Penang property: Oversupply in the making?

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A report in a local daily has raised concerns about a possible oversupply of property in Penang Island in the coming years. 

The report in The Star estimates – conservatively, I would imagine – that there would be RM30bn worth of properties (70 per cent of which is residential) coming on-stream in the next 10-15 years.

Another source shows over 40000 homes now under construction in the whole state, of which nearly 13000 are on the island. That’s probably around RM5bn worth of properties under construction on the island now. We are talking of just residential properties here.

Source: Valuation Department

Are there enough real buyers for these middle to high-end range properties or are the anticipated buyers going to be speculators?

The report also mentions Guan Eng as saying there would be four road projects coming up:

  • the 4.2km Gurney Drive-Lebuhraya Tun Dr Lim Chong Eu bypass,
  • the 4.6km Lebuhraya Tun Dr Lim Chong Eu-Bandar Baru Air Itam bypass,
  • the 6.5km Penang-Butterworth Tunnel, and
  • a 12km proposed road connecting Tanjung Bungah and Teluk Bahang.

This is the first time I am hearing about a new Tanjung Bungah to Teluk Bahang road. Where is the exact route?

It’s a pity we are thinking of putting in infrastructure for private motor vehicles at a time when the rising number of private motor vehicles is affecting the quality of life, when oil prices are expected to rise even further, and when new oil reserves are increasingly harder to find.

I don’t understand why we are not doing the groundwork for sustainable public transport and getting the basics of public transport right. Take a simple thing: how many of you know how and where to buy a monthly season ticket for Rapid Penang buses?

(Have a look at this postcard of a tram in Air Itam in the early 20th century.)

The Star report below also mentions a “proposed project by Penang Turf Club (PTC) on 50 acres on the PTC site”. What exactly is this? I phoned a contact in the relevant authorities and he told me so far no plans had been submitted for the Turf Club. He added the state government is well aware of public sentiment over any sort of ‘development’ in the area after the PGCC fiasco. But it has to be asked, is something brewing at the Turf Club?

This is the report by David Tan in The Star:

Oversupply of new launches?

There are concerns that Penang island cannot absorb the high number of projects

The planned development of RM29.6bil worth of properties on Penang island in the next 10 to 15 years has raised concerns over the capacity of the market to absorb them.

The properties are planned for 1,121.56 acres which include reclaimed land and strategic locations on the island.

Eastern & Oriental Bhd is reclaiming 740 acres for the second phase of the Seri Tanjung Pinang project in Tanjung Tokong to develop two islands for mixed development projects, which will have an estimated gross development value (GDV) of RM12bil.

E&O is expected to reclaim the land in 2012 and the group has until 2019 to complete reclamation before the concession expired.

“It should take two years from the start of the land reclamation before the first project launch can be embarked upon.

“Phase two will be a mixed integrated development comprising two islands of approximately 740 acres.

“At three times the size of phase one, phase two is expected to generate RM12bil in gross development value,” E&O deputy managing director Eric Chan said in a report.

Chan said upon completion of the reclamation for Seri Tanjung Pinang Phase Two, it would take at least 10 to 15 more years to fully develop the land.

“Within that time, with Penang continuing on its present growth path, the demand for better residential properties and lifestyle amenities is expected to be generated.

“E&O will be poised to fulfil this demand with the realisation of Seri Tanjung Pinang Phase Two,” Chan said.

Ivory Properties Bhd is reclaiming 35 acres to add to its recent acquisition of the 67.56 acres of Bayan Mutiara land in Bayan Baru for a mixed development scheme, which will have an approximate GDV of RM10bil, according to a recent AmBank report.

IJM Land Bhd is reclaiming 103 acres for the development of an RM5bil mixed development project, which will be completed in 2021.

IJM Land is expected to complete the reclamation of the 103 acre site next year-end.

Mah Sing Group Bhd is developing properties on various prime locations on about 95 acres on the island, with an estimated GDV of RM1.6bil.

From 2012 to 2017, Sunway City Bhd will be launching the Sunway Hill Residence on an 81-acre site in Sungai Ara around 600 units of landed properties and condominiums with RM1bil in GDV.

There are also other smaller projects with combined multi-billion ringgit GDV such as the reclamation of a 100-acre site in front of Queensbay Mall by Boustead Holdings Bhd; new residential projects on the island planned by the other developers from Kuala Lumpur and Penang, and the proposed project by Penang Turf Club (PTC) on 50 acres on the PTC site.

It is estimated that about 70% of the RM29.6bil in new developments will comprise residential properties.

