Sarawak’s projects rumble on as federal policies aim to curb real estate speculation

The myriad factors influencing Sarawak's real estate market have resulted in a mixed bag for the sector, with property growth, value and transaction activity all varying widely by region. Historically, the construction industry has been concentrated in population centres such as Kuching, punctuated at times by rapid but tightly focused growth nodes around the boom towns catering to special projects such as Bintulu and Miri.

More recently, towns serving industries that are part of the Sarawak Corridor of Renewable Energy (SCORE) are enjoying a construction boom of their own. Heavy growth areas within SCORE, such as Samalaju and Tanjung Manis, are seeing phenomenal growth, fuelled by billions of dollars in investment and a population spike. All the while, the capital city of Kuching is continuing its steady expansion, due to ongoing urbanisation trends and large-scale property development schemes.

Counteracting these positive trends are a number of mitigating factors – on both the local and national levels – that have muddied the waters for potential buyers and sellers alike. These range from federal policy changes intended to cool speculative activity to local labour shortages, from fluctuations in the prices of building materials due to local shortages to the implementation of a new goods and services tax (GST) in April 2015 and recent fuel price hikes.

KUCHING: Although the industry’s star, Kuching, has lost some of its sparkle with the much-heralded growth of the newer SCORE townships, the capital remains very much the dominant performer in Sarawak's real estate market. “Kuching is still the best spot in Sarawak for developers, although the competitive environment has gotten tougher and tougher,” Liu Than Leong, managing director of Idaman Prima, told OBG. “Developers must improve the qualitative aspect of their productin order to generate added value.” This point has been reaffirmed of late by the continuation of several mega-projects within the administrative centre.

Of these, none is bigger than the development of Kuching Isthmus into the city's new central business district (CBD). This 111-ha project, which first broke ground in 2005, is seeing an ongoing expansion centred around two new prestige pieces – new headquarters for the Sarawak Economic Development Corporation (SEDC) and the Land Custody and Development Authority, projected to cost RM76m ($23.1m) each. The SEDC awarded the contract in August 2013 to CMS Land, a subsidiary of local conglomerate Cahya Mata Sarawak, with a two-year build time. Erected on plots of 1.1 ha and 0.96 ha respectively, each building will have 11 storeys and a floor area of 11,000 sq metres.

The Kuching CBD project, known as “The Isthmus”, also includes commercial, residential and leisure facilities such as the already completed Borneo Convention Centre and Sarawak Energy Building, the Kuching Isthmus Hypermarket Mall, and a luxury hotel. Smaller projects within the development are the new Golden Bridge linking the old and new city, scheduled for completion in 2016, and the redevelopment and 307-metre extension of the Kuching waterfront. In all, the project is expected to cost around RM2.8bn ($851.8m).

DEVELOPMENT: One mixed-use development called City Square is being built by Timber Land Group on 8.1 ha between Icom Square and the Isthmus. This will include 125 units of shophouses, four blocks of serviced apartments ranging from nine to 15 storeys, shopping malls, office blocks and a nine-storey hotel. The initial phase of shops, serviced apartments and commercial space is set for completion in 2015, to be followed by a second phase of 75 units of three- to four-storey shop-houses and a nine-storey, 385-room hotel. The third phase, a 15-storey shopping mall and serviced apartment called Sphere Complex, is to open in 2017.

Another mixed-use project, announced in December 2013 by joint venture partners Bina Puri Holdings and Kuching Hockien Association, will be built on 4.2 ha at Jalan Tun Haji Openg and cost RM300m ($91.3m). The site will be developed in stages, starting with small retail shops and apartments before moving into office blocks, commercial space, a hotel and other structures.

Although the current investment surge has brought increasing prosperity to the state, the rapid growth and resulting urban migration has also caused growing pains within Kuching as the city struggles to accommodate swelling populations. To better regulate this growth in future, the municipality is exploring a new zoning ordinance that would more clearly delineate businesses and residential zones, with an impact study under way as of late 2014. Construction activity in 2013 was generally centred on peripheral areas just outside the CBD and other subcentres of the city, such as Kuching-Serian, Batu Kawa, Muara Tuang and Matang, where real estate prices are more affordable.

COMMERCIAL: After a strong run-up to 2012, new commercial office space in Sarawak slowed in 2013, with only one major project completed during the year. Built by property developer Lee Onn, the new five-storey office building with 5000 sq metres of floor space was finished in the first quarter of 2013, according to real estate services firm C H Williams Talhar & Wong. The stock of purpose-built office space stood at 600,858 sq metres as of mid-2014, with another 7378 sq metres incoming, according to Malaysia’s Valuation and Property Services Department (Jabatan Penilaian dan Perkhidmatan Harta, JPPH). Some of the gains made in recent years have been wiped out as new buildings open and older stock is converted into hotels, such as the Lime Tree Hotel in the former Kuching Tower and the Abell Hotel at the KKB Engineering building.

Several large-scale office buildings currently under construction will bring a slew of new business space to the market in the next few years. Besides the Gateway Towers on the Isthmus, the 18-story Baitul Makmur 2 project in the Bukit Siol area of Petra Jaya will provide another 521,000 sq ft of leasable area. Reworked plans for the Dayak Plaza will include seven units of four-storey shop offices, with the possibility to add a 12-storey tower still on the drawing board. Commercial space aside, two new hotels were completed in the first half of 2014: the 270-room Imperial Hotel Kuching and the 166-room Sri Simangang Hotel.

