Melaka’s property market — a great balance of supply and demand

The small state could perhaps be the safest bet for punters who are looking for a quick profit

by MARK RAO/ pic by RAZAK GHAZALI

IF YOU’RE considering investing in property away from the “usual locations” like Kuala Lumpur (KL), Johor Baru or Penang, you should consider Melaka.

The small state, sandwiched between Johor and Negri Sembilan, could perhaps be the safest bet for punters who are looking for a quick profit. In fact, it is one of the states with the lowest residential overhang with only 759 or RM268.69 million worth of unsold units last year.

While the property market in other states seems to be in disarray, the supply and demand for housing in Melaka is very well-aligned.

Rahim & Co International Sdn Bhd branch manager for Melaka Mohd Fiqri Rohaizad said the bulk of developers in Melaka are local players who have good understanding of the market.

Tourists enjoying the tour on Melaka River Cruise

“For the time being, Melaka’s property market is mostly made up of local developers. There are not many developers from KL or big-name property players.

“Basically, the developers know the local market and are offering reasonable prices to buyers,” he told The Malaysian Reserve (TMR).

The key equation here is affordability as local buyers could match their property investments and purchases with their income level.

Homefield Real Estate Sdn Bhd real estate negotiator Khairulnakiah Sham said the demand in Melaka’s residential market, which is very much intact, differs from segment to segment.

“Affordable homes fare better than high-end properties as the average salary of locals is not high enough to support purchases in the latter category,” she told TMR.

A lot of buyers of high-rise properties in Melaka put their properties on Airbnb

“Only a few professionals (in the state) can afford homes priced between RM400,000 and RM500,000…(whereas) the fastest turnover is observed for properties priced below RM300,000.”

According to Rahim & Co’s latest property report, 34% of the total 4,243 transactions worth RM1.03 billion in the first half of 2018 (1H18) were for single-storey terraced homes and were priced between RM100,001 and RM200,000.

In the Melaka town centre, single-to 11⁄2-storey terraced homes ranged between RM269,000 and RM300,000, while double-to 21⁄2-storey terraced units were transacted at RM345,000 to RM498,000 over the same period.

While higher than the national average, the median monthly household income for Melaka of RM5,588 in 2016 was behind the average incomes noted in the federal territories, Selangor and Johor that year.
The Melaka state government also has a strong custom on land restriction as up to 50% of land titles are held under Bumiputera or Malay restriction titles, the report stated.

Consequently, a two-storey terraced home in Kota Laksamana is priced at an average of RM450,000 for a Bumiputera unit, whereas it would sell for RM600,000 for an open unit.

The Melaka Monorail along Melaka River

Mohd Fiqri said it is this affordability, driven by both local developers’ understanding of the market and state intervention, that allows Melaka’s property market to continue to perform as demand and supply are matched.
The Malaysian government pledged to build one million affordable homes over the next 10 years, averaging out to 100,000 units a year up to 2029, as part of efforts to address the affordability and home ownership issue in the country. In many ways, Melaka is already ahead in this category as local developers and authorities strive to meet the demand for affordable homes long present in the southern state.

According to Rahim & Co, the Melaka state and federal governments are collaborating to build over 48,000 affordable homes over the next five years. As of September last year, a total of 24,000 affordable housing units were built, while over 2,000 units were in various stages of construction, the report said.

Mohd Fiqri said affordable homes are easily sold in the state due to strong demand among local buyers for this category.

Shop and office lots in Klebang, Melaka

Khairulnakiah, meanwhile, said landed units under the affordable category tend to fare better than apartment units under the same segment as the first-generation locals prefer landed over non-landed properties.

The issue then is not within the affordable category, but the potential oversupply of high-rise units coming into the Melaka property market which falls outside the majority of locals’ purchasing power.

Melaka witnessed a total of 3,545 new unit launches in 1H18, 41% of which were condominium and apartment units priced up to RM400,000, according to Rahim & Co’s property report.

“Unfortunately, we have lately seen a drastic increase in high-rise developments in Melaka.

“Last year, there were 20 developments under construction and approximately, 10,000 high-rise units are expected to be completed in the next two years. This could create an issue in the market,” Mohd Fiqri said.

Rahim & Co cited The Wave, a high-rise residential development completed last year, as an example of potential oversupply in this segment as the reserve prices for units up for auction were at RM400 per sq ft — lower than the launching price of RM500 to RM600 per sq ft.

The Taman Klebang Utama housing area in Melaka. In the Melaka town centre, single- to 11⁄2-storey terraced homes range between RM269,000 and RM300,000

At the same time, Melaka is a tourism state and buyers from outside the state and internationally can lend support to this segment of the market, Mohd Fiqri said.

“A lot of buyers of high-rise properties (in Melaka) put their properties on Airbnb which is doing very well in the state.

“For the higher-end residential market, we do see Singaporeans buying property. This is not seen as an investment…but as a second home due to the close proximity between Singapore and Melaka,” he said.

Khairulnakiah, meanwhile, added that Melaka’s residential market does see buyers from KL and Johor Baru coming in for units priced between RM400,000 and RM500,000, either as an investment or as a second home.

Among the notable developments in Melaka is the RM43 billion Melaka Gateway project. The 1,366-acre (552.8ha) project will be built over four islands and comprises a mixed commercial and property development, a free trade economic zone, a shipping port and a maritime industrial park.

The project’s developer, KAJ Development Sdn Bhd, was allowed to recommence works on two projects within the development, namely securing cruise and deep sea port licences, after it was allowed to appeal against the government’s decision to scrap the development.

Melaka Gateway was approved by the former ruling administration and is aimed at, among others, bringing in more tourists and investments into the state which could lend support to a growing high-end property market and assuage some oversupply fears.

The total of RM268.69 million unsold residential units in Melaka last year comprised only 1.3% of the total RM19.86 billion unsold units nationwide, bettered only by Terengganu, Kelantan and Perlis.

As a comparison, Johor was the state with the highest residential overhang at 6,066 units or RM4.61 billion, followed by Selangor (RM4.2 billion), Penang (RM3.09 billion) and KL (RM2.68 billion).

However, Melaka’s residential sales performance came in at 37.5% as only 1,696 units were sold of the 4,519 launched in 2018. This was only slightly higher than the 34.6% national average.

Thus, how the market responds to incoming supply is imperative in determining if Melaka’s thriving residential market can be sustained.