Stricter lending will slow commercial developments

Sales and demand for retail and office spaces have been subdued this year, says Knight Frank


Retail and office developments, especially in areas that are already facing excessive supplies, may see some proposed projects shelved as lenders’ take a more cautious approach in financing such projects.

Sales and demand for retail and office spaces have been subdued this year. Property consulting firm Knight Frank said the Kuala Lumpur (KL) and Selangor office markets continue to remain lacklustre with demand lagging supply.

The property research firm, in its first-half (1H) real estate highlights report, said the overall occupancy rate for KL continued to decline to 80.7% compared to 82.8% in the 2H of 2016 on the high supply pipeline.

“Banks’ stringent lending policy will cause a delay in new office and commercial developments due to the present glut,” said Khong and Jaafar Sdn Bhd MD Elvin Fernandez told The Malaysian Reserve.

He said, however, the lenders’ actions would benefit the industry and help to prevent the glut situation from deteriorating.

“The lenders stringent approach towards developers would reduce similar properties from entering the market,” he said.

The property consultant also said there is a need to reintroduce an independent market and feasibility study for every bridging loan application.

“This ruling should be brought back as financial institutions being a provider of project loans have the greatest power to ensure supplies entering the market is coming at a contained pace,” he said.

“This is a more effective mechanism than the rejection without careful study,” he said.

According to the central bank’s monthly statistics, the banking system approved RM1.15 billion in May 2017 compared to RM3.13 billion in December 2016 for the real estate sector.

In May this year, loans applied for the real estate activities stood at RM5.72 billion.

Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia estimates about 1.58 million sq m (or 17 million sq ft) of shopping space is expected to enter the Klang Valley market between 2016 and 2018.

Rahim & Co Research’s Property Market Review 2016/2017 report said the office space supply in KL grew 0.6% from the same period in the previous year, with additional new space of 47,287 sq m.

By 2020, more than 929,030 sq m of retail space is expected to be completed.

Fernandez also warned that the highly saturated residential luxury segment will continue to see further decline in sales.

He said income levels have not increased in accordance with the rapid rise of property, impacting the high-end products and creating a massive overhang.

“Malaysia has been seeing rising household incomes, but what we found over the last decade is that house prices had moved significantly faster,” he said.