New project launches in 2014 – what may happen?

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With the whole Malaysia property transactions going down except for Iskandar as at November 2013, what may happen to the new launches next year? I read comments by DTZ Nawawi Tie Leung executive director Brian Koh in The Star. He said, ‘Developers are likely to launch less projects, downgrade specifications, reduce sizing, squeeze on construction costs, and accept lower margins.’ I think he has sufficient information and market data to said that and I agree to most of his opinion. Let’s look at his comments one by one.

Launch less projects. Most likely this will apply to bigger developers. For majority of the smaller developers with one or two projects each, it is unlikely to happen because if there are no launches, there would be no sales and thus no profits. Nevertheless, I think it is likely that if it’s an integrated developments, it will now be launched in more phases, perhaps even stretching all the way into 2015.

Downgrade specifications. This is most likely as any developers who are launching anything beyond RM600,000 or RM600psf will likely find it hard to convince buyers who are now more cautious due to the many pessimistic reporting by a lot of media. If they launch at cheaper prices, the would have to cut the specifications. This is because of the fact that everyone continues to think bubble is happening despite the fact that in Malaysia, prices are increasing too much only in certain areas and not in the whole of Malaysia. Some even compared this to US mortgage crisis which is a gross exaggeration because here in Malaysia, the failure in obtaining loans are very high as soon as you hit your limit while in the US, almost everyone who needs money gets the loan. Ask any developer and a lot would tell you that at least 20-30% of potential buyers fail their loan application.

Reduce sizing. For prime locations, this is a must. Thus, it will make the overall price still palatable. 500sf @ RM800psf, together with early bird discounts meant the SOHO unit is still affordable to single buyers.

Squeeze construction costs. If I believe what REHDA is saying, this is unlikely to happen because the number of projects are still way too many that the construction industry can absorb or keep up. So, you can decide which party you would want to believe.

Accept lower margins. I think margins would have to be almost maintained because if margins are reduced further, the risks for the developer would balloon especially in this bearish environment. The likelihood of lower take up is much higher now compared to previously.

It is indeed going to be a better market for buyers in 2014. Perhaps not good for speculators? Hopefully.

written on 28 dec 2013.

Next suggested article: Frothiness building up in property market – Nouriel Roubini

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