This article first appeared in City & Country, The Edge Malaysia Weekly on January 30, 2023 - February 5, 2023

In 2021, the volume of overall property transactions in Malaysia registered a marginal increase of 1.5% year on year (y-o-y) to reach 300,497 units while the value of transactions rebounded by 21.7% to record RM144.9 billion, according to statistics compiled by the Valuation and Property Services Department of the Ministry of Finance (JPPH).

The property market picked up further in the first nine months of 2022 with an increase of 45.8% y-o-y in overall transaction volume to 293,206 units while value was up by 33.6% to RM131 billion.

Henry Butcher Malaysia, however, notes that global economic concerns such as the Russia-Ukraine conflict, which caused supply chain disruptions, could disrupt the solid curves. 

Henry Butcher Malaysia chief operating officer Tang Chee Meng says: “Economists have predicted that there would be a strong likelihood of a global recession happening in 2023. If this materialises, there will be a negative impact on Malaysia, whose economy is heavily dependent on international trade. In turn, if the country’s economic growth slows down, there will be less optimism among investors and consumers, and this could affect the recovery of the property market.”

In its recently released annual property market report titled “HB Perspective. Malaysia Property Outlook 2023”, however, Henry Butcher Malaysia is confident of the country’s strong economic fundamentals.

“Our economists believe that even if there is a global recession, Malaysia, although recording slower economic growth [in the last two years, owing to the pandemic], is likely to be able to steer clear of a recession. The outstanding trade performance and increase in FDI (foreign direct investment) inflows into the country over the past years will help cushion the country against any global economic meltdown,” Tang notes.

Tang believes the residential property segment, the industry’s engine over the past decades, should continue its recovery in 2023, but its momentum is likely to taper off, owing to the strong economic headwinds that the country is likely to face in the coming year. They include the rising overnight policy rate, increase in construction costs and labour shortage.

Henry Butcher Malaysia in its report says, “The residential property market is expected to face some headwinds and challenging conditions in 2023 and will probably register a slight slowdown in its pace of growth, but it is not likely to reverse gears along its recovery path.”

The Klang Valley, the top-performing residential property market in the country, is expected to continue its growth momentum but possibly at a slower pace, depending on how well the newly minted government is able to shield the economy from the shocks of the potential global recession in 2023.

The property consultant foresees that landed homes, affordably priced homes around and under RM500,000, as well as niche high-end projects in good locations, will continue to be well received in the Klang Valley.

“Millennials will form a significant segment of the population in the coming years [in the Klang Valley residential property market] and this will have a major influence on property developers’ focus in terms of the property type and price segments in the housing market. It is likely that they will be inclined towards the affordable/starter homes segment,” Henry Butcher Malaysia says.

Penang is another important state in the property industry. Its residential property market is anticipated to improve despite domestic pressures such as rising interest rates and inflationary pressures, which are here to stay in 2023.

“Regardless of the economic temperaments, however, Penang owes its success as an ideal location for property and business investments to the state’s political stability. The calm political environment is conducive for businesses to do well and with the unity government led by Penang’s own homegrown Prime Minister Datuk Seri Anwar Ibrahim, it is a point of pride for the state, which may lend credence to Penang’s proposals for projects submitted to the federal level for approvals.

“Further, if this government can hold itself together without any disruptions to last a full term, it will help grow the property market, as market confidence and positive sentiment will gradually return to the industry ... Penang has always been an ideal location for living, investment, tourism and leisure, medical, education and retirement, and these are generally closely related to the property market, with multiplier effects to boot. With a host of factors and bright spots supporting the state, Penang’s property market is anticipated to improve further in 2023,” Henry Butcher Malaysia says.

Johor, which has seen a pickup in mega infrastructure projects in the past year, is expected to see positive growth in its residential property segment, thanks to the reopening of international borders in 2022.

“Johor’s property market as a whole is expected to remain positively stable, with a slow recovery in some sectors in 2023. The residential and commercial [segments] are expected to be stable in 2023. Johor has the highest number of overhang properties in Malaysia, with high-rise residential contributing to the oversupply, especially in Iskandar Puteri, which was built with overseas buyers in mind. Overpricing is the main factor [for the high overhang],” Henry Butcher Malaysia points out.

The firm believes that overpricing of property is the main factor hindering a smoother-than-usual take-up rate. For example, because the initial target audience of projects in Iskandar Puteri was foreign buyers, many projects were above RM500,000. Unfortunately, the pricing strategy has not worked as effectively as hoped, especially in a weakened market.

