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Vicious cycle: High property prices squeeze consumer spending

Source: The Edge, 8-14 August 2016

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Anil Netto suggests that higher property prices have directly or indirectly burdened the public who are now more careful about their spending, thus putting pressure on malls.

The other day, The Edge business weekly (10-16 April 2017) carried a frontpage report stating that E & O was in talks to sell Straits Quay Mall, which it described as a “seven-year-old loss-making freehold property”.

(How it got freehold status for the reclaimed land of Seri Tanjung Pinang should be the subject of another discussion.)

The report said E & O did not confirm or deny the talks. The mall, a key component of the Seri Tanjung Pinang land reclamation project, has 270,000 sq feet of lettable space and has a net book value of RM233m.

Last year, the Edge (8-14 August 2016) had suggested it was “crunch time for malls” in Malaysia. At that time, Perda City Mall in Bukit Mertajam had just shut down and a couple of other malls in KL had also closed down for “redevelopment”. The Edge also listed out a dozen malls which had been put up for sale or had been sold in previous months.

A few factors would affect business at malls:

  1. Higher property prices leading to higher retail rentals leading to higher prices of goods
  2. Higher prices of goods (plus GST) squeezing available purchasing power;
  3. Almost flat real incomes, further constraining purchasing power;
  4. Higher property prices contributing to higher household debt which in turn squeezes consumer purchasing power;
  5. The trend towards online shopping;
  6. High youth unemployment of 10 per cent limiting spending;

Points 1 to 4 are actually part of a vicous cycle, if you think about it.

The irony is that many developers have profited from higher property prices – but the high debt servicing for property loans has squeezed household incomes and undermined consumer spending power. In turn, the malls that the property developers have built are now facing crunch times.

The situation for retailers is aggravated by the excessive retail space built on the back of property speculation. Not only do they have to cope with weak consumer sentiment, they also have to deal with a proliferation of malls in recent years.

Look at the chart above, which suggests that the expansion of retail space has far surpassed population growth in recent years. The Klang Valley had 241 shopping centres last year, but only had an 80 per cent occupancy rate – which also happens to be the tenanted figure reported for Straits Quay Mall in Penang.

Meanwhile, faced with the higher cost of living, consumers are increasingly reluctant to spend (which in the case of non-essentials may not be altogether a bad thing as it helps to cut down on waste and other environmental problems).

So, it is not surprising to hear that an ais kacang seller at New World Park in Penang is calling it quits because of higher rentals. Such vendors face a dilemma: If they raise the prices of their food/drinks to cope with higher rentals, their customers will stop coming especially in the case of non-essentials like ice kacang and chendol. I hear even sales of carton drinks of a popular brand have plunged.

But it is a serious problem if as a result of higher prices (of property, cars,  plus GST) people’s quality of life takes a nosedive and they are unable to afford essential items like before. My regular fruit-vendor tells me her regulars are still patronisng her stall but they are buying fewer items unlike before. This is a basic foodstuff we are talking about.

On a related note, don’t you find it disturbing that it is becoming increasingly harder to find local fruit – it seems that it is not as easy as before to find good papaya and banana, whereas a generation ago, these were plentiful and affordable. Instead, a lot of other, more expensive, fruit is imported. Where has all our local produce – and agricultural land – gone? Given way to property development, in many cases.

Much of this is the result of a failure in economic planning both at the federal and state levels, which have allowed a “free-for-all” especially in the property sector, with little attempt to control property speculation and oversupply of shopping complexes and malls. This is made more difficult – and presents a conflict of interest of sorts – when quite a number of state-owned or state-managed funds are themselves substantial shareholders in property development firms.

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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