KUALA LUMPUR (April 22): The coronavirus outbreak is the most unfavourable factor for the commercial property sector in 2020, followed by the country’s economic state, availability of funds and yields and return, according to a survey by global property consultant, Knight Frank Malaysia.
In its Malaysia Commercial Real Estate Investment Sentiment Survey (CREISS) 2020, it said majority of the respondents felt that the impact of Budget 2020, foreign direct investment (FDI) inflows and the revision of the Real Property Gains Tax (RPGT) base year were not significant to spur the commercial property market.
Instead, favourable factors are the Overnight Policy Rate (OPR) cut, the reinstatement of mega projects and the Visit Malaysia Year 2020 (VM2020) campaign. However, the VM2020 campaign has been cancelled due to the COVID-19 pandemic while the reinstatement of mega projects may be delayed.
The survey was conducted in February 2020 and captured the pessimism of respondents even before the novel coronavirus was declared a global pandemic in March.
Meanwhile, Knight Frank Malaysia managing director Sarkunan Subramaniam said post-COVID-19, the difficult business operating environment would put further pressure on the occupancy and rental levels of the office, retail and hotel/leisure sub-sectors.
“In addition to the automatic six-month moratorium on all bank loans, property taxes such as quit rent and assessment for the second half of 2020 should be waived, and stamp duty reduced to cushion the impact of COVID-19 on the Malaysian property market.
"It is also timely for the Government to lift the cooling measures to spur transactional activity and encourage long-term investment,” he said.
On rental and value, executive director of capital markets James Buckley said it is anticipated that commercial rents will fall while investors make higher allowances for vacancies and ability to re-let space, and this would put pressure on pricing in the coming months.
"These negatives, however, could be tempered by the offsetting influence of further substantial interest rate reductions, the release of pent-up consumer demand as the Movement Control Order (MCO) restrictions are lifted, and the impact of stimulus measures feeding through into the economy,” he said.
In terms of investment plan, Knight Frank Malaysia said there would be lower investment in the office, retail and hotel/leisure sub- sectors in 2020 although industry players have expressed their interest to invest more in the logistics/industrial, healthcare and institutional sub-sectors.
Nonetheless, developers are not expected to accelerate their investment in the logistics/industrial sub-sector.
On the flip side, manufacturers and industrial end-users are diligently looking into additional measures to generate better cash position atop the traditional ways of expanding credit lines, in effort to support the sustainability of their businesses.
"Post-MCO, many companies could potentially look into divesting the big impact items within their balance sheets – real estate. Sale and leaseback can help to improve cash balances, reduce debt levels and ensure zero disruption to the business at the same time.
“Given the strong factors above, we foresee more sale and leaseback transactions materialising soon. Besides raising funds for manufacturers and industrialists, it also bodes well by satisfying the demand of funds and REITs (real estate investment trusts) looking for good long-term investments,” said executive director of capital markets Allan Sim.
Meanwhile, executive director of valuation and advisory Keith Ooi said whilst history has indicated that some equilibrium could be expected to return to the market once the crisis has passed, it would take time to absorb the various effects and issues.
As a result, yield compression for commercial properties is likely to reverse and this may lead to greater investment opportunities amid the challenging market environment.
