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Commercial properties glut to worsen in 2018, think tank warns

 | February 28, 2017

Economist says oversupply of commercial properties will take 'years' to adjust, which will put pressure on property owners and mall operators.

Lee-Heng-GuiePETALING JAYA: A think tank has warned of the potential impact of the oversupply of commercial properties which it says will worsen in 2018.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said in 2015, there had already been an oversupply of office and retail space.

Citing Bank Negara figures, Lee said by 2018, another 4.9 million square feet of office space would be built in the Klang Valley alone.

Last year, The Star reported that retail space in the Klang Valley is expected to reach the 60 million square feet mark in 2017.

Lee, who is an economist, said the oversupply of commercial properties would put pressure on owners and mall operators, given increasing operating costs and lower demand.

“Now there is oversupply of commercial units, and by 2018 there will be a whole new line of completed commercial properties.

“When we have an oversupply and developers can’t sell their properties, they will run into cash flow problems. There is also the risk of bad loans,” he said at the Rehda Institute Economic and Business Outlook Conference 2017.

Lee said such problems were already apparent with residential properties, especially condominiums where rentals were dropping due to the number of vacant lots.

Lee said it would take years to adjust the oversupply of commercial properties, and that the oversupply would drive down property values.

He noted however that at present, property prices were still growing although at a slower rate than before.

Previously, veteran economist Hoo Ke Ping predicted that prices of medium and high-end properties would drop in 2018. Some believe this will be a boon for people who can’t afford current home prices.

Lee said the right way to address affordable housing was to increase the supply, adding however that this couldn’t involve the ad-hoc building of homes.

“Affordable housing programmes must be done holistically. It must be supplemented by proper transport, town planning and fiscal policies among others,” he said.

If affordable housing programmes weren’t carried out holistically, he added, they risked being unsustainable.

To encourage developers to build more affordable homes, Lee said the government could release more land, provide incentives and put in place measures to bring down costs for developers so that they could in turn bring down the prices of their homes.

Meanwhile, Real Estate and Housing Developers’ Association (Rehda) national treasurer Muztaza Mohamad said affordable housing initiatives should be spearheaded by governments.

He said governments had the land and were in a better position to secure financing for such projects.

“The private sector is market driven. We buy land at market rates.”

Mustaza added that developers had to produce products which conformed to market demands as they needed to make returns on their investments.

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