Last year, the purchase of new residential properties on the island was estimated to value around RM1.8bil to RM2bil, which was among the highest in recent years.

If the purchases of new properties on the island were to be maintained at the 2010 level of around RM1.8bil to RM2bil, industry observers said it would take 10 to 11 years to complete the take-up of the properties.

Real Estate & Housing Developers’ Association (Rehda) Penang chairman Datuk Jerry Chan Fook Sing said even if the uptake was consistently estimated at RM2bil per annum, the 10 to 11 years period would still be a long time.

“This is assuming that the Penang property market can consistently absorb around RM2bil worth of properties per annum.

“A RM21bil GDV is a lot for the market to absorb even if the period of uptake were to be extended to 15 years.

“The planning and the launch of the projects must be timed to suit demand, although the demand of properties would be higher in certain areas of the island.

“But of course if the economy continues to be good and there is consistent or increasing demand, there should be no problem for the new launches to be absorbed in a shorter period of time.

“If Penang can continue to re-invent itself in the economic sphere, then it can draw people from other states to Penang to work.

“This migration could serve as the source of demand for the future property launches and create a higher population as opposed to normal birth rates,” Fook Sing said.

Registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun said there could be downward pressure on property prices on the island due to the oversupply of new launches.

“As it is, the bulk of properties purchased over the past five years were for speculation purposes.

“When the holding power is gone, the speculators will have to release the properties into the market. Add that to the supply of new launches, there will be an oversupply situation.

“Developers must identify where their markets are coming from carefully and release the new launches according to demand,” Lim said.

Lim said for the past five years, the return on investment (ROI) for properties on the island had dropped by 50%, while the value had increased by about 100%.

“This is something that had gone unnoticed.

“The ROI is worsened by the fact that Penang properties generate very low rentals.

“If the ROI keeps decreasing, as property values increases correspondingly, then no one would buy property in Penang for investment purposes.

“The property market in Penang would then become purely speculative in nature,” Lim said.

Lim added that there was also the affordability factor.

“To purchase a high-rise property priced above RM300,000 on the island, the buyer’s monthly household income would need to be between RM8,000 and RM10,000.

“The bulk of wage earners in Penang do not fall into this income bracket.

“Where would the demand for future property launches come from?” he said.

Sunway City general manager Tan Hun Beng said the volume of properties planned for launch raised the question whether developers had done enough research and analysis on market demand.

“I think developers should make the necessary studies before making their launch projections: is the present positive response to the property market a good sign or is it an early signal of an approaching storm?” Tan said.

Chartered valuer and property consultant Azmi & Co (Penang) Sdn Bhd managing director Chandra Mohan Krishnan said the RM21bil GDV of residential properties was a lot to absorb over a 10 to 15 years period.

“If there is no demand, there may be downward pressure on property prices. However, the value of landed properties on the island should be able to hold on, as they are becoming scarce,” he said.

IJM Land (north) general manager Toh Chin Leong said it was important for developers to build a balance mix of residential and commercial properties.

“Commercial projects are important to attract the movement of labour to Penang, which will provide demand for housing.

“This is why a large portion of our second phase on 103 acres comprises commercial projects such as hotels, corporate offices, and retail outlets.”

Penang Master Builders and Building Material Dealers Association immediate past president Datuk Finn Choong said the reclamation works would generate demand for workers and jobs for local contractors.

“We can see positive benefits for Penang even before the launch of the new properties.

“The reclamation activities would bring in foreign labour to Penang which would generate economic spill-over effects for the state, as the workers would have to spend money on rentals and food. On paper the number of new projects seems a lot.

“However, if the Penang government can continue inspiring confidence in investors and manages well the expectation of Penangites, the state can draw migration from different income groups into the state that can support the new properties planned,” Choong said.

Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat said Malaysia’s population stood at 28.3 million with an average annual growth rate of 2%.

“Being a young population, 67% are between 15 and 64. Nearly everyone will be making decisions about where to live, work, shop and play, with real estate as the major key component for the next 20 years.

“It is important to know a great deal about where they reside, educational backgrounds, family composition, incomes, and whether or not they work.

“Consequently future real estate needs can be anticipated,” Teoh said.

On the infrastructure supporting future development, Penang Chief Minister Lim Guan Eng said international contractors from several countries have indicated that they are interested to build four major road projects in Penang.

Lim said the contractors were from China, Singapore, Hong Kong, Japan and South Korea.

He said the state government would invite those interested to bid for the projects via request for proposals (RFP) by the end of the year.

“The RFP will be out at the end of the year. It will take another six months before the contracts can be awarded to the successful bidders,” Lim said in an interview recently.

