Malaysia is not in a position to afford high interest rates, says Boyd

By IZZAT RATNA / Pic By ISMAIL CHE RUS

Property consultancy firm Savills (M) Sdn Bhd is not anticipating any hike in interest rates anytime soon, in view of the stronger ringgit and the robust year-on-year growth of the gross domestic product.

Savills executive chairman Datuk Christopher Boyd said Malaysia is not in a position to afford high interest rates as it would normally occur as a hedge to defend the currency, which is rather safe at the moment.

“We have seen a lack of confidence in the market. I think there is an issue of affordability in the residential market, which has been overplayed.

“I feel very sure that once the general election is over, whatever the outcome would be, there will be increase in demand for the overall property market,” he said on the sidelines of Savills Malaysia Breakfast Forum in Kuala Lumpur yesterday.

Boyd said the property sector would not see any price explosion once the market eventually picks up, as there are still excess unsold stocks in the market.

“Developers will need to clear quite a considerable backlog before any major price correction can take place.

“Looking ahead, we do expect overall turnover to increase this year on the back of the impeded price escalation,” he said.

Axis Real Estate Investment Trust Managers Bhd head of investment Siva Shanker said the property market would see encouraging signs of recovery in 2018 spurred by the stability in oil prices, shrinkage in oil companies, as well as the improved business sentiment compared to last year.

“Everything is on track, but it looks a little bit quiet now because everyone is worried about the election.

“Barring something really unfortunate, I think as soon as the election is over, the economy will kick-start and the sector will move along nicely. So, 2018 should see the start of a small recovery in the property sector,” Siva told The Malaysian Reserve.

As such, Siva said rental rates and vacancy levels for office spaces would also not fluctuate any further, but be in a more controlled operating environment amid the slowdown in new luxury and commercial development orders, following the government’s temporary freezing measures.

At present, office space vacancy levels in the Klang Valley are expected to hover at about 25% from 2018 onwards due to the current oversupply and increasing competition, as well as the correction the market is facing.

Boyd said the office market would experience a slight improvement in vacancy rates and a little more downward pressure on rentals before the market stabilises.

“Vacancy rate right now, depending on which sector you are talking about, is at between 20% and 25% on average.

“But I think the vacancy levels will hover at around 25% until the surpluses are absorbed, which would probably be by 2021 to 2022,” he said. Boyd said the present office supplies at 120 million sq ft are bigger than Bangkok and Singapore.

He said there are approximately five million sq ft of new spaces per annum competing over the next three years with annual absorption rate of three million sq ft on a good year and one to two million sq ft on a quiet year.

“So, clearly there are more spaces being built than required in the short term and this has put downward pressure on rental rates and overall vacancy levels,” he added.

On the future for the office market, Boyd said the increasing demand for co-working spaces would likely reposition the supply and demand of the sector, moving forward.

He said traditional office spaces, particularly the modern buildings, would be transformed to communal workspaces to cater to the society’s current demand and evolution within the sector.

“I believe that the demand for co-working spaces will not only be largely concentrated in the Klang Valley area.

“As time passes, co-working spaces will definitely spread out to the suburban areas, satellite offices, as well as other cities such as Penang, Johor Baru and Kuantan driven by the flexibility and lifestyle amenities, which would meet the youths’ current wants and needs,” Boyd said.