A debatable freeze – Edge Property

KUALA LUMPUR (Nov 21): Freezing approvals for applications to build shopping malls, offices, serviced apartments and luxury condominiums, which came into effect on Nov 1, will artificially push supply into a certain market, some property developers argue.

“I’m a believer that free market forces will eventually push demand and supply into equilibrium. This kind of thing (tightening measure) is only a stop-gap measure and will artificially force some people (developers) into a certain market,” A&M Realty Bhd executive director Datuk Milton Norman Ng Kwee Leong told The Edge Financial Daily over the telephone.

According to Ng, many developers are already in the under-RM1 million segment. Many have also gone into the affordable segment, he noted.

“For us, most of our projects cater to the semi-affordable range, which is below RM1 million. Only some landed properties like bungalows are above that level. For some players, the cost of land could put them in a difficult position to adjust to the new ruling,” he said. In that A&M Realty has an advantage, he said, as “the cost of our land is much lower”.

Another local developer in the affordable home segment concurred, saying the emergence of new players in the affordable segment has crept up in recent years, and that the measure could result in overcrowding in that space.

The move was taken following Bank Negara Malaysia’s recent report on “Imbalances in the Property Market”, where it was highlighted there were 130,690 unsold residential units as of the first quarter of this year — the highest in a decade — and about 83% of the unsold units were priced above the RM250,000 level. Of that 13.8% were priced above the RM1 million level, while the bulk or 35.3% were between RM500,000 and RM1 million, and 33.9% were within RM250,000 to RM500,000 range.

Mah Sing Group Bhd managing director Tan Sri Leong Hoy Kum said the decision would impact developers who are planning to launch shopping malls and commercial units, where the per unit price is above the RM1 million range.

Leong also said a further study needs to be done, one which zooms into specific locations and type of properties.

Nevertheless, he said developers like Mah Sing, who has been focusing on the affordable housing segment for some time now, could benefit from the measure as the market is looking for affordable homes in strategic locations. “Hence, we are launching projects such as our M Centura at Sentul and M Vertica at Jalan Cheras in Kuala Lumpur, which are priced between RM328,000 and RM450,800,” Leong said.

Long overdue move

While Affin Hwang Asset Management portfolio manager David Loh said the move has come as a shock to developers, he termed it a long overdue one in view of overbuilding in this segment, with shopping malls in almost every urban neighbourhood while residential launches soared, thanks to the developer interest bearing scheme before it was banned in 2014.

Loh also noted that most developers have already been scaling down their unit sizes to lower the absolute price to below RM1 million in recent years in view of the cooling market, but it will take a while for the market to absorb and adapt to the supply demand imbalance, despite the new measure.

While the intention is to address the mismatch between the demand and supply for the property market, Loh highlighted that it could create a lot of confusion if the freeze applies to other states as well, with land matters being under the purview of the state governments.

“However, it may not come as a surprise if the government backtracks or relaxes this to a case-by-case basis after extensive lobbying, similar to what we have seen on the foreign labour issue,” Loh said.

Meanwhile, CIMB Investment Bank Bhd said the move will help address the oversupply situation in the overall property market and is positive about the development.

“If the jurisdiction is only Kuala Lumpur, we expect this to mostly impact the high-end property developers, such as Selangor Properties Bhd. However, we are of the view this will have a minimal impact on our top picks, such as LBS Bina and Mah Sing, as most of their products are less than RM600,000 per unit and both have limited exposure in offices and retail space,” it said in a note yesterday.

However, if the moratorium is nationwide, it said developers across the board could be affected, citing Eastern & Oriental Bhd’s developments in Penang and UEM Sunrise Bhd’s projects in Johor as examples.

“If the situation is prolonged, developers might have to revamp their projects or pricing strategy, potentially leading to weaker sales and earnings,” it added.

Sime Darby Property Bhd, which would be listed on Nov 30 following its demerger, said it is too early to evaluate the effects of the government’s measure to freeze luxury properties.

“We are in touch with our colleagues in the industry, and they are engaging with authorities, via the Real Estate and Housing Developers Association, to get more clarification,” its group managing director, Datuk Seri Amrin Awaluddin, told reporters after Sime Darby Bhd’s annual and extraordinary general meeting yesterday.

This article first appeared in The Edge Financial Daily, on Nov 21, 2017.