A view of the landmark Petronas Twin Towers against an almost clear sky in Kuala Lumpur on June 27, 2013. The air quality is improving after nearly a week of smog from forest fires in Sumatra. — Reuters pic

KUALA LUMPUR, Sept 18 — Malaysia’s penchant for building iconic “tallest” towers and Grade-A office space may see the market for commercial real estate here suffer a massive crash like in Dubai, CIMB Bank warned in a report today.

The country’s second largest bank likened Malaysia’s ambitions to the “early story” of Dubai, which is home to the Burj Khalifa - the tallest building the world.

It pointed out that after years of “frenetic” development, the city-state suffered a real estate crash in the wake of the 2008 financial crisis, with properties losing more than 50 per cent of its value by 2011.

Malaysia may yet go the way of Dubai in this respect, CIMB said, noting that the current construction boom, particularly for commercial office space and big ticket projects like the 100-storey Warisan Merdeka tower, would likely create an eventual oversupply and overhang of properties.

“Without the solid backing of fundamental demand, the overbuilding of commercial real estate could result in painful long-term issues, such as a magnified oversupply of office space, depressed rentals and yields, wastage of strategic land resources and knock-on effects on the financial sector as borrowers default on their loans and the industry’s non-performing-loan ratio rises,” it said.

The bank, however, said Dubai had been in a better position than Malaysia, given the presence of many well-established Fortune 500 firms already sited in the booming city-state.

Occupancy rates in Dubai are already up to 99 per cent, CIMB added, unlike in Kuala Lumpur, which has occupancy in the low to mid-80 per cent range.

The report, as quoted in an article published on CNBC’s website yesterday, also noted that if the government offers funding for the projects, any losses will pressure public debt.

It estimated that around 17 million square feet of gross office floor area will become available between 2015 and 2017, but said that even if demand doubles in this period, it would not sufficiently absorb the influx.

Senior director at Savills Research Alan Cheong told CNBC, however, that he expects demand to remain constant and does not expect to see an office-market crash here.

“Even if it’s down 10 per cent, it’s not a crash. It’s just a reaction to greater supply,” he said.

The Malaysian Institute of Estate Agents president Siva Shanker told The Malay Mail Online recently that although the property market is heading for “challenging times” in the next few months, due to factors including the fuel increase, he does not expect to see a property bust.

“The Malaysian property prices rise gradually every year and during the financial crisis in 1997 and 2008, instead of plunging like the property market in countries like the US, the prices here stagnated,” Siva said.

Many property investors and those in the property industry are also expecting an increase in the real property gains tax (RPGT) in Budget 2014, which will be unveiled next month.

Last week, Maybank Investment Bank (IB) Research downgraded its outlook for the property market amid uncertainties by Putrajaya’s cooling measures.

“Sentiment towards developers should stay weak in the run-up to Budget 2014 in October 2013 and may only improve after more clarity on government policy and mega projects post Budget,” it said.

Prime Minister Datuk Seri Najib Razak had recently announced that Putrajaya will now be reviewing public projects more carefully, giving higher priority to projects with low-import content and high-multiplier effects.