Key Economic Indicator
Penang’s Gross Regional Product (GRP) was mainly contributed by the manufacturing and services sectors. Manufacturing accounted for 50% of the GRP shares while 46% was from the services sector. Manufacturing’s main sub-sectors include electrical and electronic while services include hospitality, medical tourism and outsourcing of support services. The services sector is expected to surpass the manufacturing sector soon and is projected to grow by 48.6% in 2015. Unemployment rate remained stable at less than 3%. Penang’s population stands at 1,638,400 as at 2013 and two thirds of Penang’s population is less than 40 years old.
Impact of Goods & Services Tax (GST)
Goods & Services Tax (GST) under the Budget 2014 which replaced Sales Tax Act 1972 was implemented on 1st April 2015. The sale, purchase and rental of residential properties will not attract GST. However, any sale, purchase and rental of commercial & industrial properties will be taxed at 6%. Under the GST tax regime, consumers have been paying more for food, products and services. In view of the overall cost increase in property development, most analysts are of the opinion that this will have an eventual impact on property prices in the primary market. Commercial properties which attract GST are now beginning to feel the brunt of its effect.
Effective from January 2015, the new reference rate is known as Base Rate (BR). The latest BR as at Jan 2015 is between 2.96% to 4.02% while effective lending rate hovers between 4.45% to 4.8%.
The percentage of non-performing loans (NPLs) reflects the health of the banking system. A higher percent of such loans means that the banks are having difficulty to collect their interest and principal on their credits. The total housing loan approved this year was RM1.937 million as at May 2015 compared to RM1.723 million during the same period in 2014, an increase of about RM214 million.
Graph 2 shows a decline in NPL ratio. As at Q4 2014, the ratio recorded at 1.6%.
Malaysia’s Household Debts
As at Q4 2014, Malaysia’s rising household debt recorded at 87.9% compared to 65.9% during the same period in 2007.
PENANG’S PROPERTY DEVELOPMENTS AT A GLANCE
On June 19, there was a dual signing ceremony between Aspen Vision City Sdn Bhd and Columbia Asia Sdn Bhd for “A Preferred Choice for Affordable and Effective Healthcare Services” and Aspen Vision City Sdn Bhd and OCBC Bank (M) Berhad for “Projects Financing Facilities”.
Aspen Vision City is a mega-scale joint-venture development between Aspen Group and Ikano Pte.Ltd, a global giant home furnishing and shopping centre known as IKEA. A long term master plan at Batu Kawan has been designed which will comprise a collection of shop offices, residential condominiums, retail and serviced suites, hotels, office tower, financial hub, medical centre, healthcare facilities, international school, shopping mall as well as a Central Island Park.
- Eco World has launched its maiden project, Eco Terraces. The RM340 million Eco Terraces will be developed on a 13 acres landscaped ground at Paya Terubong. The master plan will comprise a 47-storey condominium, 47 units of 3-storey terrace and 12 units of semi-detached houses.
- Tamarinds Group is developing a 29-storey luxury high-rise condominium at Tanjung Tokong, Penang. It is an exclusive 22-residential units with sizes from 5,000 to 9,000 sq. ft.
- Summit 191 is an upcoming high-rise development by M Summit Group located at Jalan Magazine, just next to the new St. Giles Wembley Hotel. The development will comprise 23-storey commercial suites and restoration of 5 units of 2-storey heritage shophouses.
- Perennial Real Estate Holdings Ltd. and IJM Land will jointly develop a 1.4 million sq ft waterfront site in Gelugor along Penang’s eastern coastline. There will be a shopping mall, thematic shops, residential towers, an office tower, two hotels with more than 750 rooms, as well as a convention centre.
The site is described as “Penang’s first mega integrated waterfront icon with retail, entertainment, recreational, residential, business, hospitality and Meetings, Incentives, Conventions and Exhibitions”.
- Sunway Berhad is planning to develop a RM450 million high-rise residential property and a RM1.05 billion shopping mall on 9.82 hectares of land in Paya Terubong. The mall will have a gross floor area of 1.4 million sq ft and will be tenant-controlled.
