With a background in both public and private sectors, Veena Loh was part of the team responsible for promoting Malaysian property abroad during the global financial crisis. After presenting in many international forums the team was able to halve the overhang in the Malaysian property market in just 8 years. She now works in Research & Consultancy at JLL Asia Pacific.

How did you get into the real estate industry?

I joined Malaysia Property Incorporated (MPI) in 2012 as a General Manager. This was a special body set up during the 2008 Global Financial Crisis under the Economic Planning Unit and tasked with promoting Malaysian real estate abroad. In 2008, the property sector faced strong headwinds from both the local and domestic market and there was a significant overhang in the property market. My role was to find a sustainable way of marketing and branding Malaysian real estate to foreigners. In a space of 8 years, the overhang was reduced by half. Having achieved its objectives, MPI ceased operations in March last year and I have since joined JLL Property Services (M) Sdn Bhd as the Associate Director of Research & Consultancy.

What are some of your career highlights from your time in the industry?

We held some very successful and timely seminars, for instance “Greater KL’s Office Space Conundrum: Winners and Losers” at a time when one analyst was forecasting a bleak future for the office sector. The analyst drew a correlation between Malaysia’s situation and that of Dubai, which suffered a 50% drop in real estate in 2011 following Dubai’s completion of the tallest building in the world, the Burj Khalifa in 2010.

We held collaborative property exhibitions of luxury Malaysian real estate with Rolls Royce and Korloff Jewellers at Kempinski Hotel in Jakarta. We’ve also introduced prime and luxury Malaysian real estate to High Net Worth Individuals and Corporates in new markets like Dhaka, China, Qatar and Surabaya.

What are the biggest issues facing the industry at the moment?

There are 3 major issues facing the industry now. Let me explain.

Cooling measures: Last year, property values dropped together with falling transaction volumes. The residential sector, in particular, has been affected by a spate of cooling measures over the past few years. Prior to 2014, many developers introduced the Developer Interest Bearing Scheme (DIBS), which allowed them to sell their launches very quickly. DIBS allowed buyers to book a residential unit without any interest payments while the condominium was constructed over 3 years. While DIBS was banned since Budget 2014, many speculators who bought these properties are now unable to service their interest payments, and their units are being sold below market. Since 2007, we have seen a gradual increase in the Real Property Gains Tax (RPGT) rate, from as low as 0% to as high as 30% as announced in the 2014 budget. In addition, the minimum purchase price for properties purchased by foreigners was doubled from RM500,000 to RM1 million for a number of states including KL. Other states like Penang Island and Selangor imposed higher thresholds of RM2 million for landed properties to prevent speculation and rising property prices. All these cooling measures have dampened interest in the property industry. In the recent Budget, we hear of higher stamp duties for properties transacted over RM1million.

Confidence: There is a cloud of uncertainty over whether prices have bottomed. Fears are keeping some investors at bay and investors need more signals to reassure them that the worst is over. Unfortunately, the climate of uncertainty does not help. While foreigners will find it cheap to invest in Malaysian real estate now, the volatility of the ringgit can be disconcerting having depreciated in 2015 when commodity revenues to the country plummeted in 2015 and, again more recently, when there was a flight of hot money returning to the US following their 2016 election. The recent phenomenon is true for most currencies but remains a destabilizing factor for foreign investments. Foreign investors are definitely attracted to the opportunities but are likely to wait till the ringgit stabilizes to make a move.

Lending environment: Most importantly, the industry overall, including the bankers that are giving out the loans as well as real estate investors, needs to be assured that there is sufficient demand for the pipeline of new supply coming onstream. The good thing now is that most buyers last year were genuine buyers – upgraders and first time house buyers, as opposed to speculative buying during the boom years.

How has the industry changed in the time you have been involved with it?

I joined the real estate industry during a boom period. Property investment was the buzzword. Unfortunately, speculation was rife during those heady days, leading to double-digit increases in property prices in 2012. The industry has moved down the property cycle since 2015. Both investors and developers are now more cautious in decision-making. Many resort to research and ask for advice when making an investment decision or a decision to build.

What changes would you like to see over the next two to five years in the industry?

Both developers and investors should do more research before building and investing, yet Malaysia has not reached the level of comfort in transparency desired by investors. The industry is hampered by insufficient information and lack of transparency. It would be extremely helpful if the providers of publicly available statistics could give more accurate and useful data, especially industrial data. Industrial data is needed particularly by foreign MNCs to enable their Headquarters come to well-informed and rational decisions when they compare Malaysia with other countries. As a result, foreign investors may shy away from Malaysia as they are unable to justify an investment decision without more factual data from reliable sources. 

What advice do you have for people who are just starting out in similar careers?

Most industries have a cyclical boom and trough phase, but research will continue to be in demand during both these times.  In the trough years, only the best will survive. Those who enter the industry should not be afraid of hard work, different experiences and circumstances as they will be rewarded later in their career. While competition always exists in the marketplace, the industry lacks experienced and talented people who can deal with the changes we face today.

What do you believe is a unique factor of doing business in your market?

Apart from understanding the locality and investment preferences of the neighbourhood, the success and popularity of real estate areas are also influenced by tourists, foreign tenants and investors. Increasingly, more foreign companies are entering the market to gain a foothold in Malaysia and these companies bring with them innovations, new techniques and skills that are blended into the local scene.

What is your favourite holiday destination in Asia?

I enjoyed visiting Chiang Mai, Thailand. Its slightly cooler and I enjoy Thai food and the hospitality. Probably one of those places that will still allow you to stretch your ringgit at a time like this.

