Penang is Malaysia’s most popular island for couple of reasons: locals and foreigners alike enjoy the amazing food, quality of life, modern infrastructure, and the hospitable people of Penang have given the island a good reputation as a holiday getaway. However, in the consideration of living on the island, an in-depth analysis of the Penang property market is needed.
Penang is located in the centre of the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), and consists of an island and the mainland with a combined total area of 287,750 ares.
Penang is strategically located within the IMT-GT, and is a key logistic hub for communication and infrastructure. The IMT-GT is a historical sub-region that is known for cultural and linguistic links between different countries. These factors have given Penang its unique blend of cultures and boosted the tourism and real estate industry in Penang.
The population of Penang is around 1.6 million and its Gross Domestic Product is around 5%. The main sectors that contribute to its growth are manufacturing and services such as medical treatment, education, Information Technology Outsourcing (IT) and Business Process Outsourcing (BPO) like finance, as well as accounting and data processing. The unemployment rate in Penang is low at only 1.7%.
Market Overview of Property in Penang
The Penang property market remains stable, but it has softened since the start of 2014. However, due to tourism, it will continue to remain an attractive place for investments. The state of Penang has been an excellent choice for both locals and foreigners alike for short term and long term stay, raising a family and retirement. This is because of the vibrant and exciting economy, friendly and hospitable people, natural terrain of beaches and hills and most importantly, delectable local food that the island has to offer.
In January of 2014, Penang was listed as number 8 on The Guardian’s Top 40 global destinations along with several other acclamation such as being named Asia’s 8th most liveable city, a great retirement city, a must-visit island before you die and numerous more. In September of the same year, Penang’s Georgetown also made it to the top 3 on Forbes magazine’s list of most affordable retirement cities in the world.
Overview of Penang’s Development
Penang is also set to become a more enticing place for tourism and investment with the completion of several major projects, namely the Subterranean Penang International Convention and Exhibition Centre (SPICE) in 2015, and the upcoming, RM346 million Penang Waterfront Convention Centre (PWCC) by IJM Land along the Tun Dr. Lim Chong Eu expressway, expected to be completed in 2017.
In 2014, the Penang Development Corporation (PDC) signed on with Aspen Group and Ikano, most known for bringing in IKEA, which saw the sale of 245 acres of land. At RM45 psf, the development will see a new IKEA store, the first in the northern region, a state of the Art Regional Centre, and an integrated mixed development in PDC’s Bandar Cassia town.
Another project in 2014 which has transformed the property market was the opening of the second Penang Bridge. The RM4.5 billion bridge, which is the longest in Southeast Asia with a length of 24km, is an alternative route connecting the Penang island and the mainland. The socio-economic development and growth in the Northern Corridor Economic Region (NCER) is expected to see a boost with the completion of this second bridge.
The New Housing Policy
The Penang state government implemented a new housing policy that took effect on 1st February 2014. The aim of this new policy was to ensure that genuine qualified first time buyers are able to own a home. Policies which took effect on 1 March 2014 is as follows:
Low Cost / Low-Medium Cost
Properties which fall under low-cost (up to RM42,000) and low/medium-cost (up to RM72,500) are not to be sold within 10 years of the date as stated on the Sales and Purchase Agreement, covering past and future purchases. Those who wish to do so however, can submit an appeal to the State Government whereby the properties can only be sold to ”registered purchasers”.
Properties under the category of affordable housing include homes that cost RM400,000 or below on the island and RM250,000 on the mainland. The policy also states that these properties cannot be sold within 5 years from the date of purchase as stated on the Sales and Purchase Agreement. Similarly, an appeal to the State Government is also required should owners wish to sell, but also exclusively, to “registered purchasers”.
Malaysia’s first Shared Ownership Scheme (SOS) was also proposed by the Penang State Government, where under this scheme, households who cannot obtain sufficient finance to buy low-cost homes can jointly purchase the properties with the State Government. The State Government will offer a 30% interest-free loan while the households only need to raise enough capital for the remaining 70%. The households can then repay the 30% loan at any time or remain in shared ownership until the sale of the property.
