The year 2021 is a year where global citizens from every continent will be clamouring for a magnitude of change to reverse the stormy weather brought about by the infectious Covid-19. If everyone was caught off guard in 2020 by the tidal wave of the pandemic, the new norm of 2021 will see the survivors sailing through the choppy waters in hopes of navigating past the turbulence - economy, health, mortality, governance etc.
But amid the overcast spell, there may be silver linings in the brand new year. One of them is Brexit where the United Kingdom has finally left the EU on 31 December 2020. The departure marked a new global milestone of a changing world order with the UK now ironing out all trade relations and mobility liberty for the Brits and her European counterparts in and out of Europe. From here, the clouds of uncertainty will be blown away when government heads begin to recognise the new sovereign lines delineating the once most powerful country in the world. This can only contribute positively as it improves investors' sentiments.
Another is the American Presidency of Joe Biden, which was quickened in its confirmation by the Electoral College on 7 January 2021 as they painstakingly worked through the night to culminate in a tally of 306-232 to officially end outgoing President Donald Trump's aggressive wish to overturn the election results. This came in the wake of an "insurrection" launched by pro-Trump supporters on Capitol Hill just a day before. For the good of the world economy, the anticipated friendlier and more predictable Biden-led US policies are the necessary remedies to heal world trade.
The successful vaccination against Covid-19 will also come as a boon now that several vaccine frontrunners such as Pfizer and Oxford-AstraZeneca have been making their way into the markets globally. New York Times' Coronavirus Vaccine Tracker also showed on its website that in total there are 93 vaccines in various stages of development globally with one already abandoned despite the potential lucrative market that awaits them.
In Malaysia's context, success in the battle against this centennial pandemic occurrence hinges on the selection of the right vaccine or vaccines and the volume deployed to the 32.7 million Malaysians. The sooner this is administered, the quicker the combat against the virus and in tandem, restoration of the country on all fronts. Not just a silver bullet against the contagion but the identification of a potent vaccine will be a tremendous boost that can dictate the pace of Malaysia's economic engine which in turn will aid the recovery of the property sector, barring any sudden upheavals in the political arena.
But how severely hit was the Malaysian property market in 2020? Admittedly, the first half of 2020 was very challenging as the strict Movement Control Order (MCO) imposed from 18 March 2020 to 12 May 2020 to curb the spread of Covid-19 halted all physical property activities including that of the signing of the Sales & Purchase Agreements and loan agreements to facilitate loan disbursements. It was through this time also that saw the Malaysian economy contracted by 0.7 per cent and 17.1 per cent in quarter one and quarter two respectively.
Residential: Realistic
Although the residential market picked up after the Conditional MCO was eased to Recovery MCO from 10 June 2020, a drop in the volume and value of transactions is expected for the full year of 2020. This is not an unreasonable expectation as NAPIC's data showed that the volume of property transactions declined by 27.9 per cent or from 160,165 units in 1H 2019 to 115,476 units in 1H 2020 with the value of property transactions dropping 31.5 per cent from RM68.53 billion to RM46.94 billion.
The trend continued into Q3 2020 when NAPIC's report revealed that the total value of transactions slid to RM33.78 billion compared to RM34.62 billion in Q3 2019. There was however a surprise when the total volume of transactions recorded 89,245 units changing hands compared to 83,085 units in the corresponding quarter the year before. It is probable that the dip in the value of transactions may be attributed to the lower priced houses sold in the same period while the volume of transactions forms part of the carry over effects of the Home Ownership Campaign 2019 (HOC2019) which was temporarily halted due to MCO.
The drastic measures imposed on businesses to close its doors except for essential goods and services during the first MCO period for about six weeks starting from 18 March 2020 affected the entire value chain in the economy including construction sites, property developers' sales offices and galleries. Save for bookings collected through online marketing programmes by some developers, it would not be far-fetched to say that this was the quietest three months ever in Malaysia's property history, almost akin to a property winter, which resulted in a 24.6 per cent drop in the volume of residential transactions and a 26.1 per cent decline in the value of residential transactions in the first half of 2020.
