We visited Penang’s property scene recently and came back feeling unexcited, as Penang is also experiencing a slow-down like the other major property corridors of Malaysia. Our visit focused on new projects on the Island and the Batu Kawan area to gauge the pace of development and demand momentum. We visited the following projects; (i) SUNWAY Cassia @ Batu Maung, (ii) Eco Meadows @ Simpang Ampat, (iii) IJM Permatang Sanctuary @ Permatang Tinggi, Bukit Mertajam, (iv) Eco Terraces @ Paya Terubong Penang Island, and (iv) EWEIN City of Dreams @ Gurney Drive. Penang is also facing similar challenges as in Klang Valley such as tighter loans requirements or the right margin of financing, affordability issue and weak rental yields. We are seeing take-up rates of about 50%-70% (including Bumi units or 30% of the development) vs. the good-old days where 70%-80% take-ups were achieved within a year of launch. Most developers are cautious about launching large project phases or even maiden ones, save for ECOWLD. Positively, the current profile of buyers of these projects is largely Penangites and for owner-occupancy purposes. Our ground feel indicates that Penangites are upbeat on the new infrastructure plans (e.g. undersea tunnel, PORR, LRT) even though it means more land reclamations to fund the projects. However, while the optimism on Penang’s future is there, we note that there is a general cautiousness in the near-to-medium-term. Just like Klang Valley, Penang residential prices have plateaued as 3Q15 HPI growth for Penang has eased to 3.5% vs. its 10-year’s average of 7.6%. Overall, we continue to maintain NEUTRAL on the sector and remain neutral on Penang as we see no near-term catalysts in the area. Those wanting to take bets on Penang’s infrastructure spillover effects will require a longer term view and holding power. We maintain that the overall fundamental property structure of Malaysia (e.g. banking liquidity to the sector, affordability issues) needs to be addressed first before the sector can see the next bull-cycle.

Penang property scene. We visited Penang’s property scene recently and came back feeling unexcited as Penang is experiencing similar slow-down as the other major property corridors of Malaysia. Out visit focused on new projects on the Island and the Batu Kawan area to determine the pace of development and demand momentum. We visited the following projects; (i) SUNWAY (MP; TP: RM3.27) Cassia @ Batu Maung, (ii) Eco Meadows @ Simpang Ampat (ECOWLD; OP; TP: RM1.90), (iii) IJM (MP; TP: RM3.50) Permatang Sanctuary @ Permatang Tinggi, Bukit Mertajam, (iv) Eco Terraces @ Paya Terubong Penang Island, (iv) EWEIN (NOT RATED) City of Dreams @ Gurney Drive. We also visited the sites of yet to launch projects by; (i) PARAMOUNT’s (NOT RATED) KDU Penang @ Bandar Cassia, Batu Kawan, and (ii) HUAYANG’s (OP; TP: RM2.20) affordable service apartment at Bukit Minyak, Bukit Mertajam.

Facing the same challenges... As felt in the Klang Valley, Penang also faces similar challenges such securing loans for the buyers or the right margin of financing, affordability issue and weak rental yields (1%-2% on average for newly delivered projects). Based on the projects we visited, which has been launched within a 12-month period, we are seeing take-up rates of about 50%-70% (including 30% Bumi units) vs. the good-old days where 70%-80% take-ups were achieved within a year of launch. We note that developers have to offer a lot more goodies to entice buyers to lock-in sales, which is similarly experienced in the Klang Valley. Most developers are cautious about launching large new project phases or even maiden ones, save for ECOWLD which appears to be on the roll with Eco Marina @ Batu Kawan being targeted for launch in 4Q16.

…but largely driven by Penangites and owner occupiers. Positively, the current profile of buyers of these projects is largely Penangites who are buying for owner occupancy purposes. Landed housing is still preferred by most Penangites, according to most developers, and this could be the reason that landed homes are regarded as the preference albeit the weaker yields vs. high-rise developments. However, based on our recent project visit observations, we note that take-up rates for landed and high-rise residentials were mixed (refer to project updates for details).

Our ground feel indicates that Penangites are upbeat on the new infrastructure plans (e.g. undersea tunnel, PORR, LRT) even though it means more land reclamations to fund the projects. However, while the optimism on Penang’s future is there, we note that there is a general cautiousness in the near-to-medium-term due to general economic slowdown while on-the-ground channel checks indicate that many cash-rich Penangites have channelled their funds towards overseas property investments in the last 2-3 years. Additionally, Penangites are known to have ‘holding power’ enabling them to bear long periods of low rental yields and slow capital appreciation; this was also concurred with the developers we met on the ground i.e. Penang properties will require a longer term view of 5-10 years for compelling returns. This could be another reason for the preference for landed homes which capital appreciation tends to be stronger compared to high-rises.

By far, the most impressive development we have seen was EWEIN’s City of Dreams, followed by Eco Meadows and Eco Terraces. EWEIN’s City of Dreams certainly sells a compelling value proposition given its price and high-end positioning in a sought after location (refer overleaf). We gather that EWEIN is trying to build its brand amongst Penangites by offering value and the promise of quality. Of course, ECOWLD’s projects continue to echo their class-above trade-marks as seen in Johor and Klang Valley as the group is selling lifestyle in strategic locations, impressing buyers with their strong sales and marketing pitches and service. More importantly, ECOWLD is addressing security concerns, such as those on the mainland of Penang with Eco Meadows being a gated-and-guarded community. As for projects in or near the Batu Kawan area, we were taken aback by the large tracks of land which hav not been developed which could up supply competition for mass developers in the Mainland. Positively, most developers we visited, except for ECOWLD, are less aggressive with their launches current. 

Source: Kenanga Research - 29 Jan 2016