Breather for property market

AS the adverse impact of the global financial crisis widens to the other economic sectors such as trading, manufacturing, retail and services, many expect the residential and commercial property sector to also take a hit.

This is because when businesses are affected by the crisis and turn in poorer than expected financial results, there is the risk of downsizing and slower output. Some of the affected companies will take the opportunity to scale down their manpower or relocate to lower-cost countries. Already, some multinational corporations in Penang have announced plans to downsize their staff strength due to the poor demand outlook over the next one to two years.

The flagging consumer confidence and worries over job security will severely affect demand for durable goods, especially big-ticket items, including property and cars. The phrase “cash is king” is becoming more widely heard as consumers hold back unnecessary spending and save for rainy days ahead. Meanwhile, rentals of commercial property including office, retail and industrial space will also come under downward pressure should the occupancy of these property be affected by the downsizing of businesses in the coming months.

However, we can take comfort in the fact that the current market downturn will not fall into a crash mode like the 1998 Asian financial crisis. The fundamentals of the country’s financial system and the economy are stronger now and the current downturn should be more moderate, pending any further surprises in the external front.

The gloomy market sentiment is expected to prolong over the next two to three quarters at least and developers have reduced their launches significantly to minimise the risk of having to go ahead with building projects despite a low take-up rate, or to drop prices. This is a smart move on the developers’ part to avoid unneccesary holding cost and the need to lower profit margins should prices of their property need to be lowered.

However, developers with good projects in the right locations and the financial means to support construction costs should consider completing their projects before offering them for sale. This will be in line with the Housing and Local Government Ministry’s policy of promoting the build-and-sell strategy among developers to avoid the risk of abandoned projects. The See Hoy Chan group had used this method of development in its Bandar Utama project with great success.

Nevertheless, the risks of slow sales and poor take-up are real under current conditions and it is not surprising to hear developers deferring launches. Last week, news reports highlighted a few deferments in Penang. Hunza Properties Bhd deferred its RM400mil Gurney Paragon Mall which was earlier scheduled to start in September, while Eastern & Oriental will delay the launch of the first phase of the Seri Tanjung Pinang condominiums with gross development value of RM1bil. These condominiums were scheduled for launch in the current financial year ending March 31, 2009, but have now been pushed to the third quarter of next year. With lower launches, developers are currently concentrating on selling existing unsold stocks as well as executing ongoing projects to realise the huge unbilled sales locked-in prior to the economic downturn.

In a way, the current slowdown is a “breather” for the property market to build on a more comfortable pace and avoid a potential overheated and overbuilt situation. Developers should use this time to focus on product development and market research to put together better quality products for customers when a recovery sets in.

As for property buyers, those with surplus cash and the ability to leverage on their investment, should shop around for the right property as it is better to invest in these fixed physical assets than the more volatile equities.Those with a penchant for high-rise apartments can look around the Kuala Lumpur City Centre and Mont’Kiara areas as the prices in the secondary market have come down by 15% to 20% in recent months.

No doubt, there will be good upside potential for local real estate when the market bounces back. - By Angie Ng (The Star)

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