News: Are Banks at Fault for the Property Glut?

Sep 7, 2017

 

One reason why there is a glut of commercial space in Malaysia, especially in Klang Valley, is that banks have given out loans for such projects in the past five years without thoroughly studying the supply and demand for such premises, claimed property expert Ernest Cheong.

He said property consultants had warned that there was an oversupply of commercial space as far back as 2012. But lenders still granted loans for commercial projects in the past years without conducting due diligence by themselves.

Cheong alleged that the feasibility studies were more often done by developers instead of banks engaging their own third-party consultants to look into the business plan.

“It’s one thing for a developer to show they can pay back the loan based on projections of sold or rented out units, but how accurate are these projections? Is there really a demand? Obviously there isn’t enough,” he said.

He pointed out that there are currently many shopping centres, office units and other commercial properties with vacant spaces, while some are nearly deserted.

“You walk around some malls and office lots, and you wonder, who actually patronises these places or occupies the office lots. If there are no occupants or insufficient occupants, then how will these places be maintained?”

Cheong also noted that the oversupply could get worse as Bank Negara expects an additional 4.9 million sq ft of office space would be completed in Klang Valley by 2018.

“To me, the banks must now resist the temptation to simply approve loans for projects. Bank Negara should take the lead in making it more difficult for developers to get loans, unless they can prove that their projects will be viable, at least until cooling measures have run their course,” he added.

Meanwhile, developers in Sabah plan to focus on building residential properties in the next few years given the oversupply commercial space in the state, particularly in Kota Kinabalu.

Based on some reports, Sabah’s capital presently has about 6.2 million sq ft of retail space and another 1.1 million sq ft will enter the market over the next two years.

“From now until 2018, there are only one or two commercial real estate projects to be launched. There’s no more development for this type of property in the coming years,” said Chew Sang Hai, President of the Sabah Housing and Real Estate Developers Association (SHAREDA).

“Developers now will have to concentrate on affordable property, most probably residential, those priced at RM400,000 and below. There won’t be much launching of high-end property,” he added.

 
Image sourced from FMT.

This article was edited by the editorial team of PropertyGuru. To contact them about this or other stories email editorialteam@propertyguru.com.my

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