- Titijaya Group will launch its mixed development project soon in Batu Maung. This is the Group’s first acquisition and development outside Klang Valley with an estimated GDV of RM2.6 billion.
This 20.3 acres of land is located next to the second Penang Bridge and consists of 4 blocks of residential condominiums, 4 blocks of serviced suites, 1 block of 5-storey shop offices and 92 units of multi-level shop offices. The project is expected to be completed by 2023.
- BSG is planning to build a mixed-development project on a quarry land in Bukit Gambier/Minden Heights. The development will comprise a 37-storey condominium with 487 units and 22 shop offices.
- YTL Land and Development had recently fully sold its project “The Shorefront” before launch. The RM310 million project is a freehold 3-acre development comprising 115 units of condominiums across three 5-storey blocks. The project is located adjacent to (E&O) Hotel.
They were sold from RM1,300 to RM2,100 per sq ft with floor areas from 1,400 to 3,400 sq. ft. and expected to be completed in 2017.
- On 20 July 2015, Affin Hwang Capital Research has listed Gamuda, IJM Corp and Eastern & Oriental (E&O) as its top buys for infrastructure and property exposure to Penang.
Penang is forging ahead with development through public-private partnership (PPP) projects. The RM 27 billion Penang Transport Master Plan (PTMP) is the largest PPP project and these companies are the potential beneficiaries of PTMP.
The first LRT project, part of PTMP in Penang will start construction next year with a 17.5km elevated stretch linking Komtar to Penang International Airport. This RM4.5 billion project will help ease the traffic woes in Penang. The LRT line will be supported by revamped bus system and trams which is targeted to be completed between 5 to 6 years.
The 6.5km road tunnel will run from Gurney Drive to Bagan Ajam in Butterworth. The expressway includes:
- 4.2km bypass from Persiaran Gurney to
- Persiaran Tun Dr Lim Chong Eu;
- 4.6km bypass from Persiaran Tun Dr Lim
- Chong Eu to Bandar Baru Air Itam; and
- 4-lane 12km road linking Tanjung Bungah to
- Teluk Bahang.
Penang Property Market
Penang property prices have been on an upward trend since recovering from the dip in 2009 with a 2% increase from 2013 to 2014 with total value of transaction recorded at RM13.49 million and RM13.77 million respectively. The period of Q1 2015 saw a slight drop, at RM3.578 million compared to RM3.776 million in Q1 2014.
The total volume of transactions increased slightly with 24,346 units of transactions recorded in 2013 compared to 25,555 units in 2014. Q1 2015 registered lower volume at 5,637 units compared to 6,416 units on the same corresponding period last year.
The residential sector remains the most active at 68% of the total volume of property transactions as at Q1 2015.
The shift in investment from residential saw transaction volume for commercial sector recorded at 8% in 2014, an increase from 9% compared to last year while the development land sector remained the same at 7% for both years.
2014 saw an increase in total value for the residential sector from 53% in 2013 to 55% while the development sector saw a drop from 23% in 2013 to 20% in 2014. The total value for the commercial sector remained the same at 13% for both years.
Penang Residential Market
The year 2014 registered a slight increase of 1,026 units with a total volume of 247,251 units compared to 246,225 units in 2013. The total value as at 2014 also increased to RM82.059 million from RM72.060 million in 2013.
There is a total supply of 206,000 units on Penang Island of which 80% are strata-titled while 20% comes from landed property.
In terms of supply, on Penang Island, 62% of the properties are less than RM250,000 while properties above RM1 million is only 8%.
Penang Affordable Housing Scheme is initiated by Penang State Government in its effort to provide quality housing at affordable prices to Penangites.
There will be 34,608 units of affordable homes available in the next 3 to 4 years. About 15% of these units range from RM200,000 to RM300,000 while the remaining are priced from RM300,000 to RM400,000.
The affordable homes are targeted at first-time-home-buyers. To be eligible, the following must be fulfilled:
- A Malaysian Citizen;
- A registered voter in Penang and met one of the following criteria:
- Penang-born working in Penang; and
- ii) residing in Penang for at least 5 years from the date of application.
