While sentiment for Malaysian assets has been weak for the last three years, JLL’s preliminary data for 3Q17 signals a turnaround:
Investment sales picked up
Investment sales would exceed MYR1bn (USD 240m) in 3Q17, due to domestic REITs acquiring commercial assets in Kuala Lumpur, signalling confidence that values may have bottomed out.
Some major transactions include Amanahraya- Kenedix REIT buying Vista Tower from Blackrock for MYR 455m (USD 110m) in 3Q17, translating to 5.68% NOI yield (6.46% with income support [1]). The asset has been on the market for some time. Kenedix had invested MYR91m into the REIT in Dec 2016 for a 15% stake in the units and 49% stake in the REIT manager. The REIT now hopes to double its portfolio size in the next few years. Vista Tower would increase its portfolio by 50% to MYR1.5bn (USD 360m).
In the same quarter, Pavilion REIT acquired Elite Pavilion Mall, the extension of Pavilion Mall for MYR 580m (USD 140m) for c. 6.1% NOI yield from Urusharta Cemerlang sdn Bhd.
Recovery in Malaysia retail sales
Malaysia retail sales rose 11.5% year-on-year in 2Q17, after being weak for two years. In 2Q17, real private consumption bounced back from a sharp fall in 2015 following the introduction of a new consumption tax. Retail sales rose 11.5% year-on-year while the Malaysian Institute of Economic Research Consumer Sentiment Index rallied to a record high of 80.6 points, the highest since 4Q14. Retail rents were flat in 2Q17 but JLL sees a mild increase in 3Q17.
Chart 1: Malaysia retail sales growth yoy
Source: Dept of statistics, Malaysia
Home sales surprised with prices rising in 3Q17
JLL’s preliminary data indicates a 6-8 % increase in residential prices in Kuala Lumpur, potentially attributable to the rise in construction costs with the introduction of minimum wages and government levies. Despite the higher prices, new sale volumes are increasing as sentiment is gradually recovering.
This is a surprise as Kuala Lumpur’s prime residential prices have been weak since end-2015 after a decade of growth where prices rose 4-5 % CAGR. The correction in the last 18 months is attributable to slower economic growth, retrenchments and the pullback in the oil and gas industries. Further, due to the high sales achieved under the Developer Interest Bearing Scheme, we estimate that 5,300 prime residential units would be completed annually in 2015-2021, about 2.5x the 10-year historical average supply of 2,000 units.
For more details on the Malaysia property market, look out for our Asia Pacific Property Digest out in November 2017.
[1] http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=81859&name=EA_GA_ATTACHMENTS
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