The quiet months also impacted launching activities in 1H 2020 as it declined by almost half at 43.6 per cent or only 13,294 units compared to the corresponding period in 2019. Sales performance contracted even more to only 3.3 per cent in the first half of 2020 against 30.9 per cent in 1H 2019. The sudden descent motivated property developers to offer discounts, rebates, freebies and easy payment schemes to boost sales with some developers turning their attention to the affordable homes category priced below RM500,000 to match market demand. Strategically the right move, it's reflective of the market appetite where up to 50.1 per cent of those launched in 1H 2020 were priced below RM300,000 with another 33.7 per cent sold between RM300,000 to RM500,000. As Malaysians have also long favoured landed homes, there were more such properties launched in 1H 2020, notably at 69.7 per cent compared to 30.3 per cent for stratified ones.
In the secondary market, a more realistic pricing is seen sweeping across the board and this has created a very attractive climate for investors and homebuyers as it bucked the trend of higher price tags more prevalent in the vibrant days some years ago.
In realising the depth of the problems faced by the economy, the government stepped in to extend the PRIHATIN and PENJANA stimulus packages, followed by several other measures introduced through Budget 2021:
a. Full stamp duty exemption on the Memorandum of Transfer (MOT) and loan agreement for the first home purchased priced under RM500,000, applicable to SPA signed between January 2021 to December 2025.
b. Extension of the stamp duty exemption on loan agreement and MOT given to rescue contractors/ developers and original buyers of abandoned houses for another five years.
Eligible contractors/developers are entitled to the exemption on loan agreements for financing the revival of the abandoned housing projects and the MOT for land and houses in abandoned projects.
For the original purchasers of the abandoned projects, exemption is applicable on the loan agreement for additional financing and the MOT executed from January 2021 to December 2025. The abandoned housing projects must be certified by the Ministry of Housing and Local Government (KPKT); and
c. A RM1.2 billion provision for the construction of comfortable and quality housing for low-income earners.
Residential - Factors to watch in 2021
● Current low interest rates has reduced the cost of home financing.
● Continuation of HOC 2020-2021 bundled with incentives, rebates, attractive offers and promotions by participating developers will attract buyers and support the market.
● Availability of an effective Covid-19 vaccine will uplift confidence, boost economic activities, thus benefiting the property market.
● Opening of international borders once the pandemic is brought under control may bring back foreign property investors.
● Adoption of digital marketing programmes may help developers reach out to overseas buyers.
Residential bright spots for 2021
● Landed residential properties should remain in demand.
● More developers have re-focussed their attention on affordable homes priced under RM500,000 and this has increased the supply of such properties.
Retail: Reinvent
The repercussions of the pandemic have also left a huge dent on the retail sub-sector as shoppers stayed away from the malls after the stringent MCO was eased to CMCO and RMCO at different periods of the year and at different locations around the country. The reduction of 40 per cent to 80 per cent of the footfalls throughout 2020 led to poor turnovers by the retailers and this dragged occupancy down to 76.2 per cent in 1H 2020 from 79.2 per cent at the end of 2019. Like the volume of residential transactions, data for 3Q 2020 also saw occupancy bouncing back albeit marginally to 77.5 per cent or 13,048.64mil sqm over 16,840.38mil sqm.
The triple whammy of Covid-19, variants of lockdown and online shopping experienced by the conventional retailers with physical shops is definitely a hard pill to swallow. Already caught between a rock and a hard place, the predicament was exacerbated with border closures preventing the lucrative tourists dollars from coming in. Although assisted by the landlords with rental waivers (during MCO) for the non-essential retailers followed by rental rebates (CMCO from 13 May 2020), the damage was unfortunately already done. Business viability was put to the test and what's worse was even financially stronger retailers and long standing flagships were not able to withstand the pressures. Robinsons for instance with 162 years under its belt have had to shut both its Singaporean and Malaysian operations in October 2020 after having existed in the Republic since 1858 and was very much part of every Singaporean's life. Suffice to say, the surviving retailers were more careful in their spending since then and instead of rolling out ambitious expansion plans, resources were ploughed in to go online.
