00:00Rising geopolitical tensions in the Middle East, particularly disruptions around the Strait of Hormuz,
00:05have pushed energy prices sharply higher, igniting concerns about inflation, construction costs and investment sentiment.
00:12While Malaysia remains relatively insulated compared to major oil-importing economies,
00:17the ripple effects are increasingly visible across the property sector, from development margins to investor behavior.
00:23So to unpack, joining us virtually now is surveyor Sulaiman Zahe, Director's Research and Consultancy Rahim and Coach Chastis Dens.
00:31Good morning, Sulaiman. Thank you so much for joining us.
00:33As I mentioned, nearly 20% of global supplies flows through the Strait of Hormuz,
00:38and recent disruptions pushed a brand group above US$100 per barrel.
00:42So from a property market standpoint, is this primarily an external psychological shock or a material economic risk for Malaysia?
00:51Good morning. Thank you again for having us.
00:53Just to share about how the Hormuz conflict or situation in Hormuz with the Iran war is currently impacting Malaysia.
01:02Essentially, what we see, it started off with a psychological shock more than anything else,
01:08because the effect was not really trickling through in the earlier days.
01:14But it was already suspected to be impacting on the fuel prices of which it has already seen on our
01:22shores right now,
01:23with diesel prices going up to about RM6 right now per litre.
01:28And that actually poses a risk for the country generally.
01:33What we see is the oil prices, the increase in oil prices specifically, trickling down to the fuel prices of
01:43diesel as well as RM95 and RM97.
01:46This basically pushes inflationary pressure onto the cost of logistics primarily,
01:53which would then actually trickling down towards the cost of logistics for the supply of goods and services.
02:00And that can actually deter some confidence as well as relinquish some of the level of comfort in terms of
02:09purchasing power.
02:10Because we do know Malaysia wages growth is not as fast as property prices growth,
02:17coupled with the cost of living that's continuously becoming a main issue to Malaysian households.
02:23This would also compound the effect.
02:26And hence, the market is expected to be more cautious moving forward.
02:31Let's talk about the construction cost transmission to the development market.
02:37We see that diesel prices in Malaysia have risen about 26 percent,
02:41and industry groups warn construction costs could climb up to 30 to 40 percent if fuel prices stay high.
02:48So, how much of this cost shall realistically feed into property prices versus being absorbed within the supply chain, Suleiman?
02:58The trickling down or passing down of increased costs to consumers is one common notion that the market has been
03:07talking about.
03:08But realistically, an increase of 30 percent or 40 percent, as you mentioned earlier,
03:14if it were to be trickled down directly to the consumers for them to bear, it will not be sustainable.
03:19It is not going to be absorbable by the market at all.
03:24So, it will be a mixture of both some costs that are actually absorbed through the supply chain.
03:30One factor is margin compression, where developers are now having to face a higher cost of materials or higher cost
03:40of labor,
03:41as well as other incidental costs.
03:44This would actually compress some of the margins.
03:46But on top of that, I guess in terms of supply of labor or supply of materials,
03:53in terms of pricing of those, it will be dependent on the supply and demand angle also.
04:01This would actually mean if there's lower demand for such building materials.
04:06And theoretically, it would actually diminish or basically reduce a bit in terms of the supply cost.
04:14However, we do understand the stickiness of cost in terms of materials and building materials,
04:22especially the ones that we actually import.
04:24So, there will be a cost push for that.
04:26And because of that, there will be a mixture between the absorbance by the supply chain,
04:31be it through value engineering, through making units becoming more smaller,
04:37so that it is not as expensive as how it was before,
04:40or even the adoption of new technology, the innovation and creativeness for developers
04:46to actually reposition some of the developments, focusing more on the affordability segment.
04:51Because Malaysians generally are actually looking more towards the affordable segment of property prices.
04:58But in saying that also, properties are not generic throughout the whole country.
05:05It is very much locally driven, very much geographically driven,
05:09in accordance to the niche markets or specific markets of the area.
05:13So, there will be a balance between supply and demand,
05:17where new equilibrium will be achieved in new cost.
05:22Suleiman, speaking of which, talking about affordability,
05:25Malaysia's house price growth has slowed to actually around 0.1% year on year,
05:30with real prices declining after inflation.
05:33So, does this weaker pricing environment limit developers' ability to pass on higher costs?
05:38And what does that mean for project viability?
05:43House prices have been more gradual in its growth in recent year.
05:51In the past, in the past immediate five years ago,
05:55it averages about 3% to 4% in terms of price appreciation.
06:01But last year, it was actually about 2%, about 2.6% in terms of the price growth.
