The world we knew, joyful, very social and with a conducive property market, suddenly disappeared in March 2020 and the 2020 year’s end, because of the pandemic, will be remembered as the less happening of the past 100 years, or more.
No big parties and celebrations and not many fireworks either, in general, a cautious and “socially distanced” approach towards the New Year, together with a fear that property market might be crashing soon if a new surge of the pandemic will kick in!
By looking at what Covid-19 has caused to the world, we are definitely witnessing something unprecedented in humankind history! It is the first time a worldwide pandemic is causing such a brutal and sudden disruption to our lives, the way they used to be.
The world, actually, experienced a similar widespread pandemic before! It was the year 1918 with World War 1 almost at its end, when the “Spanish Flu” hit with its first wave. Three more waves came in the following 2 years and the final numbers of this pandemic of the past century, totalled 500 million people infected with estimate deaths of between 24.7 and 39.3 million according to the word-in-data website.
Numbers are impressive, of course but, we need to keep in mind what the world did not have at that time. World Health Organisation (UN), internet, advanced pharmaceutical R&D centres, a widely interactive researchers network and much more were not available and would have contributed in reducing tremendously the impact of the Spanish Flu Pandemic!
Another huge difference comes from the literacy rate and wealth distribution of the early years of the past century! Literacy was at a mere 30% of the world population (as a comparison we are now at almost at 90%) while the world poverty rate was at a stunning 75%, whereby we are now at 10% (percentages are calculated on the world population and represents the ones living in extreme poverty).
No internet to fast communicate SOPs and news about the pandemic, no education to even read the news, no wealth, money, to even take basic protection tools/measures. In other words, we can assume that Covid-19 pandemic, which has affected almost 85 million people with a dead count up to 1.9 million as at the end of 2020, has been by far worse than the Spanish Flu!
The New Normal
Since its beginning this pandemic has been deeply affecting our way of living, working, studying, travelling, socialising and more!
The world’s social lifestyle has dramatically changed and so did businesses.
In Malaysia, as at December 2020, almost 70% of the professional workforce has embraced, some joyfully and some with concerns, the WFH (Work From Home) mode.
Tourism industry is at a dramatic turning point and F&B has been re-invented, leveraging on e-commerce, to bring the dine-in experience at your doorstep with take-away lunches and dinners. Entertainment outlets and event organisers are relooking into their business models and becoming more creative.
Schools have been closed to physical classes most of the time last year and e-learning has been taking the lead! And the list of radical changes brought in by the pandemic can go on.
2020 and the pandemic have been pushing humankind towards a much faster adoption of digital transformation and we all have been realising that physical meeting are more expensive and time consuming if compared to virtual ones! Not to mention the huge cost reduction for SMEs adopting the WFH trend and, last but not least, the reduced frequency of traffic jam with related accidents and fatalities. All of the above somehow, thanks to the pandemic!
In conclusion, we all have experienced a dramatic and fast change of how we were working and carrying on our daily lives and there is not going to be a “return to the old normal”. So better get ready and understand how to adapt faster and leverage on the future!
Forthcoming Future, The Recovery After The Pandemic
Which type of future are we looking at, what is the scenario we should be getting ready for? Many experts, and unfortunately I agree with them, are foreseeing between 6 and 18 months before a full recovery will take place and, on a global scene, several researchers are saying: Covid-19 pandemic represents the end of globalisation the way we knew it and it has acted as main shock factor at global level!
Malaysia’s gross domestic product (GDP) is expected to grow between 6.5% and 7.5% in 2021, after seeing a 4.5% contraction in 2020 owing to the Covid-19 pandemic. The strong rebound in GDP growth will be driven by the anticipated improvement in global growth and international trade. US-China trade war and the recently signed Regional Comprehensive Economic Partnership agreement (RCEP) will lead the strong regional recovery and Malaysia, supported by infrastructure, financial stability and geographic location, should definitely gain from this process.
