Glut In Penang?

Is Penang in danger of turning into one big property speculation hotbed?

Is Penang in danger of turning into one big property speculation hotbed? The question now being asked is, amid the furious construction activities going on, are there enough takers?

A startling revelation recently by chartered valuer C.A. Lim & Co proprietor Lim Chien Aun that the return on investment (ROI) for properties on the island over the last 5 years had dropped by half, while the value had doubled does not bode well for the industry.

“As it is, the bulk of properties purchased over the past five years were for speculation purposes. If the ROI keeps decreasing, as property values increase correspondingly, then no one would buy property in Penang for investment purposes. The market would then become purely speculative,” Lim has reportedly said.

The affordability factor also comes in. “How many households are there with income between RM8,000 – RM10,000 monthly to be able to afford properties priced over RM300K?” he said.

IRRESISTIBLE HOTSPOT

There isn’t a doubt that Penang is proving to be an irresistible hotspot for developers, attracting them from all over especially the big boys from Kuala Lumpur. The list increases all the time. The latest entrant to the Penang property sector is giant Sime Darby via a 30% share acquisition in Eastern & Oriental Bhd (E&O). The latter is undertaking the RM12 billion Seri Tanjung Pinang 2 project which involves reclaiming 740 acres of land in Tanjung Tokong to develop two islands for mixed development projects.

Another high profile recent entrant from KL is Berjaya Land Bhd which has acquired 23ha of land in the famed Penang Turf Club area for RM459 million cash, or RM184 psf for a high-end residential property development.

Other big boys from KL are SP Setia Group, Sunway City Bhd, Mah Sing Group Bhd and IJM Land Berhad. IJM Land is well-established in Penang for many years and is considered by some to be the biggest developer in Penang. Add that to the increasing number of local Penang developers with big projects such as Suiwah Corporation Bhd, Ivory Properties Group Bhd, MTT Properties and Development Sdn Bhd, and you have a potential oversupply situation for both residential and commercial properties, argued some industry observers.

Recent reports have estimated Penang’s planned projects to be close to RM30 billion over the next 10 – 15 years. At 2010 take-up rates of between RM1.8bil to RM2bil, it would take some 10 – 11 years to sell them off, according to expert estimates.

“PIE BIG ENOUGH”

IJM Land’s CEO and Managing Director, Dato’ Soam Heng Choon was not worried however when asked recently about a possible glut. The chieftain said IJM Land has positioned itself as a market leader and is unperturbed with other developers emerging on the island.

“The pie is big enough, and our product offerings will set us apart from others. Our properties are located near the Penang bridge and have premium waterfront position,” he added.

As always, the big boys will always be able to ride out whatever downturn or oversupply situation that might arise. Optimism was even expressed on the land reclamation works that some quarters believe will increase demand for workers and contractors, and by extension rental properties, food and et cetera. In short, the “frenzied” construction work will actually generate economic activities for the island with its many spillover effects and is thus something that is healthy for the state.

As always the demand and supply will work itself out over time. If the state government manages it well, Penang might well turn out to be “Paradise Revived”.