Melaka has a special place in the history books and it also has a special place in the tourists' hearts. It's a historical city that is as charming and friendly as its glorious past. Today, instead of tradesmen from continents coming to do business, it is usually filled with tourists from both domestically and internationally on the weekends. The sights of bright lights, travellers, and touristy retail buzzing with life are common, up until the Covid-19 pandemic that struck in 2020. It has returned to be a quiet town all over again.
Melaka's property market has been subdued due to the same reason of the pandemic and overall, the state's property market softened in 2020. This was reflected in the volume and value of transactions registered in 1H 2020 where a total of 5,589 transactions were recorded during this period, indicating a significant drop of 27.94 per cent compared to the same period in 2019 with 7,703 transactions and a drop of 26.96 per cent with 7,651 transactions compared to 2H 2019.
In terms of transaction value, 1H 2020 saw properties worth RM1.86 billion changing hands, registering a 25.5 per cent decline compared to the corresponding period in 2019 and a further 31.65 per cent drop compared to the second half of 2019.
There was hope however in the industrial sub-sector with activities taking place even before the pandemic hit. Although numbers have been pushed down since the demand for industrial space will predictably hold up due to the scarcity factor, and as the world continues to conduct commerce online.
Another positive news that had consumers in Melaka looking up is the arrival of a vaccine against Covid-19 in early 2021. This has given the public a reason to smile, as did the relaxation of restrictions under the Conditional Movement Control Order (CMCO) after the strict lockdown of the MCO in March 2020.
Residential - review 2020
In the residential sub-sector, demand remained fairly strong for homes priced under RM500,000, particularly from those who were buying for their own occupation. However, the take-up rate for high-rise residences has been sluggish especially during the MCO as well as the period immediately during the Conditional MCO. Buyers were still cautious on spending on big-ticket items as buying sentiments have been affected by the economic uncertainty and job insecurity arising from the pandemic.
Based on the latest available statistics from NAPIC, a total of 6,231 residential property transactions were recorded for the first nine months of 2020, worth a total of RM1.57 billion. This represents a 17.03 per cent decline in the volume of transactions and a 20.9 per cent drop in the value of transactions compared to the same period in 2019. The majority of the transactions were between RM100,001 to RM200,000 followed by those within the RM200,001 to RM300,000 price range and then those under RM100,000.
Prices of sought-after properties such as landed houses have remained stable but for high-rise residences, prices have been dampened due to the slowdown in sales during the pandemic as well as concern over the oversupply situation for such properties.
The rental market for residential properties was fairly stable and foreclosure cases remained low due to the six-month moratorium allowed by Bank Negara and a further extension of six months after that as a form of relief to those whose livelihoods and incomes were affected by the pandemic. The situation may however change on the expiry of the moratorium as the number of defaults by borrowers is expected to pick up, particularly by borrowers who took up loans to purchase high-rise service residences and shops offices. There will also be more foreclosed units of high-rise residences being put up for auction in the year ahead.
In terms of new projects, developers have been focusing on cheaper land located slightly away from the city centre to build larger houses within better natural environments but sold at more affordable prices. This is due to the limited and more expensive development land available in the city centre. The new residential developments that have mushroomed are around the new townships in Cheng, Krubong, Bukit Katil, Ayer Panas, Tanjung Minyak, and Paya Rumput. These projects have come with newer designs and larger built-ups. Small bungalows with affordable prices have also been in trend since 2018.
Residential outlook 2021
With the current situation in Melaka, no new high-rise development order applications have been submitted to the relevant authorities. New submissions for landed developments have also seen a decline compared to 2019. For approved development orders, the launch of new planned developments has been delayed to the second quarter of 2021 onwards. In 2021, a stable market is foreseeable including the take-up rate for landed residential properties but on the flip side, there will be more foreclosures of high-rise properties. especially those bought for investment and homestay purposes.
In general, house buyers will still be cautious as the number of Covid-19 cases has recently spiked during the third wave of the virus infections although developers will have more confidence to launch their projects but only in selective areas and mainly for landed residences where they are confident of securing a good response.