The disruption caused by the pandemic doesn’t mean endgame , it should be looked at as strong push to change and innovate! The whole world, after attending countless conferences and forum I’m definitely sure about this, is learning the lesson and applying new way of looking at business and the future after the pandemic! Future of people, business and property, of course.
The government, hopefully, will support this radical change, the disruptive WFH and innovative wave by making sure that Malaysia will be in the short term future-ready in terms of “soft infrastructure” adequate to the current speed, accelerated by the pandemic, of our digital transformation.
Healing Of Property: A New And Different Market
Property industry, which was already suffering from a high “unsold stock” before the pandemic kicked in, has definitely taken a bad hit!
The Covid-19 pandemic has contributed to worsening the property market perception about “investment”, and specifically property investing or buying, resulting into a negative result for 2020!
However, being able to look at all the above happenings with a positive eye, the current global situation is presenting, to all of us, “the greatest opportunities of the past 100 years”!
Let’s go together through the main trends detected in the property market to get where, in the months to come, the good opportunities for property hunters will be. To get ready for the future, we must first analyse the past!
Property Pain Points From The Past: The Pre-pandemic
Residential market in Malaysia, since the beginning of the 2019, has been showing a growing demand toward both landed and high-raise properties priced below RM700,000 (USD175,000), for some areas of Malaysia the value to be looked at is RM400,000 (USD100,000).
City Centres properties, not only in Kuala Lumpur, have been left aside, by potential buyers, due to the high cost per square foot, sizes either too big or too small and, above all, due to the huge unsold stock which, combined with low occupancy rates (untenanted units), clearly shows a substantial over supply situation.
Office market in 2019 was already having an impressive quantity of unoccupied space. Several big projects in both Kuala Lumpur and Johor Bahru, were in the process to make the situation even worst by delivering millions of square foot of new office space between the end of 2019 and 2020!
Retail properties and industry witnessed the raise of e-commerce which have been start pulling away from malls “real shoppers” transforming them in pure shopping mall pass-byers with a tendency to try and test purchasable items in the mall and then go home and order them online.
Besides few renewed malls, those having established their brand since long such as MidValley or KLCC Suria just to mention two, the majority of new shopping mall, in 2019, were already suffering for lack of crowd and consequently poor occupancy.
Talking about numbers, Malaysia has the highest square footage of retail space per person (out of the whole population of the city where the shopping mall is) in the whole of South East Asia, something to be considered when a developer will be thinking about developing a new mall.
Resorts and hotels, around Malaysia, managed to hit occupancy rates below 65% in 2019. Malaysia, unfortunately, has not yet been able to become enough sexy and appealing to “repeated visitors” and “long-term” tourists. Building owners, developers and operators were all hoping for a better 2020!
Loan approvals for properties, in December 2019, were at the lowest with most of the few approved mortgages, at far below the previously commonly granted 90% margin of financing.
Property developers were requesting Bank Negara to partially release the curbing measures, introduced in the previous years to moderate or eliminate speculation, to ease the disposal of unsold properties. The government and the developers’ associations were also discussing the possibility to extend the Home Ownership Campaign (HOC) to 2020.
The Covid-19 Pandemic Strike!
Then Covid-19, the pandemic, stricken causing the Great Lockdown to kick-in and social distancing and WFH to become part of our “New Normal” lives!
From a residential point of view, the demand for bigger spaces, at least from the 70% of Malaysian professional adopting the WFH mode, is on the raise as far as the “expansion” of the search-range for properties to sub-urban and beyond areas.
Furthermore, recently released data from NAPIC are confirming that the supply (for values below RM700k) is still behind the potential demand, when compared with demographic data (check these two tables comparing existing stock of properties with total number of household and you will get it).
Families currently living in limited spaces, below 700 sq.ft., are on the search for bigger properties where a wider space or even a dedicated room could be allocated to “WFH-area”.
The “sexy-of-the-past” studio unit might not anymore be as a popular property as it was in the past and, even worst, it will not be possible to recycle it into AIRBNB or short-staying for tourists. Tourist arrivals is still and will remain for quite some time a fairy tale thanks to the pandemic!
