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SOCIO SOCIO-ECONOMIC ECONOMIC RE RESE SEAR ARCH CH CE CENTR NTRE

REHD REHDA A Webina binar-Ec Econ

• nomic
• mic Rec

ecover ery y Plan Plan: : Powering ering- Up t Up the he I Ind ndustr ustry

Wil ill l PENJ PENJAN ANA A Revita vitali lise se Rea eal l Est Estate te Sec Secto tor?

Lee Lee Heng Heng Gui Guie Ex Exec ecutiv utive e Dir irec ector tor 11 June 2020

Socio-Economic Research Centre 1

Ag Agenda PENJANA – THE SHORT-TERM ECONOMIC RECOVERY PLAN REAL ESTATE SNAPSHOT PENJANA: INCENTIVES FOR PROPERTY SECTOR

Socio-Economic Research Centre

• PRIHATIN Economic Stimulus Package’s measurable impact:
• 2.3 million jobs have been saved via Wage Subsidy Programme
• Nearly 11 million individuals’ cash flow burden has been eased via Bantuan

PRIHATIN Nasional (BPN), loans moratorium and EPF’s i-Lestari

• More than 300,000 businesses have received various financial assistance and

loans moratorium.

• Many businesses concerned about 3Cs (cash flow, costs, credit). They are struggling to

cope with IMMEDIATE CHALLENGES (slow demand, supply disruptions, cash flow problem and operating costs) and STRUCTURAL CHALLENGES (consumer protocols, Standard Operating Procedures, intense competition in online business and e-commerce) that threaten their survival.

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PE PENJ NJAN ANA – Sho Short-te term Eco Economic mic Recovery Pl Plan

THREE MAIN ISSUES/CHALLENGES

76.6% 65.5% 61.4%

Salary payment No customers Rental payment

Source: PENJANA Short-Term Economic Recovery Plan; DOSM Special Survey on COVID-19 impact on business sector (10 Apr -1 May)

Socio-Economic Research Centre

Most businesses have started operations. As of 2 Jun, about 12.7 million (~83.5%) employees have returned to work (vs. 10.2 million @ 67.2% as of 17 May). Manufacturing plants: Mostly have resumed operations (70-80% capacity utilization rate); high capacity utilization for personal protective equipment (PPE), rubber gloves, electronics, food processing and packaging materials. For electronics and automation companies, nearly 40%

• perating at 100%; 40% above 80%; 20% between 50-60%.

Major shopping malls (7): a) Around 90% retailers are operating (some not opened due to negative list; concerns about SOP and closed business (3-4%)); b) Business hours have returned to normal (10 am -10 pm) for most shops; some closed early at 7.00-8.00 pm); and c) Customers – between 30% and 40% lesser compared to pre-COVID-19, particularly during

• weekend. Footfall/foot traffic about 40-50%; shopping 20-30%.

Hotels: 13 out of 14 are operating; occupancy rate below 20%. Based on the Malaysian Association of Hotels (MAH) survey (324 hotels), 15% will close business permanently and 35% temporarily closed. Hotel’s occupancy rate is expected to rise from 15.83% at end-June to 32.10% at end-Dec 2020. So far, seven hotels have closed business (KL, Penang, Ipoh and Melaka). Restaurants/coffee shops: Dined-in was constrained by decreased seating capacity (social distancing). Potential loss of key sources of income (functions/events/wedding dinner) for some months (Aug/Dec)

Reopening ing th the economy my – Ch Channel checks

Socio-Economic Research Centre

Construction: As of 9 June, 5,366 (73.9%) of 7,262 construction sites inspected by CIDB, have not started operations (vs. 87.4% as of 14 May). 1,555 (21.4%) have complied with SOP. Only 12 (0.2%) have been instructed to stop operations due to non-compliance. Businesses face slow sales amid maintaining high operating costs. As of 8 June, 309,410 employers have applied WAGE SUBSIDY, benefiting 2.5 million employees. Employees face prospects of weak employment, pay cuts, no pay leave, furlough and layoff. Expect unemployment rate to hit between 4.5-6.5% in 2020 (4.0% during 2008-09 GFC; 4.5% during 1997-98 AFC). As of 8 June: (a) 335,933 employees were given unpaid leave; and (b) 36,326 workers have lost employment (90.6% of total (40,084) in 2019) based on the Employment Insurance

• System. 22% in manufacturing and 16% in retail. 62% (professionals, managers, executive and

technicians). 92.2% of employment loss comprises B40 and M40) wage earners having monthly wage between RM1,000 and RM8,000 per month. As of 8 June: 37,435 employers have applied EMPLOYMENT RETENTION PROGRAM (ERP), involving 335,933 employees.

