Luxury property freeze creates massive disruption in market

Rahim & Co sees the action as ‘a bad move’ and have little impact to resolve the oversupply predicament


The government’s decision to review new luxury residential and commercial development orders on a case-to-case basis had only created a disruption in the property market and would not address the oversupply issue.

Property consultancy firm Rahim & Co International Sdn Bhd sees the action to address the current property glut as “a bad move” and the measure will have little impact to resolve the oversupply predicament anytime soon, or in the medium term.

“Although the temporary stop order’s intention was to help curb new supplies and to allow planned projects to be absorbed by the market…but in actual fact, it is actually interrupting free business activities,” said Rahim & Co director of real estate agency Robert Ang.

He said the authorities should have resorted to other measures to cool the rising oversupplies of certain property types instead of enforcing a freeze for luxury developments.

“I think the government should have employed other measures, such as imposing banks to have more stringent feasibility studies on project financing, rather than the freeze,” he said at a media briefing of the Rahim & Co Research — Property Market Review 2017/2018 report in Kuala Lumpur (KL) yesterday.

Additionally, Rahim & Co director of research Sulaiman Akhmady Mohd Saheh believes the central bank should reintroduce the 1997 policy, where valuation alone should not be the key determiner to support bridging loans given by banks on a particular project.

He said a comprehensive feasibility study should be conducted by financial institutions before any approvals are granted.

“At the moment, most banks instruct the borrowers (developers) to conduct the feasibility study by appointing independ- ent consultants rather than doing it themselves,” he said.

Sulaiman Akhmady said banks need to appoint independent consultants to conduct the feasibility studies on the projects to avoid the borrower’s biasness in evaluating new project proposals.

“Findings of the study should state whether the project is something viable for healthy return of investments or not, based on its location and purpose,” he added.

In a move against oversupply in the residential and commercial sectors, the government has implemented a freeze counter-measure effective November last year.

Finance Minister II Datuk Seri Johari Abdul Ghani said the decision was made to mitigate the current imbalance between supply and demand in the luxury property segment.

However, final details on the freeze are still being consolidated.

Meanwhile, Ang pointed out that the competition for the commercial sector is expected to intensify further on the back of between 18 million sq ft and 20 million sq ft of new supplies — slated to enter the market over the next five years.

“We are also seeing rental pressures on retail rents, which we do not see any correction or improvement in the near team,” he said.

Based on Rahim & Co’s recent data, the office oversupply would continue to be a bane in the Klang Valley as supply would jump to 131 million sq ft.

At present, the average occupancy rate for office spaces in KL stands at 81.4%.

Rahim & Co said leasing activities continue to move at a slow pace, but office spaces in well-connected integrated developments are getting good responses from corporate tenants.

“The key for the Klang Valley office market sustainability is not to rely on organic expansion of existing tenants, but to bring in new international firms and multination- als to set up office here.

“The roles and collective efforts by both private and public sectors would be crucial along with more attractive incentives to secure new players,” it said.

The retail sector is also facing a grim future with 69.8 million sq ft of retail spaces available in the Klang Valley with an average occupancy rate of 85.2%.

The emergence of e-commerce and mobile shopping have become a threat to physical retail malls, forcing mall operators to re-strategise their buildings as not only a place to shop, but a venue of experience and entertainment.