The so popular TOD (Transit Oriented Development), small studio units within high density buildings incorporating a public transportation station, might be left empty with the “WFH mode so I need more space” being the killer once more.
In general, we can expect the past property “up-zoning” trend (high density within urban areas) to move towards “down-zoning” (low density development, low raise or landed properties and away from city centres).
Property primary market still offers great opportunity and more will come our way in the forthcoming future. The Malaysian Property Market will definitely recover, raise and shine as never before but it might be taking a while.
In the meantime, better get ready to grab the good opportunities which will come our way following the table below for the “buy” or “don’t buy” decision.
Hot spots wise, Greater KL, its sub-urban and beyond areas still remain a good choice. For better understanding, the beyond covers the “West and South Corridors of Klang Valley” respectively till Port Klang and Seremban.
Johor Bahru and Iskandar Malaysia, property wise, are still representing a good buy providing the investor, during these trying times, has good holding power. A comparative parallel with Shenzhen shows that, eventually, it will happen. It is just matter of keeping in mind that Shenzhen was launched in the middle 80’s and it took more than 30 years to become a “economic region and property” success story.
Penang, Malacca, Kota Kinabalu and Sarawak are also still good destination for property investors, providing a due diligence is done on the market trend and related demand which are very different location wise and for sure considering the “long wave effect” of then current pandemic.
To be kept in mind, while doing the due diligence on a possible property investment, to always double confirm all the given information by the sales representative to make sure everything is correct!
Upcoming star in the property investment panorama is Kuantan. Main city and commercial harbour of the east cost of Malaysia, Kuantan is raising its attraction due to the upcoming ECRL (East Coast Rail Line) and all the happening, in terms of industrial parks development, driven by the ECER (East Coast Economic Region) planning.
Some very interesting townships have been and are growing with property developers delivering products which for once are demand driven! Worth paying a visit!
What will happen with all those millions of empty property square feet from office, hospitality and, eventually, retail then? Recycling and reusing will be the passwords!
Malaysia has still a substantial shortfall of affordable housing and empty office and hospitality space might be partially re-developed to address this demand. It is a medium-term game but could be working. Another very interesting niche of the property market that few have been looking at, is the fast-growing group of aged Malaysians.
In the next 20 years the “third age group” (people aged 65 years and above) will almost double while the natural grow rate for Malaysia, will keep on remaining stable. Result is, higher demand for “residential-cum-medical-care-services” properties and several resorts and hospitality designed building, would be perfect to address this demand.
How Technology Could Help Re-booting The Property Market
A positive change that is slowly happening, mostly helped by the pandemic, is the shift toward digital transformation that many developers are adopting.
ProSales and ProFix are both allowing a seamless property buying and receiving journey for both beer and developer’s team, while fully respecting the new “Post-Pandemic-Life-Style” SOPs.
Many more are the Proptech start-ups which offer innovative solution to the market making the whole property industry healthier and safer. Check out the Malaysia Proptech Association website here!
Stay also tuned on our blog as very soon there will be a series of PropTech related articles that our Propenomist is preparing for our readers.
In conclusions, Malaysia has and is surviving the “2020 Perfect Pandemic Storm” pretty well, we know when it started but cannot foresee, for the moment, when it will end but, like all the storms it will end, and sun will shine again better than before, eventually!
The above are just some ideas or thinking points for the readers about property, pandemic and the future. If you have more, agree or eventually disagree and want to reach the author, he will definitely reply to your comments.
About The Author
The opinions expressed in this article are solely of the author, Dr Daniele Gambero.
Dr Gambero has been an expatriate to Malaysia from Italy, since 1998 and has more than 35 years of real estate experience. He is the co-founder and group CEO of REI Group of Companies, the Co-founder of Propenomy.com and the deputy president of the Malaysia Proptech Association.
In the past 10 years Daniele, as international and TEDX speaker, has engaged several hundreds thousand people talking about Property, Economy, Propenomy, Digital Marketing and Motivation. He is also a bestselling author and columnist on several magazines and main stream media. You can reach him directly through his LinkedIn page here