OBG Talks to Ben Kong Chung Vui, Executive Director, Wah Mei Group
OBG : How would you describe the development of Sabah’s property sector over the last few years, and how do you see it developing in the future?
KONG: Most of Sabah’s development and growth has come about in the last five years. It has happened at an unprecedented pace, with Sabah suddenly bursting through after years in the political wilderness. Sabah was Ieft behind and had a stagnant growth rate for 10-15 years. Now, however the state government has an excellent relationship with the federal government, which has made this rapid growth and development all the more possible.
During the last five years a huge amount of catching up was needed, which is exactly what Sabah has done. The next five years. however; are likely to see a doubling in the pace of development from even the speed of the past half decade. This is due to economic factors rather than political ones.
In terms of the economy. infrastructure and development, Sabah can be compared to where Singapore was 20 years ago. Sabah will no doubt follow the same development path as Singapore, but the speed of development in the modern world is much faster than even a decade ago, so the time it will take to catch up will be substantially less than 20 years.
OBG : Which segments do you think will offer the best returns for investors in the future and how can these areas be further developed?
KONG: Sabah has two great blessings. The first is its beneficial location in the leading region in the world for economic growth. Within five hours’ flight there are 80 major cities and areas that could provide an excellent source of affluent tourists and a consumer market, not to mention potential investors for everything from new business interests to property.
At present, Kota Kinabalu (KK) International Airport only serves 40 destinations point-to-point, but with runway improvements being completed this will increase. The upgrades will give Sa bah the opportunity to arrange more point-to-point flights to a large number of attractive urban centres and destinations in the region.
This will cause a surge in tourism as getting here becomes easier. Tourism is the best way to give the economy an immediate boost and has the potential to be the leading sector but it also allows other areas of the economy to be showcased. Many potential investors first arrive in Sabah as tourists but quickly identify the potential here. This includes the many people who subsequently buy property.
Tourist figures are currently around 2m per annum, but we can expect this to rise to around 4m over the next five years. The more tourists that arrive, the more will come back here to buy property given the prices and the potential return on investment, all of which are on top of the obvious natural beauty and charm of Sabah and its people.
Economic growth here will also bring to Sabah an increasing number of multinational companies looking to relocate their offices. and they normally require an expatriate management team and highly skilled labour; neither of which is readily available here. This is something that we are especially going to witness in the oil and gas industry. This sector is being developed via Sabah Oil and Gas Terminal, which will create a regional hydrocarbons hub in Sabah.
It is likely that these expatriates will want to buy condos. At present there are only around 2,500 condos of a high standard in KK, which will not be sufficient. Therefore we can expect a rise in new builds of high-end condos in the future to cater for this market.
Even those renting will create a surge in demand. Currently 70% of condos are purchased for the buyer’s habitation rather than for renting, Along with wanting high·end condos to live in, these senior expatriates will require facilities and services in other sectors-such as health care and education-that match international standards. So all these additional sectors can expect an upturn, as well as that which will be felt in the construction and property development sectors.
Because the economy is likely to grow at a good rate in many different sectors. the property development industry is going to have balanced growth across the board over the next five years, from residential and commercial developments to those in the tourism industry, such as hotels and resorts, This will make the sector stronger as it will not be reliant on one single driver but several.
As a result, even in the worst-case scenario. for instance if commodity prices fall dramatically, there will still be other areas in demand for property development that will maintain growth.
The state also has an amazing opportunity to create the biggest eco-city in the region. This would help put Sabah on the map and would give it an identity wholly of its own that is not dependent on Malaysia or Borneo.
This concept would Ht in extremely well with the bigger picture of development in Sabah. In the tourism industry, it would help to make Sabah an internationally marketable brand and would strengthen the state’s image of natural beauty and conservation.
Building the brand and awareness of Sabah internationally would have a knock-on effect on all the other areas of the economy.
OBG : How does the real estate market in Sabah compare to the rest of Malaysia?
KONG: In Kuala Lumpur (KL) the average price of condominiums is around RM8,600 ($2700) per sq metre, while in KK it is only RM5400 ($1700). In KL city centre it can rise to above RM32,000 ($10,000). While KK should not be priced at the same level as the city centre, it can be compared to the suburbs and pricing is still better in KK than there, indicating that there is more room for growth in KK.
The number of real estate properties that are being constructed in Sabah is actually decreasing compared to previous years, but demand stays high. This will push prices higher.
The cost of materials is also going to increase and this, again, will affect pricing, In addition, the price of land will rise as it becomes more and more difficult to find plots in prime areas. The net result of this is that the price of property is going to rise even without the predicted growth in demand and speculators buying property as awareness grows.
A crucial difference between Sabah and the rest of Malaysia, however, lies in the quality of infrastructure. The infrastructure in Sabah needs to be improved and the government needs to recognise the fact that money must be spent on it. lf this were to happen, it would certainly help to attract investment, which would in turn help recoup the government`s initial expenditure.
Without adequate infrastructure. many potential investors will turn away. The private sector must be the driving force of economic growth in Sabah, as the state government has an insufficient budget to be able to prop up the state economy, especially if it continues to grow at its current pace. Upgrading the state's infrastructure is therefore key to Sabah’s economic growth and future prosperity.
OBG : What do you think are the key challenges in the market for real estate development?
KONG: One of the barriers to economic development and therefore growth in property development is brain drain. Too many qualified graduates are leaving Sabah to take up posts in KL and elsewhere abroad, making Sabah’s economic growth unsustainable.
There will be a point when the lack of skilled workers will derail the economy, especially considering the current speed of growth and the rate of loss of skilled workers. People need to be trained now to become the skilled workers of the future. This should be one of the governments top priorities. Policies must be simplified, clear and transparent, with a good delivery system to encourage investment and confidence.
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