The proposed projects are the 4.2km Gurney Drive-Lebuhraya Tun Dr Lim Chong Eu bypass, the 4.6km Lebuhraya Tun Dr Lim Chong Eu-Bandar Baru Air Itam bypass, the 6.5km Penang-Butterworth Tunnel, and a 12km proposed road connecting Tanjung Bungah and Teluk Bahang.

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krahmat

We should be thankful for more construction activities to spur our economy. No oversupply so long as demand is still there.

Aranda Del Rio

Don’t worry bout ‘oversupply issue’.

Just do a roadshow in Singapore and those Penangites working there will resolve the issue with their Singapore Dollar salary/savings.

SamG

Laughing, Ah Soon has the Bestest of Best Master Plan for everything. Now is is Super Pissed off cos LGE and PR Govt has not taken his Mustard (sic) Plan into consideration.
His … plan would have instantly transformed Penang to the MOST liveable City in the Whole World.
If only someone would listen…

Ong Eu Soon

Read How LGe Fast Tracking Penang Into a Big Ghetto at http://eusoon.blogspot.com/2010/03/new-trend-of-change-for-penang.html

Laughing

Ah Soon,

Tagging onto Anil’s blog yet again because no one bothers to read the rubbish on your blog !!!

You are just like KTK – absolutely no pride and no self-respect.

AFFORDABLE HOUSING

wow !!

LGE as you know GE is coming soon, so maybe you need to reconsider your position.

Eu Soon thanks for the update.
Have a read of my page
http://www.facebook.com/pages/20-pykett-penang-illegal-demolition/257136770969291

my neighbours blog
http://www.20pykett.blogspot.com
http://www.pykett-penang.blogspot.com

AFFORDABLE HOUSING

AFFORDABLE HOUSING IN PENANG Now PgGov has approved for developers to build up to a plot ratio of 2.8, what this means is if your land is 10000 sq ft , u can built total nett area of 28000 sq ft , it does not matter how high your building goes. NO HEIGHT RESTRICTION IN PENANG ISLAND, exception, Jessolton, Western Rd, near the Governors mansion and few small pockets. To be approved for this 2.8 plot ratio, the developer has to build and sell 5% of total units at a price below 200 000; 10% of total units at a… Read more »

peterwong

anil

on property in Penang, any1 have any idea whats happening with MAHSING’s monstrosity of a project at PYKETT.

going to cause flooding, traffic jam and car parking problem for the residence in that area.

Penang Gov and the MPPP doing anything to the roads and drains before they allow this project to start ??

Kelah Merah

Pater,
I think the developer has been ordered to rebuild the building to its original form. Anyway, I think it will be a nut to crack for the developer, gone were the days where developers and councils … can get away with it easily as in the case of Metropole which is now Mayfair.

Hooray

Bank lelong of Penang properties (including new launches) is on the way as the suppply overflow (if not reaches the brim) ! Most developers have made 1st level profits..2nd level may (allegedly) go to the connected ones (eg staff/relatives)…and for sure those below the “pyramids” will soon be bleeding 🙁 or 🙂 ? Those with no cash flow problem (or high liquidity) will seize the opportunities (these could be the smart 1% Anil mentioned before ?). btw, The Star organised the last Property Fair (last month ?) at Gurney Plaza and reported RM150 million worth of new properties sold and… Read more »

Erwin

The Star is not consistent in its point of view and resort to ‘anyhow reporting’ just to meet printing deadline and to stir controversy to sell. Its non-due-diligence is evident as it has even advertised non-halal food on Ramadan supplement.

Those Property news and supplement are usually paid by the property developers. Do not be deceived by good news and be pressured into buying decision at the property launch. Remember the interest rate will not remain low unless you are subscribing to BN’s 3-generation loan theory.

wandererAUS

Amy if you think Anil will support … an expired politician Samy malu, he got to get his head Examined!..hahaha! Anil has more grey matter as you under estimated him to be.

SamG

Amy, you must be really pulling Anil’s legs! That will be the day when Anil supports Semi-Value.
Is it variable in Penang, to include the Van transport system used in Thailand? Having 10 people in a van means 10 cars less on the road. It could also provide employment to the “Teksi Sapu” and take those menace off the roads. The services could also supplement the Rapid Penang buses, and provide more frequent services.
As long as it is well maintained and clean, like those in Thailand

Zymian

Dear Anil, many of us do appreciate your efforts to highlight current issues in Penang. For me. the active discussion here on your site is a positive effort to improve things around us. It is unfortunate that on occasion we will encounter people with a nasty streak. Back to the issue at hand. I tend to disagree with your assessment about an oversupply. A lot of high end projects are coming up in Penang, but I personally think there is sufficient demand (at least in the short to medium term) . The property boom seen in the Klang Valley and… Read more »

