Malaysia’s most populous island, Penang, enjoys a favoured reputation among resident expats and locals alike. Quality of life, friendly people, modern infrastructure, and some of the best food in the region make Penang a perennial top choice. However, for those considering the island as a place to live rather than visit, a look at the property market is especially warranted as Penang has some special considerations. We offer an in-depth analysis here.
Penang consists of Penang Island and the mainland (Seberang Perai), with a combined total area of 258,750 acres. Penang is strategically located in the centre of the Golden Triangle of Indonesia-Malaysia-Thailand (IMT-GT). IMT-GT currently consists of 14 provinces in Southern Thailand, 8 states in Peninsular Malaysia, and 10 provinces on the island of Sumatra in Indonesia.
The IMT-GT sub-region is a classic growth triangle (at right), characterized by many economic complementarities and geographical proximity, as well as close historical, cultural, and linguistic ties, thus making Penang the key logistic hub for good communication and infrastructure. These considerations have further boosted the tourism and real estate industry in Penang.
Penang has a population of about 1.6 Million with its Gross Domestic Product (GDP) growth slightly below 5%. The main contributing sectors are manufacturing and services which include not only tourism, medical treatment, and education, but also Information Technology Outsourcing (IT) and Business Process Outsourcing (BPO) such as financing, accounting, and data processing. The unemployment rate is low, at just 1.7%.
Penang Property Market Overview
The Penang property market softened from the start of 2014, but remains stable. Despite the softening of the market, Penang’s attractiveness as a location of choice for investors and destination of choice for tourists will continue to make Penang a desirable place.
The State of Penang, with her dynamic and vibrant economy, friendly people, good infrastructure, delicious food, couple with mix of beach/seafront, city heritage, and hillside residential living, that offer quality of life, has been one of the excellence choices for both locals and foreigners to live, stay, raise their family and retire in.
Penang State has been bestowed with numerous accolades, such as being the eighth most liveable city in Asia, a great place to retire in, an island to explore before you die, and many more. On 3 Jan 2014, theguardian.com, a BRITISH news portal, listed George Town as number 8 on its list of Top 40 global destinations. The latest honor in September 2014 came from Forbes which listed Penang’s George Town as the third-most affordable retirement city in the world.
Overview of Penang’s Development
The new Subterranean Penang International Convention and Exhibition Centre (SPICE) in Relau, which is expected to complete in 2015, and the RM346 million Penang Waterfront Convention Centre (PWCC) by IJM Land at the Jalan Tun Dr Lim Chong Eu expressway in 2017 will make Penang a Meetings, Incentives, Conventions, and Exhibition tourism hub. Both projects are expected to attract business investors and tourists to Penang.
The signing ceremony between Penang Development Corporation, Aspen Group, and Ikano, famed for its IKEA store, in September 2014 saw the sales of 245 acres of land for development comprising a new IKEA store, the first in the northern region, a state of the Art Regional Centre, and an integrated mixed development in PDC’s Bandar Cassia township. The purchase price was recorded at RM45 per square foot.
The RM4.5 billion Second Penang Bridge has made its mark on Penang’s landscape with its much-anticipated official opening on 2 March 2014. It is 24km in length and the longest bridge in Southeast Asia. It is an alternative route linking Penang Island to the mainland and is expected to boost the socio-economic development and growth in the Northern Corridor Economic Region (NCER).
The New Housing Policy
It is worth noting that the Penang State Government has also implemented a new housing rule with effect from 1 February 2014 to ensure that genuine qualified first time buyers will have roofs over their head with the following policies which took effect on 1 March 2014:
1. Low-Cost / Low-Medium Cost
All low-cost (up to RM42,000) and lowmedium cost (up to RM72,500) homes cannot be sold within 10 years from the date of Sale & Purchase Agreement. This covers past and future purchases. Those who wish to sell can appeal to the State Government and can only be sold to “registered purchasers”.
2. Affordable Housing
Affordable housing is defined as below RM400,000 on the Island and RM250,000 on the mainland. Homes under this category cannot be sold within 5 years from the date of Sales & Purchase Agreement. Similarly to the above, those who wish to sell can appeal to the State Government and can only be sold to “registered purchasers”.
The Penang State Government has also proposed Malaysia’s first-ever Shared Ownership Scheme (SOS), a joint purchase initiative between the State Government and households who cannot obtain sufficient finance to buy low-cost homes. The State Government will offer 30% interest-free loan and the households need only raise a capital for the remaining 70%. The 30% loan can be repaid at any time or remain in shared ownership, paying off the loan only when the property is sold.
3. Purchases by non-citizens
Non-citizen can only purchase properties in excess of RM1,000,000 for strata-titled properties and RM2,000,000 for landed properties. It has added three per cent levy for any purchase of property bought by non-citizens with effect from 1 March 2014.
