malaysia property pool;

b. The practice of relocating corporate offices especially in the finance, insurance, real estate and business support services, from big cities such as New York and London to other cities which have lower operation costs;

c. The active promotion of Islamic Finance by the government being an alternative financial instrument offers both developers and investors a lucrative financing package in Malaysia real estate markets.