What’s your outlook for your sectors for 2017?

The Malaysian real estate sector will continue to face challenges in 2017 due to the prolonged slowdown in the Malaysian economy. We may see more affordable properties launched this year that are suited to current market needs and expectations, while demand for luxury and branded-residence segments will continue to face challenges.  The stringent lending policies, rising living costs and oversupply, alongside restrictions on foreign buyers will continue to weigh on buying sentiment, and thus property demand. 

Apart from new launches, 2017 will see the completion of many housing projects launched in recent years. While a good portion may have been sold when they were initially launched, speculative buyers may find it difficult to sell these housing units at a profit now that the marked has softened. To make matters worse, speculators who bought during the Developer Interest Bearing Scheme DIBS era find that they are unable to sell the residence when it is completed and may dispose of their properties below market value if they are unable to pay their mortgages, adding more pressure to the weak market. (During the property boom, developers introduced the Developer Interest Bearing Scheme (DIBS) which allows buyers to place a deposit and avoid interest payments until project completion. This was banned in Budget 2014.)

With prices trending down, speculators are likely to stay away from the market in 2017. The lower prices present an opportunity for genuine buyers and long-term investors.  Rents of prime high-rise residential property will continue to slide further as we expect a large number of units to be completed in the next two years. Due to retrenchments in the oil & gas industry as well as the financial industry, landlords are competing for a smaller pool of tenants. Landlords will, therefore, likely be under pressure to lower their rents in order to retain tenants.

The retail sector is likely to remain stable. While consumer sentiment and spending in the first half of 2017 has been relatively subdued, we hope to see higher domestic demand in the second half of 2017, driven by an expected improvement in household incomes and employment due to the gradual economic recovery following better commodity prices. Prime malls that are tourist destinations and are strategically located either in the City Centre or affluent Suburban submarkets will continue to outperform secondary malls. Rental and capital values in prime malls in both submarkets should experience growth on the back of limited supply.

The increase in the cost of living due to withdrawal of subsidies and higher imported consumption goods will be detrimental, especially to secondary suburban retail space that serves the lower to middle income socio-economic catchment. Large incoming supply in the suburban market will exert downward pressure on rents in secondary malls. In contrast, prime malls such as Pavilion and Mid Valley will be better positioned than secondary malls.

2017 will see an additional 6,600,000 sq ft of prime retail space come on stream with more than 75% of it located in the Suburban submarket. In comparison, 2016 saw a net increase of about half this amount (3,600,000 sq ft) of prime retail space. The large incoming supply is expected to impact the vacancy rate negatively, with the rate rising from 8% to 9% in 2016 to 11% to 12% at end-2017.

In the office sector, demand is expected to remain subdued, especially in the KL CBD as the economy continues to be impacted by both domestic and foreign headwinds. Due to the weak oil prices, some oil and gas related companies which traditionally are located in CBD, have been downsizing and may not renew their leases, particularly in KL CBD. In terms of rental, average rents may decline further in the CBD as some landlords expected to lower their rents while others may offer a more attractive package like longer rent-free period.

Overall vacancy rate is expected to rise in 2017 as new supply in the KL Fringe (about 4.49mil sq ft) enters the market during a time when the country experiences a slower economic growth. The bright spot comes from the rapid expansion of technology, pharmaceutical and business services sector. Leasing demand has been and will continue to be driven by companies from these service industries.

In the industrial sector we expect growth momentum to be sustained in 2017, mainly driven by the logistic, electrical & electronic and medical devices sectors. The continued expansion in e-commerce has resulted in high demand for warehousing facilities. We understand that Chinese e-commerce giants, Alibaba Group, are in talks with the Halal Industry Development Corporation (HDC) to form a joint venture to enter the international halal market. It was also reported that Lazada, after being bought over by the Alibaba Group, is also looking to expand its facilities on a regional scale in the second half of 2017 with Malaysia mooted as one of the possible destinations for the expansion. We expect the demand for more industrial space to come from existing players, particularly the electrical & electronic and medical devices sectors, looking for expansion.  

We anticipate some of the industrial hotspots for 2017 to include Batu Kawan and Kulim Hi-Tech Park in Penang, Enstek TechPark and Sendayan TechValley, south of Greater Kuala Lumpur. We contribute this to the lack of sizeable industrial land in the main industrial areas such as Bayan Lepas Free Trade Zone (FTZ) and Greater Kuala Lumpur, in general, resulting in a high demand for these alternative locations. Industrial developments offering gated and guarded industrial parks in Johor have attracted attention, where they have benefited from the spill over demand especially from Singapore. 

Lastly, the Malaysia-China Kuantan Industrial Park (MCKIP), in the East Coast targets mainly energy-saving and environment-friendly technologies, alternative and renewable energies, high-end equipment manufacturing and the manufacture of advanced materials. The Park is strategically located on the direct route between Malaysia and ports in China’s eastern region. Kuantan Port is being upgraded into a deep water port. Being the first industrial park in Malaysia to be jointly developed by both Malaysia and China, we anticipate it to draw more investments from China’s manufacturers.

Where would your next purchase be?

Due to budget restrictions, most individual investors would buy a prime residential unit but based on the sector outlook, it would seem that office, retail or industrial are able to provide higher yields.

In fact, well-managed prime industrial units can offer one of the highest gross yields at the moment of up to 6-7% given the lack of new supply in this sector. Not many of these investments are available but they are well worth the find.

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