MIXED USE: Outside of Kuching's Isthmus project, urban renewal developments are also taking place in the other population centres of Miri and Bintulu. The wharf development in Miri is part of the Miri Waterfront Transformations Project designed to redevelop the area into a modern waterfront attraction for commercial and leisure activity. Led by Miri-based Interhill Group subsidiary Unique Harvests, the RM450m ($136.9m) project will consist of an 18-storey semi-furnished high-end condominium with 192 units, plus the international-brand, 24-storey, 328-room Pullman Miri Waterfront Hotel and 10 units of three-storey shop houses.

Complementing the waterfront is the planned redevelopment of Miri's own CBD, with the Marina ParkCity project on a 223-ha site including two kilometres of coastline along the South China Sea. The project’s centrepiece, which will include an array of residential, commercial and leisure facilities, is Arcadia Square, which began construction in 2014.

Sibu, for its part, has begun its own facelift of the city in the form of the Sibu Town Square Commercial Centre project. This RM250m ($76.1m) renovation will be situated on 65 ha and include 105 units of shop space, an eight-storey budget hotel with 160 rooms, one eight-storey office tower, one six-storey office towers and 100 units of condominium with four penthouses.

RESIDENTIAL: Although lagging behind big-ticket infrastructure and industrial construction, residential building continues to play an important role in the sector as urbanisation trends and population growth estimated at around 1% a year continues to drive housing demand. In the third quarter of 2014, construction companies carried out RM182.32m ($55.5m) worth of work on residential projects, which equalled just under 10% of all construction carried out in that quarter, according to DOSM data. This comes on the heels of the launch of 19 different residential projects in 2013, ranging in size from the 12-unit Fair Hills Park to the 106-unit Tabuan Tranquillity complex.

Kuching remains the largest single residential market in Sarawak, where the sector made up more than 40% of Kuching’s total property transaction volume in 2013, according to the JPPH. At the end of the first half of 2014 there were a total of 214,291 residential units in the state, with an incoming supply of 26,015 units and another 13,095 units planned, according to the JPPH.

While a range of cooling measures introduced by the federal government in 2013 have slowed the Malaysian property market as a whole, these factors have been somewhat offset in Sarawak by the construction of strata title properties, where ownership is divided between floors of multi-level apartment blocks. Many more of this type of property were launched in 2013 than in previous years, almost all of them situated in and around Kuching, according to C H Williams Talhar & Wong. This has driven up the number of apartments and condominiums to about 25% of total residential units launched. In addition to these private projects, the national government committed some RM200m ($60.8m) in its 2015 budget to build and rehabilitate 9500 dilapidated residential units.

BOOM TOWN: Much as Bintulu's astronomic rise from a sleepy fishing village of 15,000 residents to a thriving 200,000 metropolis was built on the back on the liquefied natural gas (LNG) industry over just a few short years, the new SCORE initiative is now similarly transforming a number of small settlements. In contrast to the stable growth exhibited in Kuching, the property market in new SCORE growth nodes such as Samalaju, Tanjung Mania and, to a lesser extent, Makah, have become increasingly active, largely due to an influx of new foreign investment.

To date, the driving force behind this property boom has been the arrival of a stream of heavy industries, such as heavy metals manufacturing in the Samalaju Industrial Park, which has seen more than RM28bn ($8.5bn) in approved investment from its inception in 2008 through 2013. Plans are currently under way to develop the Samalaju township, which is already home to an army of workers, into a vibrant community that will eventually include the Tanjung Samalaju Resort Hotel, Samalju Eco Park, Samalaju Central commercial and entertainment centre, and Samalaju Light Industrial Estate, along with accompanying residential developments and supporting amenities.

This rapid growth is likely to cool slightly in the coming years, although the emphasis will also shift along with changing demographics as more supporting infrastructure is completed and temporary construction workers (who often prefer to rent) give way to longerterm families with much different requirements.

The remaining two growth nodes of Baram, which will specialise in hydroelectric power, oil palm and forest plantation as well as eco-tourism, and Tunoh, which focuses on oil palm and forest plantations, agriculture and eco-tourism, are currently less developed and thus represent significant real estate opportunities.

OUTLOOK: Despite the regulatory uncertainties giving property developers and purchasers pause on a national level, the real estate market looks set to continue its strong run in Sarawak, due largely to a robust investment pipeline that should help fuel demand for the foreseeable future. “Higher-end residential and commercial property in major centres rarely disappoints developers or investors,” Rewi Hamid Bugo, managing director of Petra Jaya Properties, told OBG. “But outside the ‘prime’ circles, developers will have a tougher time finding buyers as banks have tightened lending requirements.” Industrial and retail property in particular will continue to see strong demand as new projects are completed and the fledgling townships around them continue to develop.

The sector is not without challenges, however. In the shorter term, the GST coming in 2015 will likely cause a spike in residential purchases prior to its implementation, followed by a lull as the expected temporary inflation bump levels out. Through the first half of 2014, a total of 17 residential projects were awarded in the state, valued at RM236.33m ($71.9m), according to the Construction Industry Development Board – a sharp drop from the 73 builds worth RM771.84m ($235.7m) in 2013 and the 81 projects worth RM1bn ($304.2m) in 2012. Relatively low local wages, as well as the decrease in spending power resulting from inflation and a weak ringgit, will exert downward pressure on house prices. Additionally, at the higher end of the residential market, given the high prices still exhibited in the newer stock, a price correction could come into play in the near future.