With a general loan moratorium expired in September, less profitable outlets also began ceasing operations as brand owners scrambled in haste in an attempt to weather through the negative spillover effects. It goes without saying that despite the rising footfalls towards the Christmas season and into the early part of 2021, it shall take some time for a full recovery to set in.
Retail - Factors to watch for 2021
● The second MCO starting from 13 January 2021 together with an emergency order will affect the retail market.
● A fourth wave of Covid-19 spread and beyond will hurt the entire retail industry.
● Foreign tourists have been an important contributor to Malaysia's retail industry and it would be crucial to open the borders again even if it is to selected countries as it will contribute positively to retailers who are heavily dependent on tourism receipts.
● A broad-based economic recovery will boost retail spending as the spillover effects from more economic activities will induce higher take-home pay for ordinary Malaysians and in turn motivate increased purchases of retail goods and services.
● The uncertain political environment will reduce consumers confidence, dampening spending in the process.
Retail bright spots for 2021
● Malaysian consumers continued to shop ever since physical retail stores were allowed to open after the first CMCO but this was hampered by their reduced purchasing power, resulting in less purchases made. Nevertheless, Malaysians have not stopped shopping and have not stopped visiting shopping centres.
● It is imperative for retailers and F&B operators to embrace the omni-channel approach because to rely solely on physical stores to grow will no longer work. Retailers must utilise multiple channels to reach modern consumers and offer multi-channel distribution. The more financially sound retailers shall need to offer both physical and online stores. The objective is to facilitate convenience for the consumers to buy.
● In 2020, more than 30 overseas retailers from 11 countries opened their first outlets in Malaysia and more are expected to do the same in 2021 and these include Taco Bell, Tom Ford, Five Guys, David Rocco, Don Don Donki, etc.
Office: Readjustment
If retail experienced a bloodbath by the multi-factor assault, the office sector was unilaterally shown the door by dwindling demand, no thanks to deferred expansions, Work From Home (WFH), staff retrenchment and businesses calling it a day. But even before Covid-19, occupancy for purpose-built offices (PBO) had already softened from 82.4 per cent in 2018 to 80.6 per cent in 2019, and further declined to 74.3 per cent in 1H 2020, and 74 per cent in 3Q20 or 12,743.59 million sqm occupied over 17,215.75 million sqm.
The national rental index for PBOs surprisingly fared better in the first half 2020 as it rose by 0.2 per cent from 130.6 to 130.9 with average rents rising from RM48.48 to RM48.59 per sqm, signalling perhaps that not all hopes are lost.
As of 1H 2020, there were 9,266,687 sqm of existing stock in PBO in Kuala Lumpur followed by 4,030,791 sqm in Selangor and 2,525,253 sqm in Putrajaya. The capital city of Kuala Lumpur will continue to usher in the highest incoming supply of 1,465,441 sqm followed by 244,290 sqm in Johor and 208,391 sqm in Selangor. It will be interesting to see how long it will take for the office space to be fully absorbed or at least tenanted to a reasonable level. In this sense, it could again rely on the availability of a proven vaccine before any significant economic movement occurs.
Industrial - Resilient
With the commercial sub-sector hit the hardest in the first half of 2020 recording a 37.4 per cent decline compared to industrial at 36.9 per cent, agricultural at 32.8 per cent and development land and others at 28.6 per cent, there may be a glimmer of hope in the industrial sub-sector as businesses went and continued to go online, coupled with the steep rise in demand for equipments and consumables to battle Covid-19.
Unlike the big ticket items such as housing, the hygienically cautious sentiment has kept manufacturers of gloves, face masks, sanitisers and PPEs (Personal Protective Equipments) busier than ever as they work round the clock to meet incremental orders for immediate and future consumptions. This is where companies with initially unrelated disciplines have seen itself leveraging the changing currents and ventured into glove making like in the case of property developers Mah Sing Group Bhd and Aspen Group. A travel agent with sound backing has also entered this market towards the end of 2020 with pictures of factory floor inspection seen on the proprietor's facebook account.
