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5 property trends to watch out for in 2018

1/11/2018

1 Comment

 
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As land become scarce, Transit Oriented Developments (TODs) will be one of the trends to watch out for in 2018 to ensure land is utilised economically. Photo: Khalil Adis
Buying a property but not sure exactly where you should start? Whether you are a novice or a seasoned investor, we list down our market outlook and property trends to watch out for in 2018.

By Khalil Adis 

The upcoming 14th General Elections (GE), current demand-supply mismatch and buyers who are unable to secure end-financing will have a significant impact on the Malaysian property market in 2018.

While the fundamentals in the Malaysian economy and banking system remain strong, there will still be consumers who are still unable to secure end-financing as wages have not gone up in tandem with property prices.

In terms of the economy, the World Bank’s recently released a Malaysia Economic Monitor report showing an upbeat Malaysian economy.

According to the World Bank, the country is expected to grow at 5.2 per cent this year driven by strong domestic consumption. 


It also expects this to be the main driver of growth in the coming year, supported by stable labour market conditions and continued income growth.

“Accelerated growth has been fuelled by strengthening domestic demand, improved labor market conditions, and wage growth, as well as improved external demand for Malaysia’s manufactured products and commodity exports. Capital expenditure has also increased due to higher private and public investment,” said the World Bank.

Meanwhile, figures from Bank Negara showed that access to financing was not a major deterrent when it comes to home ownership. Its October 2017 report, for example, showed that loan approvals for key cities are near 70 percent or higher. 

“As at end-2016, about 56 per cent of loans outstanding were for houses priced below RM250,000, while loans for houses priced between RM250,000 to RM500,000 accounted for another 25 per cent. Rejection rates for housing loan applications also fell further to 23.6 per cent in 2016. These trends are evidence that financing remains ample for eligible home buyers,” said the Central Bank.

Bank Negara’s finding has in someways helped to debunk myths in the market that high loan rejections are to be blamed for the current state of the property market.

While Malaysia’s economy and banking system remain sound, housing prices across Malaysia continued to soar at unaffordable levels.

This makes it a challenge for potential home buyers to obtain loans.

According to Bank Negara’s report, the ratio of median house price to the median household income showed that the housing affordability ratio in Malaysia by 2014 was 4.49. This indicates that houses in the country as a whole, were ‘seriously unaffordable’.

Noting the demand-supply mismatch, Bank Negara notes that Sabah and Sarawak has the highest deficit in affordable homes in 2014, accounting for 50 per cent of the total shortage in Malaysia.

“Among the four states with the highest concentration of urban population, the shortage of affordable housing was largest in Kuala Lumpur, followed by Penang and Johor. On the other hand, Selangor was found to have a surplus of affordable houses. However, this could be an over-estimation given that there is a significant number of low-cost housing in the state that may fail to meet the quality and location requirements of households,” said Bank Negara.

With an economy showing a strong domestic market, 2018 will likely see buyers adopt a ‘wait-and-see’ approach leading up to the general elections while the market will see a period of correction and consolidation due to the demand-supply mismatch and the many unsold inventory.

This, combined with buyers who are unable to secure a loan, will likely see more and more developers launching affordably priced products with creative financing schemes such as ‘rent-to-own’ and low deposits to entice buyers in the market.

Here are our five predictions to watch out for in 2018
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A condominium development in Sungai Besi. Sungai Besi in an upcoming growth area where you can still find pockets of areas with affordable properties but with the greatest potential for capital appreciation. Photo: Khalil Adis
#1: Affordably priced homes
Affordable is relative. With the median income for Malaysians varying from one state to another. The prices for such homes should be reflective of what is affordable in each state. In Kuala Lumpur, for instance, the Department of Statistics showed that the median monthly household income as of 2016 is RM9,073. 

Assuming both husband and wife to have such income, the median salary in KL would be RM4,536.50. As such, if we were to use the income-to-mortgage ratio of 30 per cent (RM4,536.50 x 30/100 = RM1,360.95), a single KLite should not be paying more than RM307,000 based on an interest rate of 4.25 per cent with a 10 per cent downpayment over 30 years. This is where the challenge is as the entry price for homes in KL is easily more than RM600,000.