Reopening ing th the economy my – Ch Channel checks

Consumers still wary about the coronavirus; slowly returning but still a long way from pre- COVID-19. Even for those who have gainful employment and have not suffered pay cuts, health fears will decrease the desire to go out to shop, eat and travel.

Socio-Economic Research Centre

• As we emerge from this pandemic, the short-term economic recovery plan (Three thrusts:

Empower People, Propel Businesses; and Stimulate the Economy) will be an important first step in supporting the reconstruction of our economy to ensure that jobs, livelihoods and businesses are protected.

• The measures and initiatives are fairly broad-based and well targeted to help stabilize

domestic economic and business conditions as well as enable the economy to recover sustainably over the medium-term.

• The plan outlines 40 initiatives categorised under the three thrusts, covering saving jobs,

reskilling and upskilling, support businesses to transform, boost spending, revitalise investment and address sector-specific needs (tourism, agriculture and food, property, auto and palm oil industry).

• In terms of timing and depth of economic recovery, we expect the large economic

contraction estimated at between 11.0-13.0% yoy to hit the peak in 2Q 2020 (+0.7% in 1Q), reflecting the full impact of MCO in April and a gradual reopening in May and June.

• Exports contracted sharply by 23.8% and industrial output (-32.0%) in April. Consumer

spending and businesses are slowly on the mend. Wholesale, distributive and retail trade declined by between 27.6% and 37.1% in April. A smaller magnitude of GDP decline (-3.4%) is expected in 3Q before reverting to +2.2% in 4Q. Overall, SERC estimates 2020’s GDP to decline by 3.0% (4.3% in 2019). For 2021, real GDP growth of 4.5-5.0%.

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PE PENJ NJAN ANA (RM (RM35 35.0bn) bn) loo looks li like a “Mini-Budget”

Socio-Economic Research Centre

Amid some improvement in volume and value of transactions in 2019, Malaysia’s property sector remains saddled with massive unsold units and property

• verhang five years after the market nose dived as billions of units remain idle in

the market. The situation in the near term remains bleak as there are more than 500,000 units in incoming housing supply, and that would take years for the market to absorb. Housing prices have been on a moderating trend since 2013, registering a 1.9% growth in 2019 (3.3% in 2018) for seven consecutive years. We view with concerns about a stubbornly overhang in property sector given that it is an important sub-sector of the construction sector. A protracted consolidation and

• ver-adjustment

in real estate sector would drag down

• verall

construction sector. With the construction sector supporting the growth of around 140 other downstream industries, a sustained weak growth would have ripple effects on the broader economy.

The cu curren ent sta state te of

• f real esta

state te se secto tor

Socio-Economic Research Centre 7

Gr Growth wth in in real esta state te almos lmost fla flat (0.1%) in in 1Q 2020 2020

Source: Department of Statistics, Malaysia (DOSM)

• Growth in real estate sector moderated in recent years due to softening domestic economy;

cautious investors’ sentiment, banks’ prudent lending policies as well as disconcerting

• verhang and unsold number of properties.
• Growth in real estate slumped to 0.1% in 1Q 2020 due to the impact of COVID-19 and Movement

Control Order (MCO). Construction output declined by 7.9% in 1Q 2020, due to solely to a 8.3% decline in private construction work done (55.4% of total construction work done in 2019).

• 10
• 8
• 6
• 4
• 2

2 4 6 8 10 Q1 2016 Q2 Q3 Q4 Q1 2017 Q2 Q3 Q4 Q1 2018 Q2 Q3 Q4 Q1 2019 Q2 Q3 Q4 Q1 2020 % Real GDP growth Construction GDP growth Real estate GDP growth

Socio-Economic Research Centre

• In 1Q 2020, property transactions registered a sharp decline in volume (-13.6% yoy)

and value of transactions (-22.9% yoy) respectively due to the impact of COVID-19 and MCO.

• Declines were across-the-board in volume of transactions: Residential (-9.9% yoy),

commercial (-27.9% yoy), industrial (-32.9% yoy), agricultural (-17.0% yoy) and development land (-13.3% yoy).