Another benefactor is the logistics industry where online shopping has spurred more ferrying of goods from one door to another and sometimes to multiple locations with just a single order to circumvent the MCOs, not forgetting taking advantage of the cost effective promotions dished out by the courier companies. The positive trajectories in these niche sectors have somewhat cushioned the fall in demand for industrial properties caused initially by the contractions of businesses due to the 2019 Novel Coronavirus or also known as SARS Cov-2.
NAPIC's data for the first nine months of 2020 nevertheless unveiled a 29 per cent decline in volume of transactions compared to 2019 and 19 per cent compared to 2018. Value of transactions also went down by 11 per cent against 2019 and 17 per cent against 2018. When compared on a quarterly basis between Q3 2020 and Q3 2019, the industrial sub-sector recorded a 15.5 per cent decline or 1,323 units in volume of transactions but conversely it registered an increase of 15.4 per cent or RM3.62 billion in value of transactions. This is hardly a surprise as the industrial category was the best performing sub-sector in 2019 and as such, the positive trend in its value of transactions may have prevailed moving into 2020 with higher priced units or at least before the pandemic affected business sentiments. The promising value of transactions was however overshadowed by the curtailment of business due to the various restricted movements throughout the year although the sub-sector was supported by the sporadic rise in certain industry sectors as mentioned above and the occasional enquiries from Singaporean business owners as a move to manage cost and expand both market and logistical reach.
Sentiments among purchasing managers of manufacturing plants as reported by Edge Markets on 1 December 2020 from the IHS Markit Malaysia Manufacturing Purchasing Managers' Index (PMI) are consistent with NAPIC's data seeing that the PMI declined five consecutive months, down from 48.5 in October to 48.4 in November. This indicated a further moderation of the manufacturing sector although the decline was considerably less marked than the period hit by the first wave of the pandemic in the first and second quarters of 2020. A resurgence of Covid-19 infections in key markets like India and elsewhere in Europe also affected exports but the final month of the year brought a respite as the PMI rose to a four month high at 49.1. Meanwhile, Malaysia's industrial production index (IPI), which declined in October after three months of positive growth, is expected to continue its downtrend for the rest of 2020 due to the tightening of restrictions under the CMCO.
Industrial - Factors to watch in 2021
● Increased demand for warehousing due to the changing landscape for e-commerce.
● Matured and sought-after areas will remain a popular location for manufacturers or warehouse operators.
● Continued political instability and a resurgence of the Covid-19 pandemic may deter foreign as well as local investors to set up/expand their businesses in Malaysia.
● The RM1 billion allocated for Industrial Digital Transformation Scheme under Budget 2021 to encourage SMEs and businesses to digitalise the operations and trade channels will encourage upgrading of companies' digital capabilities and prepare them for future growth.
Hospitality - Recession
What was to be a Visit Malaysia 2020 in the fifth instalment of the Visit Malaysia Year series beginning 1990 was officially called off as the infectious rate of Covid-19 prevented international tourists from arriving. The target of 30 million tourists spending RM100 billion in Malaysia attending to more than 100 programmes organised chiefly by the Ministry of Tourism, Arts and Culture literally went up in smoke with only 4.299 million arrivals from January to September 2020, registering a glaring drop of 78.6 per cent compared to the 20.1 million tourists in the same period the year before.
Tourism receipts also fell to RM12.6 billion in the same period, 80.9 per cent lower than the RM66.1 billion in the corresponding period in 2019. The plunging numbers of 2020 had the Malaysian Association of Hotels (MAH) expecting the average occupancy rate of hotels in the country to average at only 25 per cent for the full year.
Hospitality - Factors to watch in 2021
● Improvement in the domestic tourism industry with attractive holiday packages from hoteliers/tour operators.
● The availability of the Covid-19 vaccine will improve overall confidence and boost domestic travel.
● Opening up of the borders for green zone countries will help bring back foreign tourists.
Hospitality bright spots in 2021
● With proper SOPs in place, tourists will feel safer to travel domestically.
