Property industry needs to address sustainability, innovation and technology challenges

This article first appeared in City & Country, The Edge Malaysia Weekly, on August 2, 2021 - August 08, 2021.
(Photo by The Edge)

(Photo by The Edge)

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The housing and property industry needs to address three key challenges — sustainability, innovation and technology — in the recovery of the industry and the economy in the post-pandemic era, said KSI Strategic Institute for Asia Pacific president Tan Sri Michael Yeoh in his welcome remarks at the 2021 Malaysian Housing and Property Summit titled “Resetting and Rebuilding the Housing and Property Industry in the New Normal” on July 27. 

He noted that there is a need for the industry to chart a course to get the economy moving again. “Many livelihoods and businesses have been affected, and we need to work together for the recovery. We also need the government to be more responsive to the needs and considerations of the business community, [working] together with the private sector. This collaboration is essential … and the property and housing industry can take the lead in building the economy.” 

“For sustainability, we need to ensure that we are able to remain sustainable, as sustainability is important for the housing and property industry. Secondly, the industry needs to be innovative. We need to be able to develop innovation because it will be key in reshaping the industry. Lastly, technology is a great game changer for all economic sectors. The housing and property industry needs to be able to embrace technology to perhaps [get] a faster rollout of IBS (industrialised building system) so as to ensure that technology is further embedded in the industry.”

The virtual summit was organised by KSI Strategic Institute for Asia Pacific and co-organised by the International Real Estate Federation (Fiabci) Malaysia. More than 270 participants registered for the one-day summit, which consisted of four sessions.

Fiabci Malaysia president and S P Setia Bhd senior executive vice president Datuk Seri Koe Peng Kang in his welcome note urged the industry to persevere and move forward as it is at the end of the tunnel, following the possibility of the country reaching herd immunity by October, which would then allow for the reopening of the economy.

“We are at the end of the tunnel and the economy will reopen when we hit herd immunity, so don’t give up. Napic’s (National Property Information Centre) data shows that 2020 is doing better than 2019, with lower overhang. Also, today, we need to change our mindset so we can move forward. We have to create certain innovations in the way of doing things in order to suit the market demand. Today, the design philosophy is healthy lifestyle, sustainability and, most importantly, digitalisation,” he added.

“Fiabci will also talk to the government about MM2H (Malaysia My Second Home), which is an attraction to high-end properties. We need to formulate the policy to get the industry to move forward. Let’s move on and let’s be optimistic.” 

In delivering her keynote address, Housing and Local Government Minister Datuk Zuraida Kamaruddin noted that developers have adjusted their business strategies to suit the market recession to stay competitive as well as to withstand the economic challenges and uncertainties. 

However, she cautioned that properties may not necessarily be more affordable in the post-pandemic era. “One should realise that houses may not necessarily be more affordable in the post-Covid-19 era. This is because, during the economic crisis, not only is the housing market going through adjustment, other markets are also doing the same, particularly the labour market and the financial sector.

“Wage growth could be lower or zero during the crisis, and the unemployment rate could hit a higher level than any other periods, leading to negative household debt-servicing capacity. Meanwhile, banks are likely to tighten their lending conditions to reduce their exposure to a higher risk of possible default from mortgage payments, making it even harder for first-time home buyers to enter the market.”

Finding opportunities in the new normal

The first session, titled “The Property Sector in the New Normal: Where Do We Go From Here?”, was moderated by Rahim & Co International Sdn Bhd executive chairman Tan Sri Abdul Rahim Abdul Rahman. The panellists were Country Heights Holdings Bhd founder and executive chairman Tan Sri Lee Kim Yew, Eastern & Oriental Bhd executive chairman Datuk Tee Eng Ho, Juwai-IQI Holdings chief economist Shan Saeed as well as UDA Holdings Bhd president and CEO Mohd Salem Kailany.

Tee noted that in the post-pandemic era, new product development needs to look at property safety and security; network and data stability; circulation of the space and modern amenities; as well as private and communal spaces.

“Developers also [need to] look into digitalisation of business and systems as well as how we do our marketing events and engage with our buyers. Property management apps will also be used. After the pandemic, homebuyers would want well-planned layouts and practical private space,” he said, adding that homebuyers may also look for properties with specific purposes such as pet-friendly developments or properties focused on sustainability.

