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Property Market Update 1H 2009

What’s going to happen with the real estate market?  This is the age-old question asked by just about every real estate developer, owner, banker and investor.  Even the government is interested.   Donald Trump said that “What separates the winners from the losers is how a person reacts to each new twist of fate”. 

With glimpses of market intelligence in mind in view of the many imponderables,  InvestPenang, the Socio-Economic & Environmental Research Institute (SERI), and Henry Butcher Malaysia as the technical advisor are taking the initiative to jointly organise for the 1^st time the Penang Real Estate Conference on May 19, 2009 at the G-Hotel, Penang.    

The highlights of the event is the articulation of the Rt. Hon. Chief Minister Mr. Lim Guan Eng’s vision for Making Penang an International City- state.   Participants are also able to have a better understanding of the State Government’s real estate development policies through an interactive dialogue with YB Tuan Chow Kon Yeow, Exco-in-Charge of Local Government, Traffic Management & Environment, YB Tuan Wong Hon Hai, Exco-in-Charge Town & Country Planning and Housing, President, Penang Island Municipal Council, President, Seberang Perai Municipal Council and the Director, Penang Town & Country Planning Department.  Speakers, both local and out of Penang are especially chosen for their expertise, experience and passion.  

In times of an economic slowdown, rising unemployment and lower disposable income, property will be the last thing on people’s mind.  There is no doubt that the demand for property is weak.  In these troubled times, the property sector, according to some analysts, has lost its apparent "appeal".  However, as governments across the globe strategize to drive their stimulus plans the world’s economy is expected to recover and when that takes place, inflation is expected to follow and the best hedge against inflation is property.   

What policies can the State Government draw upon in order to complement the Federal Government’s various stimulus packages for Penang?  The market for residential properties has softened since the beginning of this year and is likely to continue for the rest of 2009.  The residential property sub-sector is anticipated to remain in 2009 as the most dominant sub-sector comprising about 65% of the total volume and 50% of the value of transactions. 

The residential property sector has always been popular with property investors in Penang. The national All House Price Index shows that Penang’s performance is above the national average but slightly below Kuala Lumpur. The residential sector is expected to continue to lead the overall property market in Penang for year 2009 despite the contraction in number of transactions. 

However, an increase in the value of individual transactions was recorded over the same time period. This negative correlation could possibly be a result of the preference of local and foreign property buyers in acquiring more up-market property for investment and/or accommodation purposes.  Could this trend continue or is this a one-off phenomenon?  Housing affordability and therefore demand is generally dictated by many factors including wage levels, interest rates, house prices and demographics.   

Demographically speaking, a one-size-fits-all approach to homebuilding is becoming less and less suitable for Penang’s diversifying housing market.  Aiming for a mass market with a limited number of tried-and-true housing products – the products that were once the profit-producing staples of most developers – is no longer a viable development strategy.  This is because the market has become too fragmented, too diverse. 

Developers need to build housing that appeals to many different types of nontraditional households – people living alone, childless couples, single parents with full-time or part-time children, unmarried couples, empty nesters and multigenerational families.  Add to this rich blend the additional filters of age, income and the special nuances of ethnic or cultural communities and the household mix diversifies exponentially.   Market segmentation and product customization will be the watchwords for successful projects. 

To compete, developers will have to define or segment their customers by income, family composition and lifestyle choices.  These are the primary factors that shape household decisions on where to live, whether to rent or buy, how much to pay and which design features to seek.  Over the coming decades, tailoring residential development to meet the needs of specific, well-researched target markets will be the key to success for developers.

What other strategies can developers adopt for sustainable developments? Market observers have commented that 2 major forces ie. unprecedented global developments and political uncertainty in Malaysia are expected to adversely impact on the economy, the stock market and the housing market as well.  As the end of the political impasse is nowhere in sight, the housing market is likely to languish.  No immediate nominal price falls are expected but inflation-adjusted figures will show price falls. 

Weaker consumer and business confidence combined with high inflation have also posed greater challenges for the housing market.  Although property prices are now relatively stable, there is a perceived oversupply of certain sectors of the housing market which may result in prices weakening. Developers today are focusing their attention on the higher-end market particularly the luxurious sector.  The luxurious sector is now seeing unprecedented nominal selling prices.  

Targeting the foreign market sector seems to be a panacea for weakening sentiment.   However, the foreign market has its own set of marketing challenges. Yields have become compressed of late.  Asset inflation in the recent past which sometimes resulted from costs pressure has created a “wait and see” attitude on the part of some investors and owner-occupiers who are today more sophisticated and savvy. 

What are the findings of a recent research on making Malaysia the preferred destination for property investments and 2^nd home?  What are the latest innovative marketing ideas? Domestic demand which comprises a major segment of the market should still be the sine-qua-non.  Foreign demand is more vulnerable to global sentiments.  The later however has been more “endearing and sustainable” in terms of higher nominal pricings.  Could this continue?  

By: Shawn Ong, Vice President, Henry Butcher Penang