Located in the northeast of Peninsular Malaysia bordering southern Thailand in the north, Kelantan is rated as one of the most conservatives states in Malaysia. Known more for its reserved lifestyles among the 1.89 million population (2019 estimates by Department of Statistics Malaysia), development of infrastructure and urbanisation in the state has not been as active as the rest of the country and so when news of the East Coast Rail Link (ECRL) project was given the go-ahead, there was much to look forward to.
The ECRL is a 640km rail link that connects the western coast of the Klang Valley to the east coast states of Pahang, Terengganu, and Kelantan where the latter is slated with two stations in Kota Bharu and Pasir Puteh. The new rail line has the hopes of many to further boost economic development and activity in the state. In line with that, Menteri Besar of Kelantan Datuk Ahmad Yakob has also announced an allocation of RM1.57 billion under the Kelantan Budget 2021 to stimulate the state's economy where five mega-projects have been identified to spearhead the ambition, are the Phase 3 East Coast Expressway (LPT3), expansion and upgrading of Sultan Ismail Petra Airport, Pasir Puteh-Machang-Jeli road, Kota Bharu-Kuala Krai Expressway, and the Palekbang-Kota Bharu Bridge.
Upon completion, these projects are expected to reduce traffic congestion, especially during peak hours, on the weekends, and during the festive seasons when Kelantan folks make their way back to their hometown including some of the tourists that might come for holiday. It would also improve connectivity and spur property development in Kelantan especially in the residential and commercial areas.
Notwithstanding that it is smaller compared to the larger tourism markets in the country, Kelantan nevertheless experienced a 20 per cent to 30 per cent reduction in tourist arrivals with hotel occupancy rates falling below 50 per cent. There was a slight uptrend in the final quarter of 2020 when inter-state travel restrictions were finally lifted.
Coming on the back of a pandemic year in 2020 with no significant property launches activated for the market, the Kelantan property industry is expected to continue to be sluggish in 2021 especially during the first quarter amid the weaker state and national economic conditions due to the ongoing Covid-19 pandemic. The cautious attitude of both the buyers and private developers also contributes to this pessimistic outlook. Prices of landed residential properties are however expected to remain stable but for high-rise properties, it is expected to decline slightly due to the increase in supply.
With a hint of uncertainty hovering in the atmosphere, it is advisable for non-Kelantanese developers aspiring to enter the market to exercise extra caution before making their way in. Local Kelantanese developers on the other hand are already acquainted with the local norm and have taken the necessary precautions in their daily business affairs. On the whole, rental values and property transactions are expected to remain unchanged in the short term.
Residential review and outlook
The Kelantan residential property market has seen a softening in 2020 compared to 2019, with a decline of eight per cent in the volume of transactions. However, the value of transactions registered a marginal two per cent increase, probably due to more properties being transacted at a higher price range. It can be noted that there were more transactions of properties between RM200,001 to RM300,000 compared to the same period in 2019.
For the first nine months of 2020, house prices in the state declined by about 10 per cent to 15 per cent as compared to the same period in the previous year. Whilst there is a reduction in transactional activity for the residential market, the number of foreclosure cases is on the rise while rental demand has decreased. This is not surprising as the reduction of transactional activities was mainly due to the Movement Control Order (MCO) that was enforced from March 18, 2020. Transactional activities only improved towards the third quarter of 2020.
There were no major launches of property projects in Kelantan as most developers have adopted a wait-and-see attitude given the current economic situation. The residential sub-sector is therefore expected to prevail heading into 2021 with the landed residential properties expected to remain stable. In contrast, prices of high-rises such as condominiums and apartments will see further downward pressure due to the existing and incoming supply.
Office review and outlook
Performance for the office sector in Kelantan remained strong with an average occupancy rate exceeding 90 per cent. This is due to the lack of new office buildings being built in Kelantan at the moment. Most of the office buildings are concentrated in the town centre of Kota Bharu especially in Jalan Tok Hakim, Jalan Kebun Sultan, Jalan Dato' Pati, Jalan Doktor and Jalan Tok Guru.
The office spaces in the suburbs of the town centre are mostly concentrated in Bandar Baru Kubang Kerian, Pekan Wakaf Che Yeh, Kota Bharu Waterfront City, and Bandar Satelit Islam Pasir Tumboh. Demand for office space in Kelantan is more focused on traditional two (2) and three (3) storey shophouses/office buildings compared to purpose-built offices.
Industrial review and outlook
Kelantan's industrial market has remained stable over the past few years and the market has been mainly dominated by terraced factories followed by detached factories. The prices and rental rates for 2020 have remained stable as no new increase in development areas for industrial properties has been noted in Kelantan.
In 2019, there was a significant increase in the volume and value of industrial properties that were transacted in the state with 32 units and RM220.3 million respectively compared to 18 units and RM17.89 million in 2018. The number of transactions of industrial properties above RM1 million also increased sharply to 21 units in 2019 compared to only 7 units in 2018. As there were no new industrial areas in Kelantan in 2019, the increase is likely due to the improvement in demand for industrial properties especially in the existing established industrial schemes such as the Pengkalan Chepa Industrial Estate and MIEL Lundang. The year 2020 however, saw a sharp decline in both the volume and value of industrial property transactions as the number of transactions in the first nine months fell nearly 78 per cent to 7 units whilst the value of the transactions came down by 89 per cent to RM24.24 million.
Factors to watch in 2021
● Landed residential and offices/shop offices sub-sectors are interesting asset classes to monitor.
Bright spots for 2021
● The catalytic nature of the East Coast Rail Link (ECRL) will spur economic development and induce positive multiplier effects.
● 5 mega projects approved under Kelantan Budget 2021: Phase 3 East Coast Expressway (LPT3), expansion and upgrading of Sultan Ismail Petra Airport, Pasir Puteh-Machang-Jeli road, Kota Bharu-Kuala Krai Expressway, and the Palekbang-Kota Bharu Bridge. - Henry Butcher Malaysia