Kelah Merah

One of the ex-pats in my company who was posted to US 15 years ago and retired last year just bought a condo in Penang last year. Why?
And Anil, you must also factor in the potential Japanese who would invest in Penang after the tsunami.

wandererAUS

Thee is such a thing in the commercial world a buyers’ market and he sellers’ market. If there is an over supply, inadvertently, we will see the slow down in inflation. No shrewd businessman will chase the dollars with an oversupply situation!…would you Anil buy shares into a Development Company when the global financial situation is in doubt? On the other hand, a Govt must also, have a vision to see the growth of its State and cut the cloth accordingly, as the saying goes. Never mind, it is better to be in the over supply situation than in a… Read more »

tunglang

How I wish I were a rich man, dee dee da da dee dee da da dee dee da da dee dee dump…

amy

Anil may not be sponsored by UMNO but he is a strong supporter of MIC , particularly it’s former leader.

Ong Eu Soon

He forget it is LGe, who now become the biggest fan of Semi -Value, want to revive Semi Value’s decades old ideas of undersea tunnel linking the island to Butterworth!

SunnyOoi

Anil,

Let there be an oversupply so the bubble will burst and create ‘affordable homes’ for penangites. Isnt that what you want?

Erwin

Instead of crying foul of the rising property price, nobody seems to want to explore why the wealth of the so-called 99% of Malaysians cannot go up to meet the escalating property price. Could it be the new generation are spending money for items (branded stuff and gadgets) that grant instant pleasure and gratification, and commitment of housing is not one of them although the loan interest is relatively low? Could it be that we have been led with flawed economic policies all these years, relying on the abundance of low-cost low-value foreign labor, wasteful projects and corruption, flawed education… Read more »

Aranda Del Rio

Well said.

Jonathan

Presumably the infrastructure projects on the island are for connectivity….but surely public transport must pop up sometime down the road for the PR government..Perhaps its too early, as PR has taken over a “empty coffers, no aid from the Federal government” kitty for starters..

Penang has the best leadership in the country now and ironically the best demographics to showcase this transport system to the rest of Malaysia…..

Down the road, they will have to come up with a financial model that will deliver an effective public transport system, without which Penang’s economy will risk stalling…

tunglang

…lockers at bus terminals where people can store bicycles.
Anil, I love this concept. Makes traveling in innercity a mix & match of mode of transport affordable to our pockets. And this will definitely make weekend cycling in George Town a pleasure for leisure as well as for exploring our UNESCO heritage.

Erwin

Penang government should go south, Singapore to benchmark the practices of good, efficient, timely and affordable public tranportation in SBS. This kind of short-trip ‘lawatan sambil belajar’ will be worth the money as environment is similar.

At the same time, they can also witness public transportation at its messy & deplorable state at Johor Bahru. Just look at the public buses q-ing up along and choking up Jalan Wong Ah Fook, waiting to pick up passengers without due care of scheduling and traffic congestion. An eye opener.

orangkampung

Anil Netto, You are always challenging, questioning to the point of doubting everything that the Penang govt has done and is going to do. Why? Are you paid by UMNO/BN? Why can’t you appreciate what the Penang govt has done and is going to do? It is very easier to just open your mouth and comment n complain on just about anything. Can you do it if you were part of the Penang govt? If you don’t have the grey matter to do it, then, shut up. Be positive and offer encouragement to the Penang govt, please. Your attitude makes… Read more »

CCChuah

You are doing a splendid job. Keep this up.
Do not be distracted by orang kampong, a name he aptly calls himself, little wonder indeed !

Hadi

Typical zealot. Come on dude, Anil can say whatever he wants! Have you ever heard about “kritikan membina”?

Orang kritik sikit berbuih2 mulut kata “Are you paid by UMNO/BN?” Bodo piang!

Anil is not and idiot, but sir, YOU ARE!

Anil + other readers, ignore him/her. Let’s keep the discussion going and in a civilized manner.

kee

I believe Anil is upright and just. However, i do quite agree with orangkampung that Anil please la encourage the present DAP/Pakatan led Penang plainly because are you guys not fed up and sick with that corrupted to the core BN govt? But of course, orangkampong, you dont call Anil idiot la as obviously, Anil is not one. Amy must be a joker ya? Truly, i hope Anil and the readers, will help to build a better Penang for everyone by giving input, sharing knowledge and suggestions with the Penang government, as really Penang is 18 years too late, it… Read more »