Lee believes in “turning crisis into opportunity”. He suggested that the government attract high-end tourists by letting them pay for a one-year visa to stay in Malaysia as they are often attracted to high-end properties. “This will allow the government to take care of the properties for other income segments … Secondly, we are looking to suggest to the government a wellness visa where people can enter Malaysia, quarantine in a resort and get their vaccine injections. This is what we call turning a crisis into opportunity.”

Saeed noted the changes that the property industry has gone through in the past 20 months as it tried to strike a balance between pandemic and economy. He does not expect the global economy to recover before 2023, but observed that investors are still buying property now as it is the new global currency.

Salem said, “Developers will also be more selective in future launches, looking at where the opportunity is, [and] the size of the offering will be smaller. There will also be requirements for innovative construction methods to ensure better-quality products within a short period of time, but at the same time [look at the] construction budget.”

Sustainability the new priority for residential projects

Sustainability is a new priority for residential property projects in Asia, amid the outbreak of Covid-19 and threats from climate change, said Alpha REIT Managers chairman Datuk Stewart LaBrooy during the session titled “Sustainability in Property Development — Embracing the New Normal”. 

The other panellists were KPMG Management & Risk Consulting Sdn Bhd executive director (governance and sustainability) Phang Oy Cheng, Pertubuhan Akitek Malaysia deputy president Abu Zarim Abu Bakar as well as Veritas Architects Sdn Bhd group vice-president Lillian Tay. It was moderated by JLL Property Services (Malaysia) Sdn Bhd country head Y Y Lau.

“Sustainability, in the view of property developers, means facilities that are friendly to the environment and ensure the well-being of residents, addressing the design needs arising from the pandemic, while being responsible to the local communities,” said LaBrooy.

“However, sustainability goes far beyond that. An ESG (environmental, social and governance) approach requires a deep commitment to environmental stewardship, social responsibility and good governance and an aspiration to be a leader in your industry and beyond. It is not a compliance statement in your annual report. It involves delivering for your four key stakeholders, namely employees, customers, communities and investors.”

Phang concurred with LaBrooy, saying “One of the key requirements is that you understand what your stakeholders are saying and how you need to improve your ESG reporting, management and performance to meet the requirements. They also need to focus on where the challenges are and the need to consider the ESG risks.”

Abu Zarim noted that the key importance of sustainable developments in the property industry is about giving back to society, designing for community as well as building up resilience.

Meanwhile, Tay urged cities and buildings to be ready to function in the face of recurring public health crises and natural calamities in the post-pandemic era. City planning and building design need to address three issues, namely household lockdown stress, healthcare system stress as well as increased vulnerability due to the high proportion of elderly and young population.

Rebound expected in 2022 

Property transactions are expected to surge although prices will remain flattish in 2022, said the panellists in the session titled “Strategic outlook and trends in the property sector”. The panellists were CBRE | WTW group managing director Foo Gee Jen, Zerin Properties managing director and CEO Previndran Singhe and Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS) president Michael Kong. Rahim & Co International CEO of real estate agency Siva Shanker moderated the session. 

Kong said that when the nation went into a full lockdown on March 18, 2020, the market was healthy at 72,867 transactions worth RM28.5 billion (1Q2020). However, the whole of 2Q2020 was muted, recording a drop of 41.1% to 42,609 sales transactions worth RM18.35 billion. 

He noted that the market recovered some lost ground with healthy transaction values and volumes during the Conditional Movement Control Order (MCO) and Recovery Movement Control Order (RMCO) periods from May to December last year. However, the recovery was hampered by MCO 3.0 and FMCO this year. 

“The 1Q2021 results were impacted, but it is interesting to note that the numbers were slightly better than in 1Q2020. This is possibly due to the spillover effects from 4Q2020. Perhaps we need to look at the performance of 2Q2021 to judge further,” said Kong.

He predicted that 2Q2021 figures will dip due to the strict lockdown imposed. He expects the pandemic to be under control by the end of this year (with the vaccination programme in full force), and the market should see a robust recovery in 2022.

Kong also called for the reactivation of the Malaysia My Second Home (MM2H) programme, which was temporarily suspended in the middle of last year. The Ministry of Tourism, Arts and Culture has announced that a review of the programme has been completed and is ready to be presented to the Cabinet for approval, he said.

Addressing the issue of property overhang last year, Previndran said the number and value grew by 8.84% and 12.88% respectively in the Klang Valley due to the many properties launched in 2019. “The problem then was “enthusiastic building”, whereby [developers] just went forward and launched without [doing] a property market study on what the buyers wanted and what the buyers could afford,” he said, adding that the problem has persisted this year.

