Abstract
The global economic recession has caught up with Malaysia, with the economy
contracting in Q109 for
the first time since 2001 as exports slumped,
pushing the nation toward its first recession in a decade.
The economy,
the third largest in South East Asia, shrunk 6.2% year-on-year (y-o-y) in Q109
after 0.1%
growth in Q408.
The news has had a clear impact on the
country’s real estate market that was already facing a potential
oversupply in the office sector. Rental rates have been falling with fewer new
clients able to drive harder
bargains and existing occupiers
renegotiating.
Kuala Lumpur’s prime office market is experiencing
declining rents for the second consecutive quarter.
In Q109 rental rates
fell 2.85% quarter-on-quarter (q-o-q) to RM6.14 per square feet (sq ft) per
month.
However, DTZ reports that occupancy rates for grade A office in
prime locations are holding up, at an
average of 95%.
New office space
coming on stream, combined with a fall in demand due to the recession, is
likely to
cause rents to drop further. In all, a total potential supply of
about 4.13mn sq ft of prime office space will
be completed in 2009. Growth
is not expected until at least 2010.
House prices appear to have fallen
some 4% since the end of 2008. The high end condominium market is
softening, but to date there hasn’t been a spate of ‘fire
sales’. The total supply of high end condominiums
in Kuala Lumpur
has increased approximately 22%, bringing the total cumulative supply to about
17,230
units by end of 2008. The increased supply adds to the general
softening of the market due to the
recession.
There are also
regulatory and tax issues hanging over the market at a difficult time. House
buyers and
owners have joined construction players in asking the
government for an exemption, or at least a delay, to
the imposition of a
new stamp duty on construction contracts. Stamp duty was increased from
January 1
2009 from the nominal MYR10 to a 0.5% of the contract value,
causing construction costs to go up
between 1% and 2%.
These factors
suggest the housing sector will continue to soften for the rest of 2009, with
some
stabilisation to be expected in H110.
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