Exchange 106 – drastic drop in committed occupancy ‘worrying’

PETALING JAYA: The committed occupancy of Exchange 106 Tower at TRX has fallen drastically to 10%, which is a concern amidst a subdued office market, said UOB Kay Hian.

“We understand that the Exchange 106 Tower is slated for completion by early 2019 and its first tenant will occupy the space in May 2019. However, we are concerned about its committed occupancy which has fallen drastically to 10% currently, compared to 50% pre-GE 14,” it said in its report today.

“With a persistently subdued office market (evidenced by low occupancy rates for office buildings in Kuala Lumpur), securing tenants will remain a key challenge for the TRX project which also faces competition from newer projects such as the PNB 118 and Bukit Bintang City Centre,” it added.

It noted that other ongoing office tower projects such as the Prudential HQ office is almost completed while two other office towers namely the HSBC Head Office and Affin Bank Head Office are under construction and both expected to be completed by end of 2020.

Meanwhile, the National Housing Policy 2.0, which is expected to be revealed in November or December, will benefit property developers who are focused on building houses below RM500,000.

“The new housing policy presents slight optimism for the sector as it is expected to tackle the high property prices and ease lending requirements – particularly for first-time home buyers,” said UOB Kay Hian.

The Ministry of Housing and Local Government has emphasised that it will address several issues including lowering house prices by reducing compliance cost and implementation of industrialised building systems.

In addition, the federal government is also working closely with state governments on land issues whereby the latter have been asked to submit a list of potential land plots that can be used for affordable housing projects.

“Potential measures that are proposed for the new housing policy include the extension of a maximum loan tenure to up to 40 years and to provide various types of loan structures like flexi loans, flexi interest rates and step-up schemes.

“These hybrid measures provide better flexibility for homeowners to own houses, and allow young homebuyers to own a house once they join the workforce,” said UOB Kay Hian.

At present, the maximum loan tenure is 35 years or until the borrower turns 70 years old, whichever is earlier.

Moving forward, the research house said that affordable housing will remain the key focus of developers. This is reflected by the rise in launches of residential properties priced below RM500,000, which grew from 52% of total launches in 2H17 to 65% in 1H18 as reported by the Real Estate and Housing Developers’ Association Malaysia.

“Separately, the association also outlined a few suggestions to encourage provisions of affordable housing which includes reduction of development charges, lower land conversion premium and exemption of capital contribution,” it said.

The Valuation and Property Services Department recently reported an increase of 18.1% in unsold and completed homes to a new record high of 29,277 units in 1H18, with majority of the overhang units being high-rise residences priced between RM500,000 and RM1 million.

“In view of this, we think that property developers that focus on the affordable housing segment may continue to report decent earnings while developers that focus on the premium market may face risk of slower take-up rates and their margins could be compromised,” said UOB Kay Hian.

It maintained “market weight” on the property sector and maintained “buy” calls on Malaysian Resources Corp Bhd and Gabungan AQRS Bhd. For exposure to the affordable housing theme, it prefers Mah Sing Group Bhd, on which it has a “hold” call and target price of RM1.23.

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