- Aged 21 and above as at the date of application;
- Total household income (husband and wife) not exceeding RM10,000 per month (Table 1);
- Bachelor degree or diploma holder with minimum of 2 years working experience (talented & skilled category);
Affordable Housing Applications
- The applicant and spouse must not own any property in any state in Malaysia except Low-Cost homes.
- For Low Cost/Low Medium Cost applications, the applicant and spouse must not own any property in any state in Malaysia.
- For talented and skilled category, the applicant will also have to undertake to be in Penang for a minimum of 5 years from the date of handover of keys of the said affordable housing unit.
Some of the affordable housing projects
Tanjung Bungah, Penang
Developer : Ideal Group
2,155 units (From RM400,000)
Tanjung Tokong, Penang
Developer : Aspen Group
852 units (RM299,000 to RM400,000)
389 units (RM72,500)
Bandar Cassia, Batu Kawan
Developer : Penang Development Corporation
8,428units (RM162,000 to RM200,000)
3,372 units (RM72,500)
Bayan Lepas, Penang
Developer : Ideal Property Group
1,342 units (From RM300,000)
Tanjung Bungah, Penang
Developer : BSG
980 units (From RM400,000)
Teluk Kumbar, Penang
Developer : M Summit Group
759 units (RM198,000 to RM398,000)
Penang Office Market
There is a total supply of office space of about 883,536 sq. metres in the State of Penang of which 731,009 sq. metres is on Penang Island and 152,527 sq. metres is in Seberang Perai.
On Penang Island, George Town has the largest supply of office space with a total of 594,487 sq. metres while the remaining are in the South West District.
Penang Hospitality Market
The tourism industry is one of the major catalysts of economic growth. Over the years, the state has tremendously drawn a high number of visitors both nationally and globally, particularly after the inscription of George Town as the Unesco World Heritage Site on the 7th July 2008.
The international and domestic arrivals of tourists at Penang International Airport saw an increase of 10.1% in 2014 compared with 2013 with international arrivals registered at 2.571 million in 2014 and 2.425 million in 2013 while domestic arrivals in Penang also increased to 3.465 million in 2014 from 3.061 million in 2013.
Malaysia is currently ranked among the world’s top health tourism destinations thanks to its affordable, high quality medical treatment, with over 60% of health tourists making Penang their preferred destination. The rise of health tourists in the recent years has contributed strong revenue for Penang’s health tourism sector. For health tourism alone, Penang generated RM370 million and RM320 million in revenue in 2013 and in 2012, respectively. Malaysia is targeting to reach RM9.6 billion in revenue from medical tourism by 2020.
Malaysia’s international business tourism visitors have increased by an estimated 140% since 2003. Malaysia Convention and Exhibition Bureau (MyCEB) is targeting a growth of tourist arrivals.
In line with MyCEB’s goal, Penang will have two Meetings, Incentives, Conventions & Exhibition (MICE) centres once the Subterranean Penang International Convention and Exhibition Centre (SPICE) completes in 2015 and the Penang Waterfront Convention Centre (PWCC) in 2017.
Both will drive up demand for hotel rooms in Penang as the number of visitors is expected to increase. As to date, there is a shortage of hotel rooms.
There are only 14,000 rooms as of last year. Owing to the high flow of domestic and international tourists to Penang Island, it needs to have ample supply of hotels to cope with the increasing tourism growth.
There are eight hotel developments located on Penang Island that are either under construction or yet to be officially opened for operation. Upon completion, these hotel developments will contribute 1,598 rooms of different types, rates, sizes and designs with different themes.
Brief details of the future hotel supply on Penang Island are tabulated in Table 2.
Generally, hotels on Penang Island recorded average occupancy rates between 55% and 65% over the last 5 years. In terms of occupancy rate by type, city hotels found to achieve the most outstanding performance with an average occupancy rate of about 70% over the last 5 years. One of the main reasons that contributed to the success of city hotels is due to the inscription of George Town City as the Unesco’s prestigious World Cultural Heritage Site on 7th July 2008.