06:06So, this price growth is actually fueled by the affordability factor,
06:13especially amongst local buyers, which are actually constrained by the level of income,
06:20level of cost of living, including their security of future income generation
06:27for their living expenses.
06:30So, with that, you can see that the prices have actually moved more moderately.
06:34in saying that also, developers have been reassessing their products.
06:42So, they are actually looking at products that are more affordable.
06:45And these affordable products can be located in other areas,
06:50not in the central area where land prices are very, very high,
06:54in the outskirts areas, especially along the TODs,
06:57along the transit-oriented developments, along the rail lines,
07:01where these would actually see better appreciation.
07:04And that would actually give a better benefit to the market as a whole
07:09because it will also help them in their daily transportation costs
07:13if they were to use public transportation.
07:14But, of course, we need to actually improve our transportation system
07:19much for the right to the last mile so that it becomes really effective.
07:22But in saying all this, viability of the project has always been a concern
07:28with the cost of production or cost of development being increasing year on year
07:33against the affordability level by the market.
07:36So, the balance there would actually, we see the continuity of focus
07:42for this affordable segment moving forward.
08:00In terms of foreign investors especially,
08:08they don't just look at the one specific geopolitical risk
08:14and just decide on that.
08:16They would actually look into the overall ecosystem
08:18that's being offered in a country like Malaysia.
08:21One of the key assets that Malaysia offer is stability in our system
08:27in terms of our demographics growth as well as in terms of our policies.
08:31And this would also, being assisted by the currency exchange position
08:38of the Malaysian Ringgit, would actually still spur interest
08:43and attractiveness for foreign investors into the country.
08:47One thing that we actually hope that the government would actually do
08:51moving forward is to continuously maintain our policy
08:55so that it is very stable and becoming more friendly
08:59to both the business community as well as the home buyers within the country.
09:05So, in saying that, Malaysia still remains as a good, attractive location
09:11for investment, but in saying that also the world is becoming more globalized
09:17and competition is ever, ever being more increasing, even within ASEAN.
09:22So, it is challenging, but we'll still see investments coming onto our shores.
09:29Let's talk further on risk.
09:30Traditional property valuations factor in interest rates and inflation,
09:34but rarely geopolitics.
09:36So, in light of repeated global shocks,
09:38should geopolitical risks now be explicitly embedded
09:40into Malaysian property valuation and advisory models as well?
09:44And if energy volatility driven by conflicts like hormones becomes more frequent,
09:49could this accelerate a long-term shift in Malaysia
09:51towards energy-efficient buildings or ESG-driven design
09:54or perhaps different development typologies?
09:57And who needs to lead that change, Suleiman?
10:00Okay.
10:01In terms of valuation of how properties, the brand of properties,
10:05are being determined, obviously valued by the industry,
10:09it is not to say that geopolitical risk has not been embedded in the calculation all as well.
10:15It has been so, although it may be done in a more indirect manner
10:20because in terms of a risk or the potential of a property to generate income,
10:26the price level, the rental level, as well as occupancy rates are being looked at.
10:31And when you actually look at all these,
10:33you do also look at the global market in terms of demand for such specific services,
10:40which then trickles down to the demand for such spaces.
10:43So with that, it is actually being looked at in general.
10:48But moving forward, because of the occurrence of geopolitical risk
10:54that becomes ever more frequent and ever more apparent today,
10:59I guess in terms of the calculation is being looked at,
11:03it needs to be done more systematically and more transparent in terms of his calculation,
11:08especially being looked at from the aspects of capitalization rate
11:12in terms of how the risk is being calculated,
11:15whether there's a risk premium or basically there's an added or discounting
11:21in terms of the capitalization rate.
11:23So that would actually determine the valuation.
11:25But all this, because of all the oil prices and also energy costs issue
11:32that the world is currently facing,
11:34it creates an opportunity for an enhancement or a fastening of adoption of ESG.
11:42This is where the environmental, social, and governance aspect,
11:46as well as the green features, which has been in the past policy-driven,
11:52obviously compliance-driven initiative,
11:54but now it's becoming more and more a matter of survival.
11:58It is a matter of survival in terms of the product relevance,
12:01as well as matter of survival in terms of the product positioning,
12:04as well as cost control.
12:06And this is actually for both the developer in terms of controlling
12:11through the value engineering process,
12:13through the design, specification, and whatnot,
12:16as well as the long-term operational cost of a building,
12:20because energy costs, as you can imagine,
12:22managing a building, the electricity bill, the water bill,
12:25and whatnot, would actually cost a lot in terms of maintenance of a building.
12:30So these features are actually important and will become,
12:33and it has already started to be an attraction or a key factor
12:38that investors look at before making an investment in a property.
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