Belait’s property market unravels under oil & gas downturn

National 5 minutes, 6 seconds

BELAIT

BELAIT’S real estate market is reeling from the downturn in oil prices as the departure of hundreds of expatriate families has left property owners struggling to fill blocks of apartments developed during the last oil price boom.

The district’s property market has long been distinct from the rest of the country, with rental rates in 2013 almost double those seen in the capital for similarly sized and furnished properties.

Today rentals, on average, stand just 10 to 20 per cent more than Brunei-Muara properties, and even selling prices, which have shown a greater resistance to the downturn, are no longer twice the cost.

The premium rentals and a proportionately higher number of apartments that have come to define the district’s property market can be narrowed down to three compounding factors, according to real estate agents.

Privately owned land is scarce along the district’s coastal mukims of Liang, Seria and Kuala Belait owing to large chunks of land allocated specifically for the oil and gas industry. Land scarcity means that coastal Belait’s potential for the supply of property is inherently lower, leading to the development of high rises and apartments.

Demand for rented properties has traditionally been strong, driven singularly by expatriates arriving in the country to service the oil and gas industry.

But ultimately, what has driven developers to rapidly build and sent buyers in droves to invest are company budgets for housing allowance that set aside $3,000 per month and above for each executive level staff.

“Three years ago, when oil prices were (hovering above $100 a barrel), people were rushing to Belait to build and buy land,” said Amanda Yang, who set up the sole Belait-based real estate agency HomeCity Property and Management in 2013.

“Clients would be lining up at the hotels, finding a place to stay; there wasn’t that much rented property available in KB at the time.

“So wherever property began to be developed, it would begin selling like hot cakes. Investors and members of the public bought. They knew the rental (they could charge) was very good. It was a situation of overdemand and lesser supply.”

The experience of developer Henry Ling Teem Hock, who completed a three-storey apartment in early 2015 along Jalan Maulana in KB, sums up the demand of yesteryear.

“We sold out all 16 units we targeted in two days,” he said. “And construction had barely begun.”

Jalan Maulana, a coastal stretch of road overlooking the South China Sea that directly leads to Brunei Shell Petroleum’s headquarters in Panaga, is home to several blocks of premium apartments aimed at wealthy expatriates.

A fully-furnished three-bedroom unit over 1,100 square feet would fetch a rent of $3,000 to $4,500 per month a few years ago but has now dropped to a range of $2,000 to $3,000.

The model that enticed property companies and the purchasing public was fairly straightforward and the potential for return on investment lucrative. A two- or three-bedroom apartment in the region of $350,000 could fetch a monthly rent of close to $3,000 if its outfitting and furnishing were upscale.

This meant investors could repay the cost in just 10 to 20 years and still have 70 to 80 years left on their lease — a promising proposition, but one that rested delicately on rental rates remaining high and tenancy a guarantee.

As oil prices took a nosedive towards the end of 2015, the situation began to unravel. Based on the number of vacated units since the downturn, real estate agents estimate that at least 400 expatriate families have left the district.

“Ninety-eight per cent of rented property in Brunei is by expatriates,” said a real agent estate who asked to remain anonymous. “And within Belait, those expatriates arrive (to work for the oil gas industry).”

At this juncture, it’s easy to point out that any upward trend in oil prices will bring stability to the property market. But since real estate agents point out that locals generally don’t rent, it’s the number of arriving expatriates in the future that will determine the fate of the rental market.

“Now the focus is to localise the workforce (especially in the oil and gas industry). If oil prices rise again but there are less expatriates arriving, the (downward) situation in rentals will remain the same,” said another real estate agent.

Still, debating the future demand for Belait’s rented properties only tells half the story. The other half is coming to grips with what will happen should the number of expatriates surge, only this time to arrive to a glut of housing options.

One way of understanding just how saturated Belait’s housing market has become is to seek out anecdotes of property owners who claim that rentals and tenancy were still better off during the oil crisis of 1999 to 2000, where prices dropped to US$10 a barrel.

Another way is to quickly survey options for purchasing housing still under construction, where one will be spoilt for choice. The sellout of high rises before completion is no longer a foregone conclusion.

But there are exceptions. Construction of residential property has spurred in a radius near Sentral Shopping Centre, the district’s first one-stop shopping mall, since it opened at the beginning of 2015.

The mall’s 18 serviced apartments under the Garden Sentral Hotel, which opened in April last year, were also fully occupied by long-term guests until recently.

The strong performance prompted KBSentral’s General Manager, Abby Lim, to extend the serviced apartment concept to two rows of terrace housing next to the mall.

Still, the wider situation in the district remains critical, especially for members of the public who were banking on tenants to rent out apartments and houses they had taken mortgages to buy.

“We (my family) bought an apartment in KB as an investment, hoping to make the money back within 20 years,” said an owner who asked not to be named.

“But we’ve been struggling to find tenants, so we repay the loan every month without rent coming in.

“It’s a difficult situation. If I can’t find a tenant in the coming months, I’ll have to cut my losses and try to sell the place.”

The Brunei Times