Can We Still Afford Properties In Penang?

Like Singapore, property prices in Penang have been on an uptrend over the years.

Data from the National Property and Information Centre (NAPIC) showed that property prices in Penang Island have risen steadily since the first quarter of 2002 with a slight correction during the 2008 financial crisis.

The price index has been rising steadily by approximately 50 points to reach almost 150 points since NAPIC started tracking the data from the first quarter of 2000.

In fact, NAPIC’s data showed that Penang has the second highest price index in Malaysia after Kuala Lumpur.

As such, affordability will be a key issue for Penangites, especially for first time home owners.

Indeed, a recent study by Khazanah Research Institute (KRI) suggests that property prices on Penang island are “severely unaffordable”.

The report called “Making Housing Affordable” showed that Penang has a median multiple affordability of 5.4 points based on a monthly median income of RM4,702 and market median price of housing at RM169,272.

The median multiple is a measurement of how affordable the housing market as a whole is performing.

Anything above 3.0 points is considered unaffordable.

Therefore, with a median multiple affordability of 5.4 points, properties on the island are by no means affordable for locals.

Due to its unique geography, Penang has over the year seen property prices rising steadily.

Unlike Singapore which is relatively flat, Penang has a hilly inner terrain making most parts of it unsuitable for development.

This, together with local regulations that prohibit developments from taking place on these hilly terrains, has resulted in very little land available for housing developments.

The scarcity of land versus the increase in demand for homes in Penang has brought about a spike in prices, also known as the “island effects”.

In addition, Penang is now a tourism hotspot after it was listed as a UNESCO World Heritage Site in 2008.

This has made Penang an even more attractive real estate investment destination among locals and foreigners, explaining why home prices have continued climbing,

According to Tourism Malaysia, Penang saw international and domestic arrivals increasing by 33 percent in 2014

In addition, since March 2013, more than 21, 000 Malaysia My Second Home (MM2HH) applications has been approved.

As a result, districts that are popular among foreigners, such as along the coastal areas of Batu Ferringhi and Pulau Tikus, have seen significant price increases.

The property market in Penang is very much driven by locals as well as foreign investors and retirees.

Among locals, Penangites tend to be very loyal and will only want to invest within Penang island.

However, not all areas will be suitable for them. The buying habits among foreigners, on the other hand, tend to be concentrated in Georgetown, Tanjung Bungah, Pulau Tikus, Batu Ferringhi and Gelugor near the second bridge.

The pricing in these areas ranges from RM800 to RM1,000 per sq ft onwards, making them unaffordable for first time homeowners.

According to data from NAPIC, the majority of the transaction (827) that occurred in the second quarter of 2014 fall within the RM500,000 to RM1 million ranges.

For first time homes, these price ranges are by no means unaffordable for Penangites.

According to the fourth quarter of 2014 data from NAPIC, Penang has an existing stock of 391,013, incoming of 66,819 and planned supply of 68,211 residential units.

This means it will be harder to resell or rent out your units once the entire supply comes on stream.

For those of you wanting to buy a home, you should look into areas where prices are still affordable, less volatile (meaning dominated by locals) and with the most potential for capital appreciation.

I would advise them to look into outlying areas near major economic drivers and within 1km radius from the planned LRT line.

One area is in the industrial area of Bayan Lepas. This township is located close to the airport and is driven by the manufacturing sector at the Bayan Lepas Free Trade Zone.

By 2016, Bayan Lepas will be served by an LRT station as part of the RM27 billion Penang Transport Master Plan (PTMP). The 17.5km elevated LRT line will run from Penang International Airport to Georgetown.

A 25km expressway linking Bayan Lepas to Tanjung Bungah is also in the master plan pipeline.

All these infrastructures will enhance the desirability of properties there and unlock their capital values. If we look at recent launches there, the average price ranges from RM550 to RM800 per sq ft.

In addition, the federal initiated affordable PR1MA housing projects are in the launch pipeline to cater to middle to low-income households. As such, they will be launched at an affordable quantum price, well below the market per sq ft pricing.

There is currently no indicative price.

For more information and eligibility requirements, please visit http://www.pr1ma.my/

Bukit Gelugor is the new hot spot as it is located near the Second Penang Bridge. This suburban area is very much driven by locals and will be served by an upcoming LRT station.

Asking prices for apartments here range from RM500 to RM550 per sq ft. Affordable housing in the pipeline includes a PRIMA project that will be launched below the market per sq ft pricing.

There is currently no indicative price.

For more information, please visit http://www.pr1ma.my/

For those who are priced out of the housing on Penang Island, you should target the new growth areas near the second bridge on the main peninsula.

Since the second bridge was announced in 2006, land prices in Batu Kawan and Seberang Prai have moved up from RM8 per sq ft in 2006 to RM50 per sq ft this year, data from Henry Butcher showed.

Affordable housing in the launch pipeline in Batu Kawan includes those of the state government called Penang Affordable Housing Scheme (PMM).

However, do note that there are no plans for the LRT line here.

For more information and eligibility requirements, please visit http://www.pmm.gov.my/

For Khalil Adis’s Penang Property Market Outlook 2015, please visit http://bit.ly/Penang2015

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