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Holding Back, There’s too much negativity in Penang Property Market

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For Penang, 2015 may turn out to be a quiet year where new property development is concerned. This is if whatever said by the REHDA Penang Chairman Datuk Jerry Chan comes true. He said due to various reasons such as rising power costs, fuel subsidy cuts and house buyers’ cautious stance, the REHDA members are thinking harder before launching new properties. Besides these reasons, the red tapes in obtaining developers’ licences and advertising permits for new launches plus the rising construction costs and compliance costs meant that it’s getting harder to be a developer. High land costs, especially in Penang island is also a deterrent. His deputy, IJM’s northern region general Manager Datuk Toh concurred and added that many buyers are unsure too due to the impending Goods & Services Tax (GST). The market has also cooled a lot ever since the cooling measures and until today there has been no signs of any new actions to help the current soft market. Penang developers are also forking out the highest charges compared to the rest of the country. Since all the costs are going up and affordability is a concern, the future units would be built smaller.

I think the comments are valid. However, in terms of whether the developers would wait instead of launching, I think this will not depend on the land costs. The reason is because the land costs versus the GDV is still considered low for Malaysia. Current land costs versus GDV for more developed countries are many times higher than Malaysia’s typical cost of below 15%. This is based on some of the recent reports from the market on the land costs versus the GDV being planned by the many developers. The developers would however needed to be more efficient and perhaps slightly more willing to have a lower margin. The rising compliance costs would however be a deterrent because these are continuously increasing.

Besides that, until today the demand is still there, it’s just that the prices has gone beyond affordability and many would have to get married in order to afford a unit. For the singles, even if the units are made smaller but at a location that they want at a price they can afford, I think the purchase would continue. In fact this may even jumpstart the market. Penang as a property market will always be attractive because despite being such a small state, it continues to attract many new workforce from outside of Penang and this meant new demand is always increasing. Mainland has long been a secondary choice for any Penangite buyer but it can be made attractive for newer buyers. The only concern might be more of the lifestyle. There are no choices like Queensbay or Paragon Mall or Gurney Mall there. This is necessary because of the younger buyers today. We are not talking about those about to retire etc. We are talking about the typical 30 – 35 year old Senior Executives / Junior Managers and these people’s preference would play an important part in their choices. No mall? No entertainment outlets? No ‘peer’ crowds? Well, that’s why they prefer island and that’s why they are not buying because a 1,000sf condo today is RM650,000. How many can actually afford it? Happy searching for your favourite property.

I have written way too many times that secondary market is another important consideration and not just the new ones. I will not say anything about them this time. Read here if needed: Secondary property market, now?

written on 4 Dec 2014

Next suggested article: Every major property market dropped, Penang stayed steady?

2 thoughts on “Holding Back, There’s too much negativity in Penang Property Market”

  1. hei, nice write up. With the dropping share market and ringgit, do you think the property market will soften a little ? Planning to buy, should I wait a few months (but then would be paying $X for rental instead)…

    • Hi Luqman, sorry, I missed this. Dropping shares, find an undervalued one, buy it. Dropping Ringgit at this moment is merely sentiment rather than fundamental. Near future, no one knows but just look at Ringgit value in 2013 vs GDP and ringgit value in 2014 vs GDP. Which one should actually be higher? Property market has already soften where it needs to, the high end ones. The secondary ones should not move much because it has not moved a lot from the beginning vs the primary market. I personally think there were few buyers who got ‘burnt’ and the cooling measures were quick enough to keep out the not so quality buyers, thus prices softening maybe but prices dropping in double digits I don’t think so. If it is your first home, find one you can afford and buy. After a few years owning it, there are only gains.

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