According to Previndran,  serviced apartments and landed residential properties make up most of the overhang. They are in the range of RM500,000 to RM1 million. “However, amid the pandemic, mortgage approvals continued to be on the rise, and developers got creative at driving sales,” he said.

The value and volume of transactions grew by 28% and 19.5% respectively in 1Q2021, a sign of a resilient market and pent-up demand, he added. He noted that Iskandar Malaysia in Johor “is the worst-hit market in the region” with an overhang that was close to double that of the Klang Valley. Last year, the overhang in Iskandar grew 27.94%, with 73% of the overhang units being serviced apartments (RM500,000 to RM1 million). 

“I foresee an increase [in overhang units] in Iskandar for next year as well, as launches in 2019 come into the picture. However, astute developers in Johor saw this coming and switched to landed properties very quickly, which we can observe from the incoming as well as planned supply. This has resulted in very good sales (1Q2021 compared with 4Q2020). There was a drop of 10% in volume but an increase of 4% in value in 1Q2021 compared with 1Q2020,” said Previndran. 

“In recent months, mortgage applications and approval values remain close to historical peaks. We were from a low base last year, but the rebound was close to 200% y-o-y. This will continue to be driven by strong pent-up demand, a resilient market, low interest rates and the ongoing HOC (Home Ownership Campaign), which will bode very well.” 

A changed landscape 

CBRE | WTW’s Foo said there is an oversupply in the office, retail and industrial sub-sectors while occupancy rate is at an all-time low with pressure on rents. 

“The companies, occupiers and landlords need to prepare for when the lockdown is lifted. During pre-pandemic days, the office structure was rigid, with headquarters, satellite offices, offices on project sites and flexi spaces. Moving forward, offices will rely more on technology and hybrid working will be the new norm, depending on the business strategies, workforce and workplace solutions,” he added.

“It will be like a spider web. Business continuity plans will be a concern, as in how to maintain the business with all the workers working remotely. WFH will be a permanent feature, but will it be the dominant factor within the office structure? In my opinion, it will not be. 

“Wellness will be a key thing moving forward with the public concerned about whether it is safe to return to the office, and also whether the offices will have an open-plan or a cubicle-type structure. This is something landlords and occupiers may need to consider.” 

Foo expects demand for offices to be reduced in the short term. However, in the mid term, there will be an emergence of premium requirements and larger spaces. “Moving forward, there will be a need to return to the office and the demand will return to normal in three to five years, especially between 2022 and 2023, with a new office environment.” 

He added that the vacancy rate is still manageable with an increase of 1.5% to 2% to date.

Meanwhile, the retail segment saw a double-digit decline during the pandemic, which carried into 1Q2021 with a decline of 4% to 5%, he noted. 

Foo believes that online shopping will not replace physical stores while safety and health concerns may be the impetus for the introduction of “open concept” malls and other features such as high-tech product experience. “Moving forward, the adoption of e-commerce, technology and big data, the design of the shopping malls and the delivery will change completely. E-commerce, in particular, has grown by 18% (US$13.5 trillion) from 8% in 2015. It is an area we need to pay attention to.” 

As for the industrial and logistic sub-sectors, Foo expects to see adoption of new technology and a “huge demand for data centres”. The pandemic-led demand for cloud storage, video conferencing, online schooling, gaming entertainment, social networking and work-from-home platforms surged by 41% in 2020, compared with its annual growth of 8%.

The final session was titled “Digitalisation and Innovation in the Housing and Property Industry: How Digital Technology will be the New Competitive Edge for Property Development” and was moderated by REI Group & Propenomy.com co-founder and CEO as well as Malaysia PropTech Association president Dr Daniele Gambero. The panellists included Veritas Design Group founder and group president David 

Mizan Hashim, Yes Boss Corporation general manager Poo Ching Loong and Juwai-IQI Holdings executive chairman Georg Chmiel. 

Gambero highlighted that today, proptech 3.0 is leveraging available and affordable technology via smartphones, tablets, WiFi as well as artificial intelligence, machine learning and big data. 

Poo commented on blockchain and the ramifications of adopting technology. “There will be a few disruptors in the future. Technology will improve our productivity significantly. In the next 10 years, construction costs may decrease by 50% and construction time should decrease by 30%. The quality will also improve, along with massive energy savings. This will disrupt the traditional way of doing business.”