KUALA LUMPUR Analysts have warned that Malaysia's sluggish property market would remain weak in the near future with the government saying a shocking RM10 billion (US$2.6 billion) worth of office space remains unoccupied.

Although interest rates are low, a declining stock market and cautious consumer sentiment, among other factors weigh down the sector, they said.

Nizam Idris, Singapore-based regional economist with IDEAglobal market research company attributed the glut to steady supply met by weak demand and a fragile economy.

"There is still a lot of supply overhang. Demand has not been strong," he told AFP .

Nizam said the right step forward would be to cut supply but there was not much the government could do to bolster demand.

"People are worried about the economy. Consumers are cautious and delaying big capital expenditure like buying cars and houses," he said.

Lower interest rates would not necessarily encourage people to buy or upgrade their property, Nizam said, adding the regional property scene was also weak.

Financial crisis

The property market in neighbouring Singapore had fallen by 25 percent while in Hong Kong it had plunged by 65 percent, he said.

Nizam also attributed the current property overhang to the Petronas Twin Towers and the 1997 Asian financial crisis.

"A lot of space came into the market. And those who bought their property at a premium before the crisis now find its value lower than what they paid for it. They are not going to upgrade or buy new property for now," he added.

Nizam said the market may recover in mid-2004 when the global economy was in a firmer position.

The government announced Friday that building owners were having difficulty in finding buyers and tenants.

Nationally, 22 percent of completed commercial buildings in the past three years have not been occupied and in the capital Kuala Lumpur the figure is 25 percent.

No takers

Bernard Dompok, minister in the prime minister's office said there had been no takers for 95.5 percent of recently-completed office buildings in Kuala Lumpur.

Developers who undertook construction of high-rise buildings such as apartments and condominiums are facing particular difficulties, the Sun newspaper reported.

Dompok said plans to build 59 hotels had been shelved indefinitely.

There are 30 abandoned projects in the capital, he said, including a five-storey residence belonging to Brunei's Sultan Hassanal Bolkiah.

Dompok said the government had stopped issuing permits to developers for commercial properties early this year in order to stabilise the supply.

A taskforce had been set up following the 1997 Asian financial crisis because many abandoned projects have become a health hazard as well as an eyesore, he said.

Rohan Padmanathan, vice president of property consultancy firm Jones Lang Wootton said the market would remain soft next year as a number of new buildings were in the pipeline.

Poor planning

"Office leasing has been sluggish. Many are consolidating their office space. Some multinational companies have downsized due to weakening in the US economy, resulting in less space being required," he said.

But he pointed out that office space and retail outlets located within the capital's top business district, called the "Golden Triangle," were enjoying good occupancy.

Attributing the current supply overhang to poor planning, he said excess office space could be put to other uses.

For instance, he said, a building intially meant as a shopping mall now houses an educational institution. AFP