Will Penang’s property market continue to boom?

An artist impression of Gurney Paragon overlooking the Straits of Malacca.

A couple of weeks ago, the Penang state government created a stir when it said it would review the billion-ringgit Gurney Paragon project if there were “justifiable grounds”.

Chief Minister Lim Guan Eng said the state government would get views from all quarters and welcomes any objection.

“We will revisit the projects approved by the previous administration and if necessary, review them if these projects are adversely affecting people’s lives,” says Lim.

Lim was responding to calls by the Penang Heritage Trust (PHT) and Bar Council Legal Aid Centre to review and hold an open hearing on the project.

Gurney Paragon is a mixed integrated development by Hunza Properties (Penang) Sdn Bhd comprising a mall, two blocks of high-end condominiums and a heritage building spread over 4ha of freehold land on Gurney Drive fronting the sea.

The land was formerly occupied by the Uplands International School.

The company bought it in 2004 for RM97mil.

For several years, Penang’s property market has drawn buyers from far and wide. Be it a holiday home for Malaysians or a retirement home for foreigners under Malaysia, My Second Home (MM2H), the island’s properties have exchanged hands at a premium compared with Kuala Lumpur’s prices.

E&O Property Development Bhd marketing and sales director K C Chong says comparing like with like, the land component in Penang is different from that of Kuala Lumpur.

For example, a KL gated development may be RM150 per sq ft compared with Penang’s RM250. E&O is developing Seri Tanjung Pinang, an upscale master planned water front development.

Because it is an island, land comes with a premium. And there is certainly demand for Penang properties.

Island living offers a heady blend of sun and surf with an option of city or quiet suburban lifestyle.

Although the island is only about 1,000 sq km, it offers a potpourri of all things that foreigners and locals enjoy.

Real Estate and Housing Developers’ Association (Penang) chairman Datuk Jerry Chan Fook Sing says Penang’s selling points in attracting foreign retirees include comfort, cuisine and affordability.

Datuk Jerry Chan

In some ways, this accounts for the various landed and high-rise condominiums coming up along the Tanjung Bungah stretch right up to the Spice Garden.

Developers are building along hill slopes, each offering the best view of the Straits of Malacca and the Andaman Sea.

Chan says foreigners purchase a third or more of properties that come up in popular tourist areas.

Developers who are aggressive with the MM2H programme reported the same percentage of foreigner buyers.

“A third to 35% is not the norm generally. But by and large, locals and Malaysians working aboard account for a large number of Penang property buyers,” says Chan.

Among the most popular locations among foreigners include Tanjung Bungah, Pulau Tikus area and Gurney Drive.

Most of these projects are launched in Hong Kong, Singapore, Britain and the Middle East besides locally.

It is against this popular demand, growing affluence of Penangites, a shortage of upscale lifestyle products and the growing medical tourism offered by the island that Klang Valley-based developers like IJM Corp Bhd, S P Setia Bhd, Bolton Bhd, Malton Bhd and E&O Property Development have moved north to compete with the likes of Penang’s big boys like Hunza, Oriental group, Naluri Corp Bhd and Ivory Properties group, PDC Properties Sdn Bhd.

And because of the shortage of land and burgeoning demand, several have gone into land reclamation.

These include the E&O group, IJM, PDC and CP Land.

Nevertheless, the operating environment today has come under scrutiny, with the change in state government, coupled with the global turmoil originating from the US, developers in the country as a whole may find it increasingly difficult.

Various factors ranging from rising competition, concern over sustainability of demand by foreign purchasers, rising construction costs, inflation and a global economic slowdown as well as potential oversupply are reasons for concern.

A research report by ECM Libra on the country’s overall property sector says the onslaught of negative sentiments of late has to certain extent negated the positive impact of catalytic initiatives introduced by the government since late 2006.

Sharp correction of the stock market has caused enormous wealth evaporating into the thin air.

“This will put a dent on consumer confidence and sentiment. Huge capital investment such as the purchase of new homes may be put off for the time being.

“Demand for properties by foreigners may also wane in the coming months due to the uncertain landscape as well as the debilitating global financial market,” the report says.

The report says developers in the states of Selangor, Penang, Perak and Kedah may face potential delay in procuring planning approval for new projects post-general election due to teething problem arising from the change of state administration involving state executive councillors as well as municipal councillors.

On a more positive note, Penang-based Michael Geh, director of property consultancy at Raine & Home International Zaki + Partners is of the view that those who need to buy homes will continue to buy.

“Life goes on. Those who constantly invest will pick and choose the best and sideline the average offerings.

“For those on MM2H programme, surveys taken by expatriate magazines shows that Penang rates very high as a favourite destination. Kota Kinabalu is favoured for its beachfront lifestyle living while the Middle Easterns like the KLCC precinct.

“It is our world class local food, friendly locals who speak English and a less hectic lifestyle that are bringing foreigners here to Penang,” says Geh.

Rehda Penang chief Datuk Jerry Chan says the new state government has reassured him that it will want to expedite things and be more transparent, which bodes well for the business community.

“What happened in Penang, and in the states of Selangor, Perak and Kedah, is quite drastic. And in any situation of such magnitude, it is only natural to pause. But in the long term, we will want to give the new government a chance.

“They have not said anything that is business adverse. As for the Hunza’s Paragon on Gurney, that is a mega job and it is only natural that mega jobs such as these, which impact people in different ways, be given a relook,” says Chan, who is also the managing director of Asas Dunia Bhd.

By The Star (by Thean Lee Cheng)