talking about malls, KL has a big glut
From: Theotherhalf <mobile@tm.net.my>
Newsgroups: soc.culture.malaysia
Subject: Too many malls and office towers in Malaysia
Date: Fri, 05 Jun 1998 11:02:15 +0000
AWASH IN RETAIL SPACE
Too many malls and office towers in Malaysia
Kuala Lumpur
WHEN MALAYSIA'S BIGGEST SHOPPING center opened in early May,
thousands flocked to gape and window shop. The
1-million-square-foot Suria Kuala Lumpur City Center adjoins
the world's tallest building, the Petronas Twin Towers. But
shopkeepers are not happy. "There are lots of people in the
mall, but nobody's buying," complains a franchisee of a
European boutique. Two weeks after the opening, he had yet
to make a big sale. At least most of Suria's retail space
has been taken up. Across town in Petaling Jaya, another
newcomer, Amcorp Mall, has leased only half its shop space.
Other new suburban malls like Sunway and The Mines are
mostly rented, but that may change if shoppers continue to
stay away.
Welcome to a property nightmare. In 1996, total retail space
in Klang Valley - Kuala Lumpur and its suburbs - was 15.7
million sq ft and the occupancy rate was 94%. In the past 18
months, more than 7 million sq ft of new shopping centers
have come onstream. If current projects are not shelved,
another 10 million sq ft would be completed by the turn of
the century, bringing Klang Valley's total retail space to
twice that of Singapore. The office sector is looking only
slightly better. A credit crunch has delayed completion of
several towers, but over 9 million sq ft of new office
blocks will still open their doors by the end of 1999. The
forecast vacancy rate: up to 35%. "Kuala Lumpur is probably
the most overbuilt city in Asia today," says Mark Khoo of
Dresdner Kleinwort Benson in Singapore.
The problem is that developers have been building in
anticipation of 8% annual growth over the next 10 years. And
why not? Despite gloomy forecasts by foreign analysts, the
Malaysian economy had been expanding by 8% or better for the
past decade. But the Asian economic crisis has clouded the
country's prospects. The government now expects GDP to grow
only 2% this year. Private economists say it will contract
by nearly 1% and show hardly any growth in 1999. Moderate
expansion may start only in 2000. Even so, many property
players are still in denial. "Property is always cyclical,"
says Aloysius Marbeck, managing director of Kuala Lumpur
consultancy Rahim & Co. "You build and there is a glut, then
you fill up the buildings and there is a shortage, so you
build more."
The "fill-up-the-buildings" stage is likely to take a long
time. The real bloodletting has yet to start. For one thing,
local banks have so far been lenient with overdue accounts.
But that may change as the International Monetary Fund and
the World Bank pressure Kuala Lumpur to strengthen the
financial system. (Malaysia is not under an IMF bail-out
program, but the government has asked for IMF and World Bank
advice to regain foreign investor confidence.) The forced
sale of half-built or completed developments by banks will
topple lofty property values. Even without that, says Khoo,
office-building prices may fall 40% from current levels
because of the recession and the looming glut.
If that happens, banks will be forced to make bigger
loan-loss provisions. Between 1992 and 1996, 17% of all
lending went to the property sector. Construction companies
accounted for another 22%. The banks' real exposure to
property-related activities may be substantially higher,
since a large number of industrial, mining and service firms
also borrowed to build their corporate headquarters. These
are classified under manufacturing or mining loans to get
around central-bank restrictions on property lending. Salman
Khan, an analyst at Goldman Sachs in Hong Kong, estimates
that the banking system's non-performing loans will peak at
30% next year. That and rising interest rates could further
inhibit loan growth. Already, government economic adviser
and vitual finance minister Daim Zainuddin is saying that
overcautious lending could plunge the economy into a recession.
Developers cannot count on rental income. Petronas Towers is
holding the line at RM7.50 ($1.95) per square foot for
prestige reasons, but others are buckling. Grade A office
rentals have fallen to around $1.30 per square foot, down
28% from the peak last year. Analysts expect another 30%
decline by late next year. Marbeck says many realtors had
expected demand for office space to continue growing because
of government plans to make Kuala Lumpur a regional
financial center and a hub for software services. Those
ambitions have been put on hold - the high-tech park known
as the Multimedia Super Corridor has been scaled down.
Retail rentals are down 18% to $2.37 per square foot, and
are likely to fall another 30% to 40% within the next 18
months.
What about residential units? A third of Malaysian
households do not own homes, but unease about the country's
prospects, tighter credit and rising mortgage rates are
taking their toll. "The top end of the market is completely
dead," says a Kuala Lumpur property consultant. "At the
medium end, there is still a little demand especially among
people looking for bargains, but bank financing has dried
up." It's not the end of the world, insists crony developer Lee
Kim Yew. "Everything that goes down must eventually go up,"
says the chief of Country Heights. True. But given the
problems, Malaysians will wait for a long time to see a real
recovery. |
