Malaysia’s real estate sector might be feeling the slowdown affecting the overall economy, but lawyers remain optimistic about the work being generated from the sector, reports Ranajit Dam

These are difficult times for Malaysia’s real estate market. According to the country’s finance ministry, the number of real estate transactions in Malaysia decreased 5.7 percent in 2015 from the previous year, with the total value dropping by 8 percent. The number of unsold homes increased 16 percent.

The numbers reflect weak demand that is driving down prices – a result of Malaysia’s overall slowing economy. Not helping things are competition between developers, as well as the continuation of large-scale developments even in times of excessive supply.

And this is impacting the legal work emanating from the industry. “The present conditions and sentiments are certainly not conducive for the real estate sector, which is directly leading to a slowdown in legal services required in the real estate project development and sub-sale sector,” says Quek Ngee Meng, a partner at Malaysian law firm Halim, Hong & Quek (HHQ).

DISPUTES RAMP UP

The slowdown doesn’t mean that Malaysia’s real estate lawyers remain idle, though. “We have seen some slowdown in project sales and in the secondary property market,” says Raymond Mah, managing partner of MahWengKwai & Associates (MWK). “However, the need for our dispute resolution services relating to real estate has shown a steady growth. These include litigation, arbitration and adjudication. Increasing challenges in collection and pressures on cash flow has also prompted clients to come to us with various types of claims, both large and small.”

Mah says that the real estate disputes increasingly include litigation between developers and purchasers represented by the joint management body or the management corporation over issues of maintenance charges and common areas. “Purchasers have become very aware of the law and are ready to take developers to task for compromising their rights,” he adds. “Construction disputes often start in adjudication under the Construction Industry Payment and Adjudication Act 2012 for the non-payment or under-payment of claims.”

He says that in banking, the firm is seeing indications that many are struggling service their loans. “The refinancing of home loans has become more common of late, as homeowners seek to adjust their commitments to better suit their financial means,” notes Mah.

Meanwhile, Quek says that among segments of the real estate sector that remain active is the upstream portion, where land acquisition continues unabated primarily for project planning in anticipation of a recovery in the sector. “This acquisition may take the form of joint venture, acquiring shares of company which holds the land banks or outright purchase of the land” he says. “On the downstream of the real estate sector, most activities are centred at the residential sector with strong demand from homeowners, particularly when the price is below 600,000 ringgit [$145,000]. Developers are also seeking to be more creative in terms of product offering and marketing. In addition, the China developers and buyers are gaining momentum in both developing and purchasing property in Malaysia.”

REGULATORY SUPPORT

According to Quek, Malaysia introduced and enforced a number of amendments last year to property market, such as the Housing Development (Control & Licensing) Act 2012, Strata Titles (Amendment) Act 2013 and Strata Management Act 2013. Further amendments are expected this year in legislation National Land Code 1965, Land Acquisition Act 1960 and the Strata Titles Act 1985.

“All the amendments were introduced in line with our urbanisation and move towards becoming a developed nation,” he says. “Going forward, I think that a sound catalyst to encourage activity in the real estate sector is for the introduction of more real estate-related financial products such as the Developer Interest Bearing Scheme, which will reduce the burden of homeowner from buying the residential property.”

Mah agrees that “positive changes are being made to improve existing laws,” and cites as an example the amendments in the Strata Titles Act 1985, under which subdivision of property is expedited and property owners can look forward to receiving the strata title upon vacant possession. “Another example would be the amendment to Section 6 of the Housing Development (Control and Licensing) Act 1966,” he says. “Under the amendment, a developers’ requisite deposit has been increased from 200,000 ringgit to 3 percent of the estimated construction costs. This imposes a more stringent control over developers. Hopefully, with this amendment in place, only developers with strong financial standing are able to enter the market, reducing the risk of abandoned and delayed projects.”

THE YEAR AHEAD

According to Quek at HHQ, while the current trend is expected to persist throughout 2016, developers are anticipating a recovery in the real estate sector in 2017 supported by the completion and further development of a number of key infrastructure projects such as completion of Light Rail Transit and Mass Rail Transit, as well as the expected kick-start of the high speed rail construction from Kuala Lumpur to Singapore.

Mah of MWK says that there has been a significant fall in the number of new project launches, with many developers taking a wait-and-see approach, and this may ease downward pressures on property prices. He sees healthy demand for legal services in construction adjudication as well as disputes between joint management bodies or management corporations and developers. “As the Mass Rapid Transit project in the Klang Valley progresses, the government has proceeded to compulsorily acquire more private land under the Land Acquisition Act 1960,” he adds. “We anticipate many appeals on the issue of compensation as well as judicial review applications to challenge the acquisition. We will be growing our team as necessary to continuously meet our clients’ expectations on quality and speed.”