Pakatan Harapan witnessed its fourth defeat in the Tanjung Piai recent by-election suggesting Malaysians are not satisfied with the performance of the incumbent government. Against this political backdrop, here are our top five predictions for Malaysia’s property market next year.
By Khalil Adis
If the recently concluded by-election in Tanjung Piai is anything to go by, the mood on the ground is clear - Malaysians are frustrated with the lack of reforms, election manifestos that were rescinded, high cost of living, in-fighting among its leaders and a society that appears to be increasingly divided along race and religion fault lines.
Indeed, the Tanjung Piai by-election witnessed Barisan Nasional candidate Datuk Seri Wee Jeck Seng winning by a landslide with a 15,086-vote majority.
In total, he garnered 25,466 votes.
In contrast, Pakatan Harapan’s candidate from Bersatu, Karmaine Sardini obtained 10,380 votes.
The by-election is particularly significant as Tanjung Piai has a sizable Chinese and Malay voters.
Collectively, this does not bode well as the property market is very much sentiment-driven.
In addition, the latest trade data from Bank Negara showed that Malaysia’s economic growth had slowed down from 4.9 per cent in the second quarter of 2019 to 4.2 per cent in the third quarter.
With a lacklustre economy, a looming global recession and job retrenchments, here are our top five predictions for Malaysia’s property market in 2020.
#1: Kuala Lumpur: High-end properties in KLCC will be the first to be affected
KLCC is a good barometer of the global economy as it attracts foreign investors, speculators and wealthy locals.
It also attracts a sizeable expatriate community who are renting properties here either under a corporate or personal lease.
As such, this is the first sector that will be hit once the economy comes to a grinding halt and they are sent packing home.
This is because landlords who own high-end properties here are hardly able to cover their mortgage even with such tenants secured, resulting in negative cash flow.
Should retrenchments occur, the exodus of the expatriate tenant pool will be a double whammy as landlords are faced with a loss of income and still having to service their mortgage.
Those who face difficulties will be forced to offload their properties.
Historically, the 2008 crisis witnessed the resale values of properties here declining by around 15 to 20 per cent.
One solution for landlords is to convert their homes into Airbnb units.
Then and again, the short-term lease market is extremely competitive and no longer as lucrative as before.
There is currently a price war among online hotel booking sites and Airbnb resulting in a very low-profit margin for such property owners.
#2: Kuala Lumpur: Supply glut makes renting even more attractive
According to the first half of 2019 data from the National Property and Information Centre (NAPIC), entire Malaysia has a total of 54,0078 overhang units worth RM37, 229 million.
Kuala Lumpur has 4,731 such units worth RM4,599.30 million.
With so much supply in the market, those who are struggling to purchase their first home may want to rent instead.
Alternatively, you may want to opt for the Rent-To-Own (RTO) scheme.
This is specifically for those who are unable to afford the initial 10 per cent deposit and access to financing in purchasing their homes.
Here’s how it works, you sign a tenancy agreement with the developer where part of your rental will be converted to your deposit.
After five years, the developer will then ask you to sign a Sales & Purchase Agreement.
Recently, the government announced that for Budget 2020, it will be collaborating with financial institutions for this scheme for the purchase of first home up to RM500,000 property price.
Under this scheme, the applicant will rent the property for up to five years and after the first year, the tenant will have the option to purchase the house based on the price fixed at the time the tenancy agreement is signed.
The government will provide stamp duty exemptions on the instruments of transfer between the developer and financial institution, and between financial institutions and the buyer in this scheme.
#3: Iskandar Malaysia, Kuala Lumpur and Penang: Flight to safety among Hong Kong investors
One man’s loss is another man’s gain.
In Malaysia’s case, we have seen Hong Kong investors snapping up medium to high-end properties from Iskandar Malaysia to Penang due to the ongoing unrests happening in Hong Kong.
This will also help to reduce the overhang in the property market resulting in improved cash flow among developers.
These investors are cash-rich which is music to the ears for property developers.
So amid the gloom and doom, the protests in Hong Kong has given a flicker of hope for the real estate sector which has been in the doldrums.
The result is a positive trickle-down effect for the Malaysian economy and helping to create jobs in the property, law and finance sectors.
#4: Iskandar Malaysia, Kuala Lumpur, Selangor and Penang: Affordable homes will continue to be in demand
While the government has announced various initiatives such as Fund for Affordable Homes and Youth Housing Scheme, I believe that young Malaysians should instead focus on buying from private developers through the Home Ownership Campaign (HOC).
This is because land is a state matter and the federal government may have difficulty implementing such homes across Malaysia.
We have already seen from the previous budgets how homebuyers were left stranded when PR1MA was not able to deliver the 1 million units that were promised.
The lack of a single government agency to spearhead the affordable home segment also complicates the matter and may mean one government agency may not be communicating with another.
In addition, the limitations that are imposed on low-cost housing built by either the state or federal government may impact your capital appreciation in the future.
Private developers are in the business and have to means to deliver such homes.
Take advantage of the HOC as you can get a 10 per cent discount for qualified properties that will be matched with stamp duty exemptions.
You may also want to apply for a home jointly with your spouse or another single. This will enable you to combine your finances leading to a higher chance of getting your loans approved.
This is for those who do not want to take part in the RTO scheme but instead come up with the 10 per cent deposit on your own.
When choosing for a home, apply the 5CS.
Check the masterplan:
A masterplan would typically define a township’s development in the next one to two decades.
Check the transport masterplan
Generally, properties close to transportation hubs such as MRT or LRT stations can command a premium of between five and 10 per cent over the long term.
Check budget allocation from the government
Government policies do have an indirect impact on a property. For example, budget allocation for improvements in public infrastructure and new economic drivers will have an impact on new and existing homes in and around the vicinity of an area. So check where the government is building new hospitals or schools.
Check for economic drivers
You should study an area before buying your property. The best strategy is to buy in an area that is not yet developed but where there are plans for various economic drivers. A government-mooted economic corridor or a reputable developer that has experience in building townships are great indicators if the area will ‘succeed’ or not.
Check for job creation
This is like feeling someone’s pulse. You need to check if the township you are eyeing is going to be a ghost town or a happening place. If it is the former, perhaps you should stay away. If it is the latter, more and more workers will be drawn there, becoming a magnet for people and a hive of activity. People are the lifeblood of a neighbourhood. As the area becomes highly desirable, people will naturally want to live and work in and around the vicinity. As there is an increase in demand, property prices in that area will also rise. That is how property prices appreciate.
#5: Confusing message from the government may result in a “wait-and-see’ situation among foreign investors
Recently, the federal government had announced that it was reducing the minimum purchase price from RM1 million to RM600,000 to reduce the overhang in Malaysia’s property market.
To reduce the overhang, Budget 2020 now allows foreigners to buy completed and unsold units that are priced above RM600,000.
Subsequently, Housing and Local Government Minister Zuraida Kamaruddin clarified that will be implemented only for a year starting from 2020.
However, each state has the right to implement its own minimum purchase price which makes the implementation difficult.
In addition, Malaysian My Second Home (MM2H) applicants now can no longer import a car according to MM2H agents who are involved in such applications and will require additional approval from the Housing Ministry
This, they said, results in longer processing time and sends a confusing signal to foreign investors on Malaysia’s intention to lure foreign investors.
So, except for Hong Kong investors, the rest may likely adopt a wait-and-see” approach until they see some clarity.
An independent analysis from yours truly