Sabah: Growing interest in property

The property market is expecting increased sales this year, as a combination of rising private investment and the growing palm oil industry aid expansion in Sabah’s real estate sector. However, industry players say bank regulations introduced in 2011 are slowing some buying activities.

Transactions recorded by the Sabah Housing and Real Estate Developers Association (Shareda) grew by 20% to more than 1500 properties in 2011. However, Shareda expects developers to do even better this year, as the introduction of more environmentally friendly homes should spur greater interest.

Shareda has targeted an upcoming property exhibition, PropEX 2012, which will be held August 30 to September 2 at Sabah Trade Centre in Kota Kinabalu, as a major sales opportunity. “In 2011 we sold a record $158.02m worth of properties and we hope to maintain that figure this year or do even better,” said Susan Wong Siew Guen, the president of Shareda, while speaking with local media in mid-July.

However, Shareda has also said that the sector’s growth could be boosted further if Bank Negara Malaysia (BNM), the central bank, were to rethink rules on housing loans introduced in late 2011.

The use of net income instead of gross income as a guideline to approve loan amounts has resulted in the slowing down of property buying activity, Wong said at a seminar in March. “We must be ready to capture the opportunity to sell our properties internationally,” Wong said.

In response, BNM officials have said that strict housing loan requirements, which include a maximum loan-to-value ratio of 70% for third housing loans, are needed to ensure individuals do not borrow beyond their means.

The BNM’s regulations came in at a time of overall growth in sales figures for the state. While the number of transactions fell 3.3% in 2011, according to an Edge/Rahim & Company Kota Kinabalu Housing Property Monitor report for the first quarter of 2012, their total value increased 3.7% to $407.69m, with prices also steadily rising across various segments.

Prices of two-storey terraced houses on the secondary market rose an average of 4% in the first quarter of 2012, while at least three residential development schemes – Millennium Heights, Taman Sri Borneo and Ujana Kingfisher – registered an increase of more than 15% year-on-year (y-o-y), the report said.

Observers say the robust sales figures and rising prices are a spill over effect from an injection of foreign investment for development initiatives and the popularity of emerging housing trends, such as gated communities and holiday condominiums. In addition, cumulative investments of some $33.82bn in the Sabah Development Corridor (SDC) as of April 2012 represents a y-o-y increase of $13.91bn for the three-phase plan to attract private sector interest, empower rural participation and enhance agriculture.

“We foresee the influx of foreign specialists and workforces to expand the demand base for better-quality accommodation in both landed, as well as strata-type residential developments,” Max Sylver Syntia, the assistant manager of Rahim & Company Sabah, an international property consultant, said in June.

According to Christopher Boyd, the executive chairman of CBRE Malaysia, an international real estate firm, Sabah is an excellent location for property investment in Malaysia at the moment. “There is a lot of blue sky potential, very strong demographics, a young population, high employment, and the prices are still relatively low,” said Boyd.

The state’s burgeoning palm oil industry is also contributing to real estate’s growth. Land is being snapped up in the Palm Oil Industrial Cluster (POIC), a new integrated industrial centre being built on 1138 ha of land that will centralise palm oil production. The state is home to 65% of the country’s oil and gas reserves and more than 35% of the planted oil palm acreage, with the latter responsible for $5.29bn in exports for the first nine months of 2011.

Among the developers is Pengah Property, a subsidiary of Kuala Lumpur-based RENG Corporation, which has bought land to build terraced and semi-detached industrial buildings, priced between $189,621 and $316,036 in the POIC. Sabah-based Bristeel Properties is also developing 196 units of shop office lots and 26 units of warehouses.

While the BNM’s measures to cool the property market should indeed improve the country’s credit stability, if growth in Sabah’s market starts to outpace national growth, relaxed regulations could avoid dampening investor interest.