Moving forward, property developers will need to adapt to the new norm where events are to be conducted digitally equipped with online viewings and bookings. As ongoing pandemic has caused jitters among the consumers, developers will need to address this situation through digital means.
Commercial office & retail - review 2020
The retail market was soft as the shift to online shopping became more apparent due to the mobility restrictions imposed during the MCO, CMCO and also due to the lack of travelers visiting Melaka. Occupancy rates of retail properties were affected and remained low especially for newly completed schemes located in areas targeted at tourists.
The purpose-built office (PBO) sub-sector was stable with no new completions and demand for office space was low as companies adopted the work from home practice during the pandemic.
Commercial office & retail outlook 2021
For commercial properties, the vacancy rate for shops cum offices is expected to rise with more businesses closing down due to poor business as a result of the pandemic. Office rentals should nevertheless remain stable.
Industrial - review 2020
Over in the industrial sector, there was a 13 per cent increase in the volume and 58 per cent increase in the value of industrial transactions in Melaka in 2019 compared to the year before. This could be an indication that the state is becoming an attractive investment destination which has then led to an increase in demand for industrial properties. The momentum however appeared to have been halted in 2020 where the first nine months saw a reduction of 38 per cent in volume and 57 per cent in value of transactions and this can be attributed to the slowdown in economic activities during the lockdown periods under the MCO and CMCO. In any case, most of the industrial property transactions were at the higher value range of above RM1 million followed by those between RM500,001 to RM1 million.
In view of the rapid growth in e-commerce, the logistics sector has also experienced some upward movement. However, not many shops cum offices or industrial warehouses have been taken up for such purposes as most of the logistics companies already have their existing collection and distribution centres in Melaka.
As for a future catalyst, the government's focus will be on the halal industry and high technology segment. The Melaka Waterfront Economic Zone (M-WEZ) for example which comprises ports and areas dedicated to tourism, tax-free status, and the Fourth Industrial Revolution (IR 4.0) industries among others is a grand project designed to encourage industrial growth in Melaka and the state's economic well-being.
Industrial outlook 2021
The industrial sector will remain stable for 2021 as there are limited industrial properties available in Melaka and no new industrial zones have been developed in the state as yet.
Hospitality overview & outlook
The Melaka State Government has taken note that tourism is an important sector to the state which will bring in more investments. Ecotourism and heritage tourism as such has been identified as the key drivers and the state government hopes investors will be attracted to the proposition and bring popular brands into Melaka with outlets opened for the public and also organise and participate in MICE (Meeting, Incentives, Conferencing, and Exhibitions) activities.
The local tourism industry has picked up since the relaxation of the inter-state travel ban in December, which led to hotels achieving higher occupancy rates in the same month. Short-term rental properties have also seen improved occupancy rates during this period. Property values and rental rates are expected to remain stable for popular areas.
Factors to watch in 2021
● Melaka State Government's termination of the RM43 billion Melaka Gateway project due to the expiry of the sea reclamation agreement and after long delays in the implementation of the project may dampen foreign investors' perception of the state since the project had attracted some foreign investments. Confidence to invest in the future will be shaken if the matter is not handled properly and investors' interests are not safeguarded.
● Once the vaccination programme is rolled out and the pandemic is brought under control with tourists also returning to visit the state, the economy will be able to recover and this will provide a boost to the property market.
● The commercial and high-rise residential sub-sectors will remain subdued due to the pandemic whilst the landed residential and industrial sub-sectors will stage a slow recovery or remain stagnant subject to their location.
● There may be a rise in foreclosure properties from Q2 2021 onwards especially for commercial units and high-rise residences.
● New developments will likely be put on hold in view of the sluggish demand as the general public is more concerned about their daily living expenses rather than making further financial commitments.
● The take-up rate for commercial lots will remain low unless landlords offer lower rentals.
Bright spots for 2021
● A slow recovery for selected property sectors could kick in by end of Q3 2021 and a foreseeable increase in transaction volume for landed residential properties due to limited new launches for this category.
● Melaka has limited industrial zones and there are no new planned ones. With the growth in online businesses, demand for industrial properties is expected to rise for warehousing and as distribution centres for logistics companies. - Henry Butcher Malaysia