The Edge, 28 November 2011 - Hot market lures investors and buyers

The Edge, 28 November 2011

Local buyers predominate but Penang properties are also attracting Malaysian diaspora and foreigners

The property market in Penang has never been more vibrant. Rental rates have been on an uptrend and on parts of the island and the mainland, prices have reached levels never seen before. Despite this, properties in new projects in new projects coming on to the market are being snapped up quickly. Most of the buyers are locals but Penang properties are also attracting the Malaysian diaspora working and living overseas, as well as foreigners.

Datuk Jerry Chan, chairman of the Real Estate and Housing Developers' Association of Malaysia (Penang chapter), says over the next 15 to 20 years, there will be a pipeline of property projects - including several major reclamation projects - with at least RM30 billion or S$12.3 billion in gross development value.

These include E&O's Seri Tanjung Pinang development in Tanjung Tokong. Closer to the Penang Bridge are IJM's The Light project and CP Land's Queensbay development, of which 40ha have been sold to Asia Green Development Sdn Bhd. Mah Sing's Southbay City is further down the coastline towards Batu Maung.

The latest project is the joint venture announced on Nov 11 between lifestyle property developer Dijaya Corp Bhd (Dijaya) and Penang-based Ivory Properties Group Berhad to develop mixed residential and commercial properties in Bayan Mutiara on the island. The gross development value of the 105-acre project, 35 acres of which will be reclaimed land is estimated to be RM10 billion. Bayan Mutiara is a new development hub located in the eastern part of Tun Dr Lim Chong Eu Expressway (formerly known as Bayan Lepas Expressway) and the vicinity of Sungai Nibong.

"What is certain also is that the two corridors, both on the island and mainland between the two bridges, will be where the action is going to be in the years to come. On the island, there is already planned development and townships involving the big players while on the mainland, we will see the development of Batu Kawan, Nibong Tebal and Simpang Empat right up to Bukit Minyak with the Second Penang Crossing coming into the picture," says Chan.

Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat says the development that has been planned and is ongoing in the area between the Penang Bridge and the Second Penang Crossing on the island will put Penang on the map in terms on real estate.

Despite the staggering rise prices in some areas, Teoh says those who decide to invest in property in Penang or Malaysia do so because the property market is stable.

"Our market does not have the volatility associated with markets like China and Hongkong. In terms of price increase over the years, the percentage of the increase is not comparable with markets that are volatile," he says.

Teoh says property investors in Penang fall into two categories. The first are those who plan to occupy the property or who want to make Penang their second home or to retire there. They include Penangites as well as non-Penangite Malaysians and others who know about Penang. Some are local buyers who are upgrading.

The second group consists of those who buy purely for investment. These are people who shy away from volatile investments and are far more comfortable investing in real estate as they know the returns are positive compared with other forms of investment. Malaysia, and Penang by extension, is seen as stable when it comes to property investments.

Buyers in the first group tend to base their decisions on where they work and are currently residing.

"If, for example, they are working in the Bayan Lepas area, I would say they are generally quite indifferent as to whether they stay in the Jelutong Expressway where IJM is building The Light project, or the other projects along the coastal area. Or they could stay at the Batu Maung area which is near the factories, or the SP Setia projects in Relau and Sungai Ara," says Teoh.

There are many who work on the island but live on the mainland, and are prepared to commute across the bridge daily because a semi-detached, double storey house on the mainland costs far less than a similar property in Balik Pulau, says Teoh. The going price for a two-storey semi-detached in balik Pulau is above RM500,000 or about S$205,000.

Buyers looking for capital growth like landed property, says Teoh. But these investors know that in Penang and Malaysia, the yields are generally "not exciting". As such, they are in the "lower half of 10%", he adds.

Teoh says many buyers consider things like security and unless the landed property is within a gated compound, the choice for investors would always be strata title developers. The shortage of landed properties as well as budget constraints are also boosting demand for strata title developments, he says.

"If one is constrained by a budget and have less than RM1 million to spend, you will gravitate towards strata title development because there are more choices," he explains.

In terms of rental demand, Teoh says anywhere near places of employment, especially along the Jelutong Expressway corridor, is always the best bet.

At the same time, there is strong demand in Pulau Tikus, Gurney Drive, Tanjung Bungah, and Tanjung Tokong.

Chan concurs with Teoh that these are the "hot" areas on the island.

He notes that Tanjung Tokong, Gurney Drive, Pulau Tikus, Green Lane and Jesselton are also fairly mature areas. "As far as investment in property is concerned, these prime residential areas are seeing very strong demand but few sellers," he says.

The shortage of supply versus demand is leading to what Chan describes as "absurd" prices and transaction trends in some areas. Prices in Green Lane and Jesselton are going at RM500 psf now compared with RM300 psf in 1988. Up to three years ago, prices ranged from RM280 to RM300 psf.

The demand is not just limited to up-market units. Chan says even Low-and medium-cost units are being snapped up at prices ranging from RM240,000 to RM300,000, almost four times what the first buyers paid. And that too without any facilities, he says.

Teoh's view is that some element of speculation is good as it indirectly creates interest in the market.

"Everyone goes into the market to make money, whether it is paper gain or actual gain," he says.

He adds the statistics for the first half of the year have been very encouraging and the market is expected to continue to do very well for the rest of the year. It is still very much a seller's market,he says.

However Teoh says that at this point, it is difficult to predict next year's market. The economy of both Malaysia and penang are export oriented, so much will depend on what happens externally.

"We do not know how bad the US and Europe economy is going to be and how badly it will impact our exports. That will have an impact on the sentiments of local investors and it is too early to be seen.

"Our fundamentals in in terms of supply and demand are still intact as we are not over-built. From the total transactions which have transpired, only 10% to 20% are new properties while the rest are existing properties. So generally, the secondary market is very active, very strong and generally, it is the secondary market that is driving the market, for Penang and Malaysia," adds Teoh.

Chan says property prices on the mainland are still rising steadily as many who are priced out of the island are looking at landed property on the mainland. These investors also see prices rising after the Second Penang Crossing is completed in 2013.

"If the tunnel becomes a reality, the price disparity might narrow from the present 20% to 25% of the prices on the island," he says referring to the state's proposal to build a 6.5km tunnel linking the island to the mainland.

New projects in parts of Penang continue to attract both local and foreign investors, despite the soaring prices

The RM190 million Moonlight Bay luxury villas of Penang-based Ivory Properties sprawl over 5.6ha along the Batu Ferringhi coastline