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Ov Overall ll property ty tr transa saction tions contr tracte ted sh sharply in in 1Q 2020 2020

362,105 320,425 311,824 313,710 328,647 72,908

• 5.7
• 11.5
• 2.7

0.6 4.8

• 13.6

2015 2016 2017 2018 2019 Q1 2020 Number of transactions Growth* (%)

149.9 145.4 139.8 140.3 141.4 28.6

• 8.0
• 3.0
• 3.8

0.3 0.8

• 22.9

2015 2016 2017 2018 2019 Q1 2020 Value of transactions (RM bn) Growth* (%)

Note: Straight line indicates 0% Source: National Property Information Centre (NAPIC)

Socio-Economic Research Centre 9

Reside sidential tial and and comme mmercial ial property ty tr transa saction tions

235,967 203,065 194,692 197,387 209,295 47,045

• 4.6
• 13.9
• 4.1

1.4 6.0

• 9.9

2015 2016 2017 2018 2019 Q1 2020 Number of transactions Growth* (%)

73.5 65.6 68.5 68.7 72.4 15.6

• 10.5
• 10.7

4.4 0.4 5.3

• 14.3

2015 2016 2017 2018 2019 Q1 2020 Value of transactions (RM bn) Growth* (%) Note: Straight line indicates 0%; *YoY Source: NAPIC

31,776 23,744 22,154 23,935 25,654 5,025

• 10.6
• 25.3
• 6.7

8.0 7.2

• 27.9

2015 2016 2017 2018 2019 Q1 2020 Number of transactions Growth* (%) 26.4 35.9 25.4 29.5 29.0 5.1

• 17.1

36.1

• 29.2

16.0

• 1.8
• 24.4

2015 2016 2017 2018 2019 Q1 2020 Value of transactions (RM bn) Growth* (%)

Residential Commercial

Socio-Economic Research Centre

• Growth in Malaysia’s House Price Index (HPI) had slowed for seven consecutive

years, from 13.4% in 2012 to 1.9% in 2019 (3.3% in 2018).

• Average house prices have increased from RM417,974 in 2018 to RM426,155 in 2019.

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Reside sidential tial property ty outloo tlook

13.4 3.3 1.9

2011 2012 2013 2014 2015 2016 2017 2018 2019 % House Pirce Index (YoY)

301,964 417,974 426,155

2013 2014 2015 2016 2017 2018 2019 All House Price (RM)

Source: NAPIC

Socio-Economic Research Centre

Housing loan applications, approvals, disbursement and repayment slowed sharply in April 2020 due to impact of MCO.

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Ho Housing sing loa loan growth wth tr trend

2 4 6 8 10 12 14 100 200 300 400 500 600 700

Jan 2016 Jul Jan 2017 Jul Jan 2018 Jul Jan 2019 Jul Jan 2020

YoY,% RM bn Value (LHS) Growth (RHS) Note: Loan data for April 2018 onwards have been revised to include MBSB Bank Berhad. Source: Bank Negara Malaysia (BNM) Housing Loan Outstanding

5 10 15 20 25 30 Jan 2016 Jul Jan 2017 Jul Jan 2018 Jul Jan 2019 Jul Jan 2020

Loan applications Loan approvals RMbn

2 4 6 8 10 Jan 2016 Jul Jan 2017 Jul Jan 2018 Jul Jan 2019 Jul Jan 2020

Loan disbursement Loan repayment RMbn

Socio-Economic Research Centre

• Malaysia remains saddled with a massive property overhang five years after the market

nosedived as billions of units remain idle in the market.

• The persistent overhang (completed and unsold) in overall segment of properties

(comprising residential property, service apartment, shops, SOHO and industrial property) have been increasing since 2015, from 16,576 units (RM8.5 billion) in 2015 to 55,999 units in 1Q 2020 valued at RM41.6 billion.

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Ad Addressin ssing property ty overh rhang

16,576 25,362 37,210 51,265 56,988 55,999

2015 2016 2017 2018 2019 Q1 2020

Trend of Overhang

Units ( ) Value

(RM8.5bn) (RM16.0bn) (RM25.2bn) (RM35.8bn) (RM41.5bn)

Q1 2020 Unit RM bn Residential 29,698 18.9 Service Apartment 16,942 14.9 Shops 6,042 4.9 SOHO 1,979 0.9 Industrial 1,338 2.0

Source: NAPIC

(RM41.6bn)

Socio-Economic Research Centre

Rising level of non-performing loans for housing indicates more properties are expected to be put up for auction in the near future.