For beach hotels, it recorded an average occupancy rate of 63% over the last 5 years. Demand for beach hotels increased continuously from 2009 to September 2013, recording at 58%, 59%, 63%, 65% and 68% respectively. The statistics shown in Chart 7 is up to the month of July which is a relatively low-season period and industry analysts expect 2014 to surpass that of 2013.
Penang Industrial Market
There is an existing supply of 1,483 industrial units with 635 units in the North-East District and 848 at the South-West District of Penang Island. Out of 1,483 units, 1,039 units are landed industrial while 444 units are stratified.
Currently, there are more than 300 multinational companies which have chosen Penang as a location of choice to set up their manufacturing facilities.
According to Invest Penang, there will be some RM5 billion worth of investments from China involving electronic-based manufacturing activities this year and 2,000 jobs will be created from these investments.
Penang International Technology Park and Business Process Outsourcing (BPO) projects in Batu Kawan and Bayan Baru respectively, would be jointly developed with Temasek Holdings and Economic Development Innovations Singapore and due for completion in 5 to 10 years.
The projects have a gross development value of RM11.3bil and will generate 25,000 to 30,000 jobs in the future. Penang had the most approved manufacturing projects in Malaysia after Johor and Sarawak. This trend will remain in 2015. A number of foreign direct investment (FDI) projects are expected to begin or be completed in 2015.
Hewlett-Packard has also chosen Penang as the location to set up its new RM1 billion manufacturing facility which will produce high-speed inkjet printer heads for global market. It is expected that Penang will remain as one of the major Malaysian receivers of FDI in the first half of 2015 as it did in 2014.
Meanwhile, Fairchild Semiconductor International Inc., known as National Semiconductor when it first came to Malaysia in 1972, is selling its manufacturing facility in the Free Trade Zone in Bayan Lepas as part of its worldwide realignment exercise and will cease operation by end of 2015.
The services sector is predicted to gradually overtake the manufacturing sector, in line with the state’s plan to converge manufacturing and services industries through the shared services and outsourcing sector.
Pre-war Heritage Property Market
George Town’s status as the Unesco World Heritage Site in 2008 is a prestigious award as a historic enclave worthy of recognition and preservation. The World Heritage List includes 962 properties forming part of the cultural and natural heritage which the World Heritage Committee considers as having Outstanding Universal Value.
George Town has 4,665 units of buildings within 259.42 hectares which is further divided into core and buffer zone. Prior to investing in pre-war heritage properties, the following are the usual factors that an investor will take into consideration:
- Architectural style and historical value
- Social value
- Historical ambience
- Potential for business
The transaction for pre-war heritage properties started to pick up since 1999. 2014 saw a slight drop of transactions to 165 units compared to 186 units in 2013. Q1 2015 registered total transactions of 55 units.
2015 saw a huge jump in price appreciation from RM1,800 in 2014 to RM2,300 per sq ft. This is mainly attributed by the limited and rare supply of pre-war heritage properties in George Town.
What is the outlook for Penang’s Real Estate Market in H2 2015?
- Penang has a charm of “outstanding universal value” that showcases George Town’s unique historical and architectural buildings.
- George Town, under George Town Transformation Programme, would be transformed from a moderately functioning urban centre into a model 21st century “secondary” city.
- Desirable property is limited in supply.
- Demand from local & international buyers is expected to consolidate.
- Challenging market amidst global economic uncertainties.
- Volume of transactions is expected to decline.
- No dip in property prices yet – high land & construction costs, reduction in new launches & introduction of GST.
- Property prices are currently stable.
- Slower but still positive credit growth underpinned by strong domestic liquidity and continuing credit flows as banks remain healthy although sales take-up rates are occasionally affected by end-financing issues.
DISCLAIMER: The data above represents the findings of Henry Butcher Malaysia (Penang) and is not in any form and endorsement or recommendation by iProperty.com. Readers are encouraged to seek independent advice prior to making any investments.
This article first appeared in iProperty.com Magazine November 2015 issue. Get your copy now at your nearest bookshops and newstands, or download the magazine for free at www.iproperty.com.my/magazine.