Large supply of prime high-rise residential units expected for 2022 - JLL

An influx of prime high-rise residential properties is expected in 2022, adding further pressure on capital values, according to JLL Property Services (M) Sdn Bhd as reported by The Sun Daily on Apr 27.

The daily quoted researcher and consultant Eva Soo, who during a webinar at the JLL Q1'22 Real Estate Market Perspective said that the incoming large supply is mainly due to delays in completion over the past two years due to the economic restrictions brought on by the pandemic.

She added that this will lead to an increase in unsold properties over the next few years before the market adjusts itself. However, the present all-time-low interest rate of 1.75% would encourage investors to return to the market.

The capital value stood at RM953 psf as of Q1 2022, while the average asking rent at RM2.95 psf per month.

According to JLL Greater Kuala Lumpur property market monitor Q1’22 report, residential capital value growth declined 2.5% quarter-on-quarter (q-o-q) and average rent declined 2.3% q-o-q.

The market yield was at 3.02%, generally lower than other asset classes.

Prime high rise residential stock in Greater KL, covering KL City and extending towards Mont'Kiara, Damansara Heights, Bangsar, and Mid Valley was 51,000 units.

Additionally, the overall unsold rate is still considered quite healthy at 3.55%, said Soo.

Meanwhile, the ending of stimulus packages such as the Home Ownership Campaign and loan moratorium has led to a reduction in demand.

“The ending of the incentives has limit the demand for the residential market, but only for a very short term when talking about prime high rise residential,” said Soo, adding that the zerorisation of Real Property Gains Tax has encouraged many property owners to put their property on sale in the secondary market.

“As we see an increase in the primary market and at the same time, probably supply in the secondary market, capital values will likely compress quite a bit in this year," she noted.

Softer new launches; rise in residential overhang

 Transaction volume of properties rebounded in 2021 following a contraction in 2020. Based on the National Property Information Centre’s (NAPIC) Annual Property Market Report 2021 this month, property transaction volume increased

modestly by 1.5% YoY to 300,497 units in 2021, driven by higher number of transactions in residential, commercial and industrial properties (Exhibit 2). This was 91% of the pre-pandemic level in 2019. Although this represented a moderate annual increase in transaction volume, the property transaction value in Malaysia rose to RM144.9bil in 2021, the highest level since 2017 (Exhibit 3). The stronger growth in transaction value was contributed by higher percentage of transactions in residential and industrial properties priced over RM1mil.

By state, Selangor is largest contributor to the total property market transaction volume at 20%, followed by Perak and Johor with 12% each.

 Lowest residential new launches since 2007. In 2021, Malaysia’s property market saw the lowest number of new residential unit launches at circa 44,000 units since 2007 (Exhibit 5). Developers pulled back on new launches due to a softening property market and higher unsold inventories, resulting in a 6.7% decrease in new launches compared to 2020.

On a positive note, the sales performance of new launches improved to 39% in 2021 from 29% in 2020. We expect the conservative trend of property launches to continue in FY22F as most of developers (except Mah Sing Group and Lagenda Properties) have guided prudent sales targets for FY22F which were lower than FY21 actual sales. Selangor had the highest number of new launches in the country, followed by Johor and Perak (Exhibits 6 & 7).

 New residential launches dominated by terraced houses. In terms of types of property, terraced houses (60.1%) dominated new residential launches. This was led by single-storey houses (10,667 units), followed by 2-to-3-storey terraced houses (15,705 units) and the launch of high-rise properties, mainly condominiums/apartments (12,018 units). The latter made up a share of 27.4%.

 Rising residential overhang contributed largely by high-rise properties. YoY, residential overhang rose to 24.7% to 36,863 in units and RM22.8bil (+20.5%) in value as at December 2021 (Exhibit 8). Selangor still has the largest residential overhang. This was followed by Johor, Penang and Kuala Lumpur (Exhibit 10).

In terms of the overhang by type of properties, condominium/apartment units were the highest at 20,505 (55.6% of the total) followed by terraced houses at 7,839 (21.3%).

 Selected developers fared well in the affordable segment. The affordable housing projects of Mah Sing Group (Mah Sing) and Lagenda Properties (Lagenda) have achieved good take-up rates for their recent projects due to the fact that the projects are at strategic, established and underserved locations.

 Luxury high-rise property remains a concern. The overhang status in residential properties priced between RM500K and RM1mil is concerning, accounting for a significant share of the nation’s total residential overhang in units (30%) and value (33%) (Exhibit 9), with the bulk of them in high-rise residential properties. Meanwhile, serviced apartments accounted for 73.2% of the commercial property overhang in Malaysia.

 Diversified portfolios to mitigate the impact of residential overhang which is largely made up of high-rise units. The majority of developers under our coverage (except Mah Sing and Lagenda) have more than half of their properties priced above RM500K in their portfolios. However, with a diversified portfolio and stronger focus on landed properties with prices below RM1mil, these developers are seen as able to mitigate the impact of the residential overhang which comprised largely high-rise units.

 Lower impact on landed projects in Johor from stricter Malaysia My Second Home (MMSH) programme. Generally, foreign buyers tend to purchase apartments and rarely opt for landed properties in Johor. Hence, we believe the stricter criteria for the MMSH programme and the oversupply of high-rise residential units in Johor have lower impact on Johorbased developers such as UEM Sunrise (UEMS) as the company focuses more on landed property development. UEMS’ recently launched landed properties projects in Johor (Serimbun, Aspira ParkHomes, Aspira Gardens, Senadi Hills) have been well received with take-up rates ranging between 73% and 100%.

