This article was updated on 20th December 2019.
With 10,000 affordable homes in the pipeline, Bandar Malaysia is both a boon and a bane for Kuala Lumpur’s sluggish property sector. We analyse how this mega-development will impact the property market.
Following a cabinet meeting on 19 April 2019, Prime Minister Tun Mahathir Mohamad announced that the Bandar Malaysia project, which was previously shelved, will be revived but with some changes. And just a few days ago, on the 17th of December, TRX City Sdn Bhd has signed a new contract with IWH-CREC Sdn Bhd to develop Bandar Malaysia.
TRX City is a wholly-owned company by the Minister of Finance Inc while IWH-CREC is a joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp (M) Sdn Bhd (CREC).
At 486-acres, Bandar Malaysia is the largest piece of development land in the heart of Kuala Lumpur – it is located at the site of the former Royal Malaysian Air Force base in Jalan Sungai Besi.
This announcement is a welcome piece of news as it gives some clarity to investors on the status of the Kuala Lumpur-Singapore High Speed Rail (HSR) project. Since winning the 14th general election, Prime Minister Mahathir Mohamad had reviewed several mega infrastructure projects including Bandar Malaysia and the HSR. In the face of the country’s mounting debt, both projects were at first announced as cancelled in May 2018.
However, the Malaysian government backtracked on this subsequently. Instead, it announced in June 2018 that the HSR project was “postponed”. After many months of speculation, the market finally received some clarity in September 2018 when representatives from both governments met in Putrajaya.
In a joint statement, both Singapore and Malaysia announced that they had signed an agreement to suspend the project until 31 May 2020. The HSR project is now expected to commence service by 1 January 2031, instead of the original commencement date of 31 December 2026. However, the government is currently mulling the most suitable speed for the train. According to PM Mahathir Mohamad, a slower speed can help bring down the project’s cost and its not necessary for the HSR to travel at 400km/hour.
With Bandar Malaysia now being revived, we list down the possible implications on Kuala Lumpur’s property market:
1. 10,000 new housing units will likely worsen overhang in Kuala Lumpur’s property market
Initially, DBKL had announced that Bandar Malaysia will house around 30,000 affordable homes.
However, a recent announcement puts the figures to 10,000 units.
Kuala Lumpur City Hall (DBKL) had previously indicated that it has set a development guideline for developers to build such homes at around 800 sq ft but priced below MYR450,000.
Meanwhile, Bank Negara Malaysia’s figures showed that 80% of homes, or 146,196 units priced above RM250,000, remained unsold as of end-March 2018.
While Bank Negara did not break down the figures according to each state, recent data provided by the Valuation and Property Services Department (JPPH) in it Property Market 2018 Report showed that Kuala Lumpur recorded the third-highest number of residential overhang at 5,114 units.
So unless the homes are priced below RM250,000, we are likely to see Kuala Lumpur’s housing glut worsen.
Nevertheless, according to iProperty.com.my’s 2019 Portal Demand Analytics, the recent reinstatement of the Bandar Malaysia project contributed towards residential demand growths exceeding 20% in neighbouring areas such as Salak South, Seputeh, Cheras & Taman Desa.
2. Boon for first-time homebuyers
Bandar Malaysia has been cited by DBKL as a case study for government and private developers in building transit-oriented development (TOD).
Bandar Malaysia will house two MRT stations – Bandar Malaysia North and Bandar Malaysia South – which will form part of the alignment for the Sungai Buloh – Serdang – Putrajaya Line (SSP Line).
Bandar Malaysia will also possibly serve as the interchange to the MRT Line 3, which has now been postponed.
If indeed Bandar Malaysia will build affordable homes according to DBKL’s guidelines, then it will be a boon for first-time homebuyers as the entry price in Kuala Lumpur is easily above RM600,000.
It will also mean young Malaysians will no longer have to buy a car first after completing their education and thus improve their chances of getting their home loans approved.
Currently, many young Malaysians are trapped in the debt cycle due to various financial commitments such as their National Higher Education Fund (PTPTN), cars, personal and credit cards loans.
So while demand is strong, loan rejections remain an issue further worsening the cash flow for developers.
READ: How much should the average Malaysian household income be to afford a home in KV?
3. Bane for landlords and sellers
If indeed 10,000 new housing units will be coming on stream, Bandar Malaysia’s surrounding areas such as Pudu, Brickfields, Cheras, Bandar Tun Razak, Sungai Besi and Taman Desa will be badly affected.
As such, landlord and sellers will likely see their asking prices fall even further as consumers will soon have more choices.
Landlords will also find difficulty in doing short-term accommodations as the Malaysian government will be regulating this market segment.
Therefore, rent-seekers and buyers are the clear winners as they are in the position to haggle for the best price.
4. Boost for the construction sector
The construction sector is currently in the doldrums due to the lacklustre property market in Malaysia.
Loan rejections from buyers and the demand-supply mismatch mean developers are faced with unsold inventory leading to cash flow problems with contractors.
In March 2019, for instance, Bursa listed engineering and construction company, Zeland Berhad filed a statement with the Malaysian stock exchange that it was initiating arbitration proceedings against NRY Architects for RM305.4mil and other contract breaches for the construction of buildings of International Islamic University Malaysia in Kuantan.
It also announced that it is claiming RM3.34mil in outstanding payment for construction works from BBCC Development Sdn Bhd located at the former Pudu jail near Hang Tuah monorail station.
With Bandar Malaysia now back on track, contractors will be willing to bid at a much lower price to stay afloat amid the challenging market condition.
Subcontractors will also benefit.
MORE: What is the 18-year property cycle & how will it make you a better investor?
5. Sluggish commercial and office market ahead
The initial projection for Bandar Malaysia stated that it will have a gross development value (GDV) of RM150 billion.
Measuring around 196 hectares, Bandar Malaysia’s master plan indicates that it will be a mixed-use development with commercial and office buildings.
With so many mega malls and office buildings in Kuala Lumpur, Bandar Malaysia will add on to more floor space in Kuala Lumpur’s already weak commercial and office markets.
Despite this, Bandar Malaysia will likely attract multinational companies to set up their operations here as it is located within the Digital Free Trade Zone (DFTZ).
This article was originally published as Bandar Malaysia’s revival: What it will mean for market watchers and investors first published on khaliladis.com