MALAYSIA RENTAL TO PLUNGE 30%: Price war brewing, high-rise rates to drop

Rental rates for high-rise residential units may drop as much as 30% in the next two years as more units are made available to the market, which is already hobbling over low demand and oversupply.

Former president of Malaysian Institute of Estate Agents (MIEA) Siva Shanker said thousands of newly completed units are expected to come on stream simultaneously in the next one to two years and this would further strained the already soft market.

The head of investment for the real estate consultancy firm, however, expects the new units “rental market flood” would be short-lived, and the return to equilibrium will occur in line with the economic sentiments.

“A lot of these unit owners can’t afford any losses as they have to pay mortgages and they have no choice but to put up their units for rent.

“A rental war is expected to start as buyers will compete to get tenants. Rents will drop by as much as 30% from the projected rental return of two to three years ago,” he told The Malaysian Reserve (TMR).

Malaysia’s property sector had been booming in the last five years. An increase in demand and high returns had prompted developers to build high-end, high-rise units. However, the country’s faltering economy, which had slumped for five consecutive quarters, had rattled the property market.

Since last year, property sales have slumped, battering listed developers’ share prices.

Retrenchment and restructuring in selective sectors such as oil and gas saw the return of many expatriates to their own country, leaving their rented apartments unoccupied.

Real estate agency Knight Frank Malaysia revealed, in its research report on real estate highlights in the first-half of 2016, that owners are willing to compromise on lower rents to secure and retain tenants due to job cuts from low oil prices.

The report also cited that selling prices of high-end condominiums and serviced apartments in Kuala Lumpur ranged from RM1,300 to RM1,900 per sq ft (psf), while branded residences were priced from RM2,000 psf onwards.

“In KL, the volume and value of residential property transactions declined by 8.3% and 11.4% respectively in 2015 compared to the previous year.

“Growth in the Malaysian House Price Index was muted at 5.8% in the fourth-quarter of 2015 (4Q15), the lowest since 1Q10 by 5.7%,” Knight Frank said.

PPC’s Siva, who is also a registered agent with over 34 years of experience in the industry, said despite all the talks of foreigners swooping in to buy propert ies in Malaysia, the local property scene is driven by domestic consumption.

“Our estimate is only 4%-7% of properties in Malaysia are owned by foreigners. Even if it is 10%, it is still a small margin compared to Singapore, which is hovering around 20%-40%,” he said.

An analyst told TMR that the tenant market is likely to be more competitive and it will be challenging for buyers to enjoy high rental returns due to the expected glut within the next two years.

However, the situation is expected to be short-lived as the market is expected to bounce back as the economy improves.

“If you are a prospective tenant looking for a property, enjoy the cheap rent for as long as possible as the rents will go up once the market picks up and buyers will want to sell the units at a higher price.

“(This is because) the initial idea of these thousands of people who bought these units is not to keep for long term but to flip it and make fast and quick money,” Siva said.

He also said developers will be more careful of what they launch and the number of launches will slow down, pacing the market. Knight Frank said the market outlook for the high-end condominium segment remains lacklustre, impacted by weak sentiment as potential buyers and investors continue to adopt a “wait and see” approach.

Moreover, with the widening gap between supply and demand as well as a mismatch in product pricing and affordability in the domestic market, more developers are widening their target catchment by marketing overseas as the weak local currency translates to attractive pricing and low entry level for foreigners. –