Purchases by non-citizens
Non-citizens who wish to purchase property in the state of Penang can only purchase properties that cost at least RM1,000,000 for strata-titled properties and RM2,000,000 for landed properties. A 3% tax for any purchase of property bought by non-citizens is also added.
Property purchases within 3 years
A levy of 2% is imposed on the selling of all properties sold within three years from the date of the Sales and Purchase Agreement by non-citizens and citizens alike. Exemption of this 2% tax is only applicable to affordable housing.
Budget 2015 & Real Property Gain Taxes
In the 2015 Budget that was announced on 25th October 2014, the Real Property Gain Tax (RPGT) was also revised to limit speculation and is as follows:
- 30% for properties held for 3 years or less;
- 20% on the 4th year
- 15% on the 5th year and above
- 0% on the 6th year onwards
- 30% for properties held for 3 years or less;
- 20% on the 4th year
- 15% on the 5th year
- 5% on the 6th year and above
- 30% for properties held from 1 to 5 years
- 5% from the 6th year and above
Another major taxation change effective since 2015 is of course the Goods and Service Tax (GST) which has been in effect since 1st April 2015. Though direct ramifications on the property market is still not visible, experts are in the opinion that GST will have an impact on the overall property prices, especially commercial properties.
Residential Property Market
In 2014, the total volume of residential properties was recorded at 25,555 units, an increase of 1,209 units as compared to 24,346 units in 2013.
Notable new developments in Penang Island:
• Moulmein Rise by Belleview Group of Properties
• The Rice Miller City Residences & Hotel by Asian Global Business
• Olive Tree Residences by Harta Intan Group of Companies
• Tropicana 218@Macalister by Tropicana
• The Wave by Ivory Properties Group
• The Turf Condominium by Chong Company
• Mira Residence by BSG Group
• The Landmark by BSG Group
• The Coastal by MahSing Group
• Penang World City by Tropicana Ivory
• Andaman by E&O Properties
• Shorefront Residence by YTL Land
• Sunshine Tower by Crimson Omega Sdn Bhd
• Solaria Residence by Ideal Property Development
Total Volume and Value (Malaysia and Penang), 1999-2013
Pre-War Heritage Properties
The major zones in Georgetown’s UNESCO heritage site accommodates more than 4,600 units of heritage buildings. Some of the notable buildings include the Cheong Fatt Tze Mansion (The Blue Mansion, built in 1890s), which was awarded UNESCO’s ‘Most Excellent’ Heritage Conservation Award in 2000; the Eastern and Oriental Hotel, declared as a Penang State Heritage Landmark by the Chief Minister of Penang in 2010, and the Kapitan Keling Mosque, which was built in the 19th century by Indian Muslim traders in Georgetown.
Some of Penang’s pre-war heritage buildings have also been re-vamped and converted into boutique hotels and F&B outlets, in order to meet the demands of the dynamic tourism activities in town. Seven Terraces, Muntri Mews, Noordin Mews, Cheong Fatt Tze Mansion, Campbell House, Yeng Keng Hotel, 1881 Chong Tian Hotel, Penaga Hotel, Macalister Mansion, Logan House and Whiteaways are some of the mentionable heritage buildings that have been renovated and transformed over the years.
Since the Rent Control Act was abolished in 1999, the price of Penang’s pre-war heritage has been on an upward trend, and is likely to continue on that path. The average price per square foot of pre-war properties has been experiencing a double digit growth CAGR growth from 1999-2013.
The pre-war property market has been facing many challenges and excitement, but some things are certain: the market is volatile and will continue to remain on top. These properties offer dynamic and exciting times for investors and stakeholders as well as tenants and landlords.
To summarise, one certain thing about the Penang property market is the fact that the prices will continue to rise due to the gradual scarceness of land for development and also as demand exceeds supply. This issue is further aggregated by decreasing rates of housing stock growth, which further increases the demand on the existing and incoming housing stock.
Penang’s property market is expected to remain at high-stake as the state possesses valuable fundamentals such as a young population (about two-thirds of Penang’s population are under 40), falling average household sizes (about 3.5 per household), low unemployment rate, increased local and foreign investments, stable income levels, and rising job opportunities.
Property is a long-term investment and the new housing policies will shape a positive environment for long-term investment and prevent over-speculation.