 Marginal increase in house prices. In 2021, the Malaysian House Price Index (MHPI) rose slightly by 0.6% YoY to 201.5 points (Exhibit 11). Continuous demand for terraced houses supported the stable growth in the Terraced House Price Index of 2%, while there a slight decline in the price indices for High-Rise (-0.2%), Semi-Detached (-0.1%) and Detached (-3.3%) Houses. In 2022, we expect property prices for new projects to increase at a higher rate as some of the developers (whom we have recently met through virtual meetings) plan to pass on a portion of the cost increase of building materials to buyers in order to preserve their margins.

 We reiterate our NEUTRAL stance on the property sector. In 2023, we expect a gradual recovery in property transaction volume with improved market sentiment post-lockdowns and higher property demand following the reopening of international borders. However, we expect property developers’ operating margins to be compressed in 2022 as a result of a prolonged supply chain disruption which has led to heightened building material costs. We are also concerned on the pre-existing affordability issue in the housing market, which has intensified since the Covid outbreak as consumers’ disposable income has been impacted.

 Our top BUY is Sunway (fair value RM2.27) given the strong brand recognition established by its highly successful landmark developments and expanding healthcare business, supported by substantive unbilled sales and outstanding order book. We like Lagenda (FV RM1.90) due to its focus on underserved landed affordable housing development in second-tier states with a large population of B40 and M40 income groups. We also like Mah Sing (FV RM0.93) for its focus on affordable housing developments at strategic locations as well as its savvy execution and quick turnaround business model.

NAPIC：去年逾220亿房产滞销

大马投资银行（AmInvestment Bank）引述马来西亚国家房产资讯中心（NAPIC）数据，2021年全年有逾220亿令吉的滞销房产，比2020年冠病第一年多了将近25%！其中，又以公寓的滞销情况最为普遍，比率超过所有滞销房产的一半。

滞销房产中雪州占最多

大马投资银行指出，2021年全马共有3万6863间房产滞销，总值达22亿8000万令吉，比2020年增加24.7%，其中又以雪兰莪有最多滞销房产，接着是柔佛、槟城与吉隆坡。

在总值逾220亿令吉的滞销房产中，超过一半是公寓与组屋，滞销数量达2万505间，占所有滞销房地产的55.6%，接著是排屋有7389间，占21.3%。

至于房价方面，该银行指50万至100万令吉的滞销房产已经达到令人担忧的情况，约占滞销房产的30%，其中又以高端房产占最大宗。

“另外，服务式公寓的滞销情况也相当严重，占了73.2%滞销房产比率。”

大马在2021全年仅进行了约4万4000间房产交易，是2007年以来最低的纪录。

由于市场买气低靡，因此发展商纷纷推迟新房产计划，导致去年全年的新房产项目，比2020年减少6.7%，不过新房产的买气却比2020年的29%更高，达39%。

A guide on rental income tax for residential properties

 CHELSEA J. LIM / EDGEPROP.MY

With a fast approaching deadline on April 30, many will be rushing to complete our tax filing. As you tick off your checklist, you may wonder if you have missed out any taxable items. If you are a property owner who have leased out your premises, do you know you need to declare your rental income as well? 

For those who are unaware, here are some tips in navigating through rental income taxation. 

What is rental income tax? 

Having bought properties for investment purposes, you may mistake the rental returns as investment gains that are tax-exempted, but unfortunately, any rent received is to be declared as taxable income. 

Set under a separate category, rental income tax comes with its own progressive tax rates that range between 0% and 30%. It is also calculated on a net basis, where all claimable expenses can be deducted.

What are the deductible expenses?

From the total payments you receive from your tenant within the assessment period, you are entitled to some deductible expenses:

• Assessment tax 

• Quit rent

• Fire insurance premium

• Expenses incurred on rent collection

• Expenses incurred on rent renewal

• Expenses on repairs and property maintenance

• Interest on home loan

• Maintenance fee for strata properties

Landlords, take note that these expenses are only claimable with a legal tenancy agreement. Don’t forget to keep the original receipts for all the claimable expenses. 

How to calculate net rental income

Your net rental income is derived after deducting the amount you have spent on the property’s upkeep as listed above. 

As an example, let’s say you have leased out your condominium unit with a monthly rental of RM1,000 for a one-year tenure. If the tenancy agreement starts from January 2021, you will calculate the contract term until year end. If the tenancy starts in February, then the taxable term is 11 months. You have also spent on an annual fire insurance for RM150, assessment tax for RM500, quit rent for RM50 and property repairs of RM5,000. 

Gross rental income	Rent per month	RM1,000
	Tenancy starts in January	12 months
Deductible expenses	Fire insurance	RM150
	Assessment tax	RM500
	Quit rent	RM50
	Property repairs	RM5,000
Deductible total		RM5,700
Net rental income	(Monthly rent x contract term) - Deductible expenses.   (RM1,000 x 12) - RM5,700 = RM6,300

Based on the example above, RM6,300 is the amount taxable under rental income.

Are there any tax incentives? 

You may have heard of tax incentives, where special deductions are given to landlords who give at least 30% rental discounts to their tenants to tide them through the Covid-19 pandemic.

While the incentives earlier covered only rental reductions provided for small and medium enterprises (SME) from April 1, 2020 to March 31, 2021, it was later expanded under the PERMAI Assistance Package introduced on Jan 18, 2021 to include non-SME and for a period up to June 30, 2021.

However, the “non-SME” refers to businesses such as “a bazaar lot, stall, vehicle park, storage warehouse” (https://lom.agc.gov.my/ilims/upload/portal/akta/outputp/1709370/PUA354_2021.pdf), and not residential leases. 

So the answer is no, there are no exemptions for residential rental income. So, remember to file your taxes accordingly if you want to avoid any penalties from the Inland Revenue Board (LHDN).