4. Property purchased within three years
A further two per cent levy is also imposed on the sales of all property, not just sales by non-citizens, sold within three years from the date of the Sales & Purchase Agreement signed from 1 March 2014. This two per cent levy is, however, not applicable to affordable housing.
5. Budget 2015 & Real Property Gains Taxes
In a bid to curb speculation, the government in its Budget 2015 announced on the 25 October 2014, that the Real Property Gain Tax or RPGT has been revised as follows :
• 30% for properties held for 3 years or less;
• 20% on the 4th year
• 15% on the 5th year and above
• 30% for properties held for 3 years or less;
• 20% on the 4th year
• 15% on the 5th year
• 5% on the 6th year and above
• 30% for properties held from 1 to 5 years
• 5% from the 5th year and above
The other major concern from the Budget 2015 is the implementation of 6% Goods & Services Tax (GST) which will take effect on 1 April 2015. It will replace the current Sales Tax (6%) and Services Tax (10%). How it will impact the property sector remain to be seen. Most of the experts and consultants are of the view that it will affect overall prices, particularly in the commercial sub-segment.
Residential Property Market
Residential remains the darling in the property sector. Strata titled properties such as apartments and condominiums remained the most active. The total volume and value in 2013 recorded at 24,346 units and RM14 million, respectively.
1. Notable new developments in Penang Island are:
• Moulmein Rise by Belleview Group of Properties
• The Rice Miller City Residences & Hotel by Asian Global Business
• Olive Tree Residences by Harta Intan Group of Companies
• Tropicana 218@Macalister by Tropicana
• The Wave by Ivory Properties Group
• The Turf Condominium by Chong Company
• Mira Residence by BSG Group
• The Landmark by BSG Group
• The Coastal by MahSing Group
• Penang World City by Tropicana Ivory
• Andaman by E&O Properties
• Shorefront Residence by YTL Land
• Sunshine Tower by Crimson Omega Sdn Bhd
• Solaria Residence by Ideal Property Development
2. Total Volume and Value (Malaysia and Penang), 1999-2013
3. Property developers reported slower sales mainly due to three factors:
• the removal of the Developer’s Interest Bearing Scheme (DIBS) and Interest Capitalisation Scheme (ICS);
• property loan-to-value ratio is now based on the net selling price after rebate and discount; and
• debt-to-income ratio where the loan approval is based on net income after all deductibles.
Pre-war Heritage Properties
The core and buffer zones of George Town’s UNESCO heritage site accommodate more than 4,600 units of heritage buildings. Among the many unique heritage buildings are such well-known locations as the Cheong Fatt Tze Mansion (The Blue Mansion, built in the 1890s), which was awarded UNESCO’s ‘Most Excellent’ Heritage Conservation Award in 2000; the Eastern & Oriental Hotel, declared as a Penang State Heritage Landmark by the Chief Minister of Penang in 2010; and the Kapitan Keling Mosque, a mosque built in the 19th century by Indian Muslim traders in George Town.
In tandem with the dynamic and vibrant tourism activities in George Town, it is observed that a substantial number of pre-war heritage buildings have been refurbished and converted into boutique hotels and F&B outlets to cater to the increased influx of tourists to Penang. Seven Terraces, Muntri Mews, Noordin Mews, Cheong Fatt Tze Mansion, Campbell House, Yeng Keng Hotel, 1881 Chong Tian Hotel, Penaga Hotel, Macalister Mansion, Logan House, Whiteaways, etc., are among the notable heritage buildings that have been refurbished and transformed.
The price of Penang’s pre-war heritage property has been on an upward trend since the abolishment of the Rent Control Act in 1999. The average price per square foot of this segment of property has registered encouraging double digit CAGR growth from 1999-2013.
Penang’s pre-war heritage property market has faced many challenges as well as excitement, but one thing is pretty certain: The market is resilient and will always come upon top. The dynamic and competitive pre-war heritage property market continuously offer exciting times for the stakeholders, investors, tenants, and landlords.
Conclusion: Price continue to raise
A large part and well-known part of the affordability problem on Penang Island is the lack of land for development. The cost of land will continue to rise as demand outstrips supply. This problem is further compounded by falling rates of housing stock growth, which places even greater demand on the existing and incoming housing stock. Therefore, prices are expected to continue to rise.
Penang’s property market is expected to remain cautiously optimistic as the state is underpinned by healthy fundamentals, such as fairly young population demographics (about two-thirds of Penang’s population are under age 40), shrinking average household sizes (about 3.5 per household), low unemployment rate, increased local and foreign investments, stable income levels, and bright job opportunities.
Property is a long-term investment and the new housing guidelines will bring positive notes to promote long-term investment and deter excessive speculation.