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Mor More auction tion properties ties in in th the ma market

• 5

5 10 15 20 25 1 2 3 4 5 6 7 8 Jan 2016 Jul Jan 2017 Jul Jan 2018 Jul Jan 2019 Jul Jan 2020

YoY,%

RM bn Value (LHS) Growth (RHS)

• 5

5 10 15 20 25 30 35 1 1 2 2 3 3 4 Jan 2016 Jul Jan 2017 Jul Jan 2018 Jul Jan 2019 Jul Jan 2020

YoY,%

RM bn Value (LHS) Growth (RHS) Non-performing loans: Housing Loan Non-performing loans: Commercial Property Loan

Note: Loan data for April 2018 onwards have been revised to include MBSB Bank Berhad. Source: BNM

Socio-Economic Research Centre

Reintroduction of HOME OWNERSHIP CAMPAIGN (HOC): – Stamp duty exemption on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million subject to at least 10% discounts provided by the developer. – The exemption on the instrument of transfer is limited to the first RM1 million

• f the home price while full stamp duty exemption is given on loan

agreement effective for sales and purchase agreements signed between 1st June 2020 to 31st May 2021. RPGT EXEMPTION for disposal of residential homes from 1st June 2020 to 31st December 2021 (This exemption is limited to the disposal of three units of residential homes per individual) The UPLIFTMENT OF CURRENT 70% MARGIN OF FINANCING LIMIT applicable for the third housing loan onwards for property valued at RM600,000 and above during the period of the HOC, subject to internal risk management practices of financial institutions.

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In Initia itiativ tives and and inc incentiv tives for th the pr prop

• per

erty ty se secto tor

Socio-Economic Research Centre

• Timely relief measures to improve buyers’ sentiment and help to revive the real estate

sector, which has long been in doldrums and plagued by a massive overhang since 2015.

• Will

buyers rush in

• r

stay on the sidelines? Will financial institutions tightened requirements for new mortgage applicants, including credit score during current economic downturn?

• Further refinement to measures?

a) RPGT exemption to include commercial properties, particularly serviced apartment and

• SOHO. It is noteworthy that the number of commercial property transactions between individual

and individual accounted for 50.1% (or 12,858 transactions) of total commercial property transactions1 worth RM6.6 billion in 2019. b) RPGT exemption to include companies owning both commercial and industrial

• properties. Some companies have invested in properties as part of their business strategies

for capital preservation to hedge against inflation. c) To review foreign property purchase price threshold level given the low share of foreign property ownership between 0.3% and 1.0% in 2012-2016. The weak ringgit and competitively priced property prices in the region offer a good entry point for foreign buyers intending to choose Malaysia as their second home.

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Imp Impact on

• n th

the real est estate te se secto tor – Muc Much awaited ited cata talyst ysts !

1 Share of total commercial property transaction = between individual and individual + between developer and individual + between company and

individual + between company and company and others

Socio-Economic Research Centre

• Ease construction and holding costs. Both compliance costs1 and capital contribution charges2 could

range from 8% to 20% of the gross development value (GDV) of a property project.

• Allow for an extension of time (especially for ongoing housing development scheme) or waiver of

Liquidated Ascertained Damages (LADs) arising from the delaying of works at site caused by the MCO or

• ther COVID-19 supply chain issues.
• Utility companies (Konsortium Sdn Bhd (IWK), Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS),

Telekom Malaysia Bhd (TM) and Tenaga Nasional Bhd (TNB)) consider to reduce capital contribution charges by 50% since developers are already mandated to lay infrastructure at development projects. Developers provide new customers to utility companies whenever there are new projects development.

• Introduce an automatic release mechanism for Bumiputera quotas as a means to balance market

forces, at least until the supply glut is corrected.

• Bumiputera discounts should only be applied for FIRST-Timer house buyer and for free market

housing up to RM700,000. This is in accordance with the practice of Need-Based.

• The Ministry of Housing and Local Government (KPKT) should expedite the Approval of HDA Account

(Regulation 9) Excess Money Release (Pengeluaran Wang Lebihan, Peraturan 9) in less than 1 month but not 2 to 4 months presently.

• Request LPPSA (Government Loan Department) to release payment to developers in less than 2 weeks

but not in 3 to 5 weeks presently.

• Lower land conversion premiums and allow conversion premiums to be paid only upon the

launching of each parcel instead of upfront in one lump sum based on total acreage converted.

Notes: 1. Refer to development charges, Improvement Service Fund (ISF) contribution, strata title application and land conversion premiums. 2 Refer to payments made by developers to utility providers for the provision of sewerage, telecommunication services, water and electricity in their projects.

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Ou Our wi wish sh li list st for oth ther property ty-rela late ted me measu sures

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