Accordingly, it will be wise for the various developers to use the Department of Statistic’s finding to build homes according to the median monthly household income in each states by using the income-to-mortgage ratio - RM8,275 for Putrajaya, RM7,225 for Selangor, RM5,928 for Labuan, RM5,652 for Johor, RM5,588 for Melaka and RM5,409 for Penang. KL will be the state with the most pressing need for such homes as it is the centre for economic activity in Malaysia. The onus will therefore fall on the federal government to ensure the supply of such homes in the market.
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Commuters taking the train at Kajang MRT station. For TODs to work, there needs to be public-private partnership to reduce land acquisition costs and greater political will to ensure seamless connectivity to the train stations. Photo: Khalil Adis
#2: Transit Oriented Development (TOD)
One way to overcome the challenge in building affordable homes in KL will be Transit Oriented Development (TOD) projects. DBKL has set a development guideline for developers to build homes at around 800 sq ft but priced below RM450,000. This is possible through public-private partnership by building on government owned land to reduce land acquisition costs, leading to lower cost when building such homes. 

With the recent completion of the Sungai Buloh - Kajang (SBK) MRT Line and the upcoming Sungai Buloh - Serdang - Putrajaya Line (SSP) MRT Line 2, there are several parcels of land near to the MRT stations where it is feasible to build such homes. However, the government must implement stringent laws similar to the Singapore system to ensure developers build seamless connections via elevated linkway or underground walkways for the convenience of commuters and those living in the area. 

Some of the current MRT stations such as as Bandar Utama, Taman Connaught and Cochrane suffer from poor connection despite the huge amount spent on this infrastructure project that are being built next to huge shopping malls. This is a pity as they would have benefited immensely from the potential foot fall. As of now, the ball falls on DBKL’s and private developers’ courts to make this work for the greater good of the rakyat.
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Ayer Holdings Berhad last year launched a Rent-to-Own scheme called Stay & Own for Epic Residence and Foreston.
#3: Rent-to-own scheme
Some developers like Bursa-listed Ayer Holdings Berhad (formerly known as TAHPS Group Berhad) have rolled out such creative financing schemes for Epic Residence and Foreston to assist first time home buyers since 2017. This is in view of the tightening of bank loan approvals margin and the softening property market.

For those who cannot obtain a loan but need a roof over your head, this scheme will assist you when you rent a unit. In Ayer’s case for instance, some of the rent will be converted as part of the downpayment ensuring you will have a home in the short-term and long-term period until you are financially sound.
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Aerial view of Bukit Bintang. Airbnb accommodations must be locate in a tourism hotspot. Photo: Khalil Adis
#4: Airbnb accommodations
The combination of a relatively weak ringgit versus the Singapore and US dollar plus less stringent regulations for short-term stays in private residences have made Airbnb-type of accommodations especially popular and lucrative in Malaysia.

Imagine earning a daily rental of RM250 (that’s RM7,500 in a month!) versus RM3,000 in a month for a condominium unit! For Airbnb accommodations to work though, your property must be located in a very central location with a lot of tourism landmarks such as in Bukit Bintang, KLCC, KL Sentral in KL, Georgetown in Penang or Jonker Street in Melaka. When renting out such homes, ensure you do simple renovations such that your plumbing system, electricity and heaters work. Throw in a washing machine, toaster, television and such to ensure your property remains top on the mind of a prospective renters’ list. While Airbnb accommodations can be very lucrative, there can be downsides to it - renters from hell! Ensure you screen prospective renters carefully by checking reviews from fellow Airbnb landlords online. 
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You need significant cash on hand if you want to buy a resale home. Photo: Khalil Adis
#5: Resale homes
If you need a home urgently, a resale unit is the way to go as they are priced significantly cheaper, at around 30 per cent lower, compared than new launches.

This is due to the massive supply in the market that has contributed to a glut in the market, resulting in softening property prices. 

The good news is this - it has become a buyers’ market with plenty of bargain hunting options!

Be prepared though to have extra cash in hand as you will need to pay a deposit, legal fees and other costs.

With so much supply in the market, sellers are more willing to negotiate with you.

As such, if you have difficulties in your 10 per cent deposit, you can negotiate your payment terms with the landlord.

Time to put those bargaining skills to practice!

Here’s wishing you a prosperous 2018 ahead!
1 Comment

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