● The Budget allocations by the Government to boost domestic tourism will greatly help this sector.
Agriculture, Development Land & Others
In the agricultural land category, it recorded a 19.4 per cent or 20,764 rise in Q3 2020 compared to Q3 2019. In terms of value of transactions, the percentage rise was much higher at 42.5 per cent or RM3.88 billion. Worthy to note is that in the face of the softer market conditions coupled with the stronger demand for houses priced below RM500,000, some housing developers especially those without suitable landbank for the affordable range embarked on acquiring land banks in locations and at prices that will allow them to build such houses.
The landbanking exercise form part of the reasons that contributed to the 20.6 per cent or 5,661 units growth in volume of transactions in 3Q 2020 compared to the corresponding period in 2019 under the development land & others category. But even with the positive number, its value of transactions declined by 28.5 per cent or RM1.98 billion compared to Q3 2019. This could be due to the price pressure from the macroeconomic conditions as landowners were more eager to unlock land value. For the record, transactions recorded here also included developers offloading some of their non-core landbank in order to improve their financial standing and cash flow position.
Bright Sparks
Although 2020 has been erratic, there were positive takeaways like the mass digitalisation adoption by property players to help bridge the absence of physical administration at the sales galleries to finalising the purchase by keen buyers and investors. To that end, to be fronted by a functional website is already a given and what's more important now is for property developers to have a better understanding of the profile of their target market to facilitate the right utilisation of the media channels and its accompanying messaging so the overall strategy is a cost effective one. Be that as it may, Malaysian buyers are still more accustomed to physical visits at the galleries so they can unearth all that is required to know about the project before making the final call. Digital marketing campaigns should therefore be treated as a vehicle to attract prospects for further enquiries.
Thus far, the reports that have come out about employment and production volume have not been rosy, and given that the property ecosystem would still require committed buyers, investors, tenants and financiers to form part of the equation, it would be highly commendable if the government could step in to bring about a reduction or waiver of compliance costs such as statutory contributions, fees and premiums so that these savings will trickle down the chain to benefit the buyers and investors. The City Hall of Kuala Lumpur (DBKL) has rolled out such an assistance with 50 per cent discount on development charges for projects commencing 1 June 2020 to 31 May 2021 to spur developments during the pandemic hit period.
What will come to be in 2021? The factors are many but in order of importance are the availability of an effective vaccine against Covid-19, the stability of Malaysia's political climate with a strong majority in the ruling government, the infectious Covid-19 cases coming under control with no further outbreaks and a more friendly international trade environment. But one of the most helpful factors from these would be the staging of the 15th General Elections in the country to resolve the political quagmire once and for all so the ruling government can objectively govern the country and strengthen its economy.
Should these factors translate into reality, we can expect a positive market trajectory in all property sub-sectors from as early as the third quarter of 2021 or early 2022, which is consistent with the Malaysian Budget 2021's projection of a 6.5 per cent to 7.5 per cent growth for the full year of 2021. The multiplier effects from this growth will be the powertrain that can drive the property industry forward again with house purchasers returning confidently to buy homes as their income earning capacity is leveled up by a robust economy that offers employment, and both the local and foreign property investors having the opportunity to find the right assets to invest into. These tangible actions on the ground shall contribute to rebalancing the property equilibrium back to its healthy levels seen between the mid-2000's to early 2010's.
But luck has it that the country has again been stifled with another round of MCO which started on 13 January 2021. But before MCO 2.0 can even properly commence, the Agong had assented to a State of Emergency as announced on 12 January 2021 which will be effective until 1 August 2021. The back-to-back news have had the KLCI tumbling, hurt the value of the Ringgit and sent a large wave of uncertainties to the market.
With these new spanners now suddenly thrown in the works, the Malaysian property market has again been shaken from what was to be a positive route to recovery albeit a slower one. With all things measured and weighed, it is imperative that the property economy will be grinding a little longer than expected and this time, instead of witnessing a lift off in the second half of 2021, it could likely see recovery happening only in 2022. - Henry Butcher Malaysia