Challenges will continue but there are also more opportunities
Contributed by Datuk Paul Khong
The year 2021 has been as equally challenging as 2020. We had more than three months of lockdown, and now at the start of 2022, Malaysia and the rest of the world are still plagued by Covid-19.
Everyone is attempting to move on from the pandemic, with some treating it as an endemic, despite still being at risk. We can only hope that 2022 will be a much better year for all sectors and that pandemic will fade away.
As all economic sectors opened up in Q4 2021 with standard operating procedures (SOPs) in place, we have seen strong improvements in market activities.
Businesses hope that the high vaccination levels across the country will hasten the recovery. Booster shots have been administered across the board and as of December 2021, Malaysia has vaccinated about 25.6 million or about 80% of its population.
We are confident with the new year unfolding, albeit with all the uncertainties, the global economy will remain high in 2022 despite the evolution of the pandemic.
Infrastructure a key economic driver
The government will continue to expedite the kick-off of the MRT 3 project in Greater KL. This will spur the growth of construction projects and unlock values around the MRT station locations.
We also look forward to completing MRT 2 and LRT 3 in 2023, where construction works have been delayed due to the MCO restrictions in 2020/2021.
We hope to see the residential activities improve in 2022 despite transaction prices expected to remain soft. Since the Home Ownership Campaign (HOC) benefits would cease to be carried through to 2022, we saw stronger activities to the closure of 2021.
These discounts given to the various types of residential properties provided opportunities for many genuine homebuyers to own their first home or for upgraders to move to a better unit.
Bank Negara Malaysia may increase the Overnight Policy Rate (OPR) in 2022 to combat inflation, however, the interest rate at the moment is expected to remain favourable. 2022 will continue to be challenging in continuation from 2021 as there is not much given in the Budget 2022 except for the Real Property Gains Tax (RPGT) reverting back to 0% and 5% for both individuals and companies respectively.
Office leasing to be re-activated
We expect more companies to continue to relocate to newer office spaces in view of the flight-to-quality perspective. They will also continue to relook at the angle of workspace optimisation impacted by the hybrid arrangements of both working-from-home (WFH) and working-from-office (WFO).
Old office buildings will be challenged to retain their tenants and many will undertake major refurbishments or potentially be repurposed to other usages.
Flexible work arrangements (FWA) will continue, with slow but sure trends towards partial office occupation, making the co-working spaces relevant.
Nevertheless, the office market is a tenant’s market as demand still lags way behind supply, resulting in high vacancy rates. We are expecting close to about 10 million sq ft in new supply entering Greater KL in the next two to three years.
e-commerce continues to push up demand
The pandemic has left companies no choice to adapt to omnichannel and online sales strategies. This has further led to the increased demand for warehouses.
We expect the pent-up need for high-quality (with the latest automation) warehouse facilities will positively impact rental growth in 2022. In addition, geographical diversification begins to take effect as more companies seek to expand and get closer to customers, thereby bringing up land value in the near term.
According to Savills Malaysia deputy managing director and capital markets head Nabeel Hussain, there has been a pick up in property transactions and an increase in interested buyers in the last few months.
“We expect to see continued activity, as concerns about the pandemic have mostly been priced in so to speak, and investors realise that the new normal is here to stay, at least for the foreseeable future.
“Not surprisingly, those sectors that are most pandemic-proof, like logistics and data centres, which continue to attract the most interest. On the other hand, the sectors most affected by the pandemic, such as hospitality and retail, are most likely to trade at discounts to what would have even been expected two years ago.
“The rationalisation drives undertaken by GLCs since GE14 will continue, albeit at a slower pace than initially desired, as there remains an ask-bid gap between sellers and buyers,” Nabeel said.
Executive director Marcus Chia pointed out that the removal of RPGT for residential property in the 6th year of ownership onwards may help secondary property sales in 2022.
“We expect with the ending of the moratorium in early 2022, more distressed auctions will be appearing. This will create more pressure on property prices. Residential sales volume is expected to inch up in 2022 but property prices will remain relatively stable,” he said.
Innovative developers will continue to drive sales with new marketing packages in place of HOC 2021, added Chia.
Industrial agency director Kevin Goh said the industrial and logistics sector, as predicted by Savills in 2021, will continue its uptrend and growth into 2022.
“This asset class is still the all-time favourite for 2022. We now look at new warehouses equipped with state-of-the-art technology in warehousing. There is a strong demand for warehouse space by e-commerce players.
“There will be some new relocation exercises coming through after the current flooding events during the recent year-end. We also expect to see more deals flowing through in 2022,” he said.
Retail services director Murli Menon explained that having gone through perhaps the worst period for retail, the market is set to bounce back and recover the losses in 2022.
The response seen after the reopening of retail malls has boosted the confidence of the entire retail sector and it has also reaffirmed the fact that brick and mortar retail will never die but at the right balance between online and offline channels with both supporting each other and in- driving traffic, he said.
“Nothing can beat the actual shopping experience, be it for F&B or non-F&B – clearly demonstrated by the surge of shoppers and customers back into the stores upon reopening of retail in Q4 2021,” he said.
New wave of retail entrepreneurs
Another consequence of the lockdown is this new breed of retailers or rejuvenated and reformatted existing retailers coming into the market with fresh offerings in terms of product and services and infusing a breath of fresh air and new ideas in retailing and retail experience, said Menon.
Pointing out that more collaborations are expected across retail brands and retail concepts, he added: “We expect to see more as brands and retailers realise the importance of working together to reach out to a broader audience as well as to be able to offer enhanced service and experience by combining resources as well as product offerings.
“Creative and collaborative commercial terms between landlords and retailers – a shift from the conventional rental structures towards a more participative and profit-sharing approach.”
After close to two years of living with the pandemic, our lives have been deeply affected alongside many businesses. We all need to adhere to SOPs and use the MySejahtera app everywhere we go. Like all businesses, including the property sector itself, we have adapted to the new changes in the marketplace as we have actively dealt with the evolving market trends.
2022 is not getting any easier for the local real estate sector and the current economic conditions moving into the new year remains much the same. Nevertheless, new opportunities are still aplenty in these changing markets and the real estate sector will just have to continue to capture the pent-up demand in the market with developers working harder with more innovative strategies to drive up property sales into 2022.