Henry Butcher Malaysia says: “At this stage, the issue of overhang in Johor may require further scrutiny and assistance from the government. Perhaps a revision of policies or an extension of incentives such as stamp duty waivers for buyers and developers may be what is needed to offload the numbers in a meaningful way. With a proper and efficient strategy in place, it will go a long way towards managing the excess supply. Without one, the overhang numbers may continue to stand out like a sore thumb as [the industry] anticipates another rise in numbers in 2023.”

Henry Butcher Malaysia foresees that the retail and hospitality segments will continue to improve at a slower rate in 2023. “The retail and hospitality property segments have seen a vast improvement since their darkest days at the height of the pandemic in 2020 and early 2021, and they should continue to sail smoothly into the new year, albeit at a slower speed.”

According to the report, the retail sector recorded a strong recovery in 2022 as retail sales achieved double-digit growth, with the highest expansion recorded in 3Q2022. This performance was achieved on the back of a low base, owing to the poor performance recorded during the pandemic of the past two years.

“Retail Group Malaysia estimated the growth rate for 4Q2022 to be 6%. This forecast took into consideration the low base of 26.5% a year ago and the current challenges facing the retail industry. Retailers in Malaysia were hopeful that the retail industry would continue to recover at the end of 2022, owing to Christmas and Chinese New Year (end-January 2023). RGM also estimates the growth rate for the full year of 2022 to be 41.6%, which is unprecedented and unlikely to happen again unless another forced closure of retail shops occurs,” Henry Butcher Malaysia says.

The firm also reckons that the biggest challenges faced by the retail industry currently are the substantial rise in the prices of goods and services, shortage of staff, increased supply of retail floor space, the impending completion of new malls, especially in the Klang Valley, and the possibility of a global economic slowdown, which will hurt the country’s economy and lead to consumers turning cautious in their spending.

“The lifting of travel restrictions after China relaxed its zero-Covid policy is good news, however, as it could result in an increase of tourist arrivals to the country, which, in turn, could lead to more footfall and sales recorded by malls in the main cities visited by the Chinese tourists,” the firm notes. 

“Overall, the retail sector should continue to see an improvement in 2023, but the pace of growth could be affected by the global recession, which hinges on its severity and duration, and whether it will happen as predicted by some economists.”

Meanwhile, data from the Ministry of Tourism, Arts and Culture showed that the average occupancy rates of hotels in Malaysia in 1H2022 had improved to 43.6% from 23.2% in the same period in 2021. All states recorded an increase in average occupancy rates except for Sarawak, while the east coast states of Pahang, Terengganu and Kelantan recorded the highest occupancy rates.

The improved occupancy rates can be attributed partly to the efforts of the government to promote domestic travel and the preference of Malaysians to holiday in the country rather than abroad, especially in the early part of the year when travel restrictions and more stringent SOPs were still in place in Malaysia and in other countries.

While the hospitality property segment is expected to continue to grow in 2023, Henry Butcher Malaysia points out some factors to look out for in the hospitality segment, including the possibility of a global recession, which could lead to travel plans being shelved, as well as the shortage of labour that will hamper the industry’s recovery and growth.

“A sizeable number of new hotels are being built, especially in the Klang Valley and, when completed over the next few years, will add significantly to the supply of hotel rooms. There is, therefore, a need for the government to take concerted and proactive steps to promote the country and increase inbound international tourists into the country,” the firm says.

As the star of the property market, the industrial property segment is expected to continue its current growth momentum, although the prospects of a global recession in 2023, as well as the increase in the number of developers embarking on industrial property projects over the past three years, leading to an increase in supply, are among the factors that may slow down the growth of the sector.

However, the increase in FDI, especially in the manufacturing industry, is expected to translate into an increase in demand for industrial space or properties.

In the first nine months of 2022, FDIs remained the major contributor to the total approved investments in Malaysia, with a share of 67.5% valued at RM130.7 billion, which Henry Butcher Malaysia believes should eventually translate into stronger demand for industrial space.

“On the ground, industrial property transactions in Malaysia have registered a sharp increase of 57.5% y-o-y in volume of transactions to 6,044 units and 34.9% in the value of transactions to RM15.2 billion in the first nine months of 2022. Industrial activities are still ongoing and a number of major industrial property transactions have been noted in the course of the past two years,” the firm says.

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