Protecting margins is one of challenges
ONE of the fundamental steps to advancing development in the property market is giving low- and middle-income people a place to live. A place they can own, that is safe and secure. But is it possible to provide homes that are not only affordable and of high quality but also financially sustainable to the developers?
CBRE | WTW managing director Foo Gee Jen said for a developer, the hardest thing to do is to construct and price houses at a range affordable to the home-seeking population segment while at the same time getting a profit return to commensurate with the capital investment and risks involved.
Developers are grappling with ways to offer affordable houses priced RM300,000 and below to resolve the housing woes, especially among the Bottom 40 per cent (B40) of the population, while protecting their profit margins.
Affordable housing is only profitable in scale. Developers must draw a plan to build the project quickly and efficiently, and ensure there is financing for the buyers, usually first-timers, so that the houses are sold.
Foo said developers have adopted a more cautious approach since 2016 and the sentiment would continue until they are certain that the property market has bottomed out.
“Developers will also be more conservative in luxury developments in the near future. While the selling prices of houses may not be reduced across the board, buyers could expect more promotional packages,” he told NST Property.
Meanwhile, Foo is anticipating some recovery in the overall property market this year.
“While demand for residential units is likely to be soft and selective, ‘the right product selling at the right price’ (notion) could still be wellreceived,” he said.
Foo expects the industrial and hotel/tourism segments to do better as these are significantly driven by foreign investments and expenditure.
He said the industrial sector would continue to be in the spotlight with diversification or new stream of demand for industrial properties, such as logistics, warehouses and data centre.
“Foreign direct investment into the manufacturing sector has persisted which will sustain
Developers will be more conservative in luxury developments in the near future.
FOO GEE JEN, CBRE | WTW managing director
the existing demand at the least, if not expand. The fact that majority of significant deals in 2018 involved industrial properties underlines the market interest and confidence on this sector.”
The prospects for other property segments (residential and retail) are largely determined by the health of economy and the spending power of Malaysian households, said Foo.
“Infrastructure is a significant factor in dictating property developments. The new government has since scrapped or put on hold a few major infrastructure projects... this will incur uncertainty on the planning decisions of developers as well.”
On whether more developers would diversify into other businesses to support their bottom lines, Foo said as a general observation, more companies from other industries venture into property development instead of developers diversifying.
“Investments in other industries are more capital-intensive and with a longer payback period, which discourages most developers from diversifying, except for the large and better-established ones with ample cash reserves. We do not expect more developers to diversify, but rather they would scale down development activities until the market picks up,” added Foo.