Industry experts deliberate on real estate issues which will shape next year’s property landscape while a property coach shares his 2018 investor survival kit. Read on and may the purchasing force be with you.
♦Better policies addressing supply-demand imbalances – fingers crossed!
♦Tip for developers: Study the needs of Muslim homebuyers.
♦Investment Advice: Beware of high rebates & disparity in sq ft pricing.
Sarkunan Subramaniam, Managing Director of Knight Frank Malaysia
More affordable launches at the cost of smaller units
Next year’s primary residential property market will be driven by affordable launches – Most developers will be introducing units within the RM300,000-RM600,000 range to ensure strong take-up rate among aspiring homeowners. Granted, unit sizes in major urban areas will be on the downtrend as well; to enjoy cheaper price tags, purchasers will have to settle for smaller units.
In lieu of slow local sales in the past year, many developers of luxury residential units have been marketing their projects abroad to court foreign purchasers. More are set to join the bandwagon; absorption of unsold stock by local buyers will still be very few and far between in 2018.
Rental market initiatives will spur housing market
Under the Budget 2018, it was announced that there will be a 50% tax exemption on rental income for residential properties below RM2,000 per month. This measure will indirectly encourage investors to purchase low to mid-range residential properties and even shoe-box units, which command a monthly rental in the range of RM1,500 to RM1900.
Some owners may even lower their asking rent in order to cash in on this new tax exemption. All which spells good news for the low-income segment (B40) – the typical household who falls in this category have a monthly income of below RM3,900 (source: Khazanah Research Institute). Considering the high costs of living, even the middle-income segment (M40) stand to benefit from the increase in affordable renting options.
Co-working space trend to help alleviate commercial glut
2017 was especially challenging for the commercial property market due to the challenging economy and weak Ringgit. Moving forward, the office space glut will still be a tough nut to crack. Nonetheless, the emergence of new office trends will help move things along.
Quite a few MNCs and large local companies within the Klang Valley are in fact “optisizing” – where these businesses are opting for flexible working spaces which banks on the open plan concept. There is also a rising demand for co-working spaces and serviced offices from technology start-ups, small-medium enterprises (SMEs) and the freelance/entrepreneur community.
This spells a higher absorption rate among newer, Grade A office buildings which attractive features and layouts facilitate the implementation of a flexible working culture. The lower rent being offered for such buildings will further entice corporate tenants.
Consumer sentiment to shift post-election
Consumer sentiment is low at the moment, which is unsurprising considering the rising costs of living. The 2017 Malaysian retail sale growth rate has been revised thrice so far, from 5% end of 2016 to 3.9% in the beginning of 2017, followed by another lowering to 3.7% in mid-2017 and the latest figure projection in the last quarter of 2017 was further downgraded to 2.2%.
In correspondence to the slow retail expenditure, similarly, the sentiment among property purchasers will remain much of the same for the first half of the year. Sentiment will shift after the general elections in 2018, as there will then be certainty in the political direction.
Do note however, that a ‘status quo’ election result will cause an uptick in purchasing activities, which will then moderate in the longer term. Should there be a different election outcome, consumers’ sentiment will first take a further dip before trending upwards, after a brief period of ‘wait and see’ by investors, especially. However this ‘wait and see’ period remain the same after regardless of the results.
Ajib Adi, Property Investor
E-commerce growth to drive industrial demand
Online retailing is seeing a major boost in Malaysia with the recent launching of the Digital Free Trade Zone (DFTZ) by the Malaysian government, the e-commerce sector will be seeing a leg up. A growing number of businesses have started to cater to the shifts in consumerism, all the big retailers are now offering delivery services, a classic example being Tesco. This would mean that location will no longer be the number one priority for retailers, rather many will be looking for distribution centres or warehouses located nearby logistic services such as GDEX, POS LAJU and The Lorry.
Capitalise on blockchain trend
Blockchain and cryptocurrencies, in particularly bitcoin have seen a surge in interest this year. Various businesses overseas, have started accepting cryptocurrency as a form of payment for goods and services. Real estate has not been sidelined; homeowners in the UK, the USA and even Ukraine are now selling off their assets in exchange for bitcoin instead of cash.
It may take some time for the cryptocurrency trend to pick up here in Malaysia, but disruption is only going to happen sooner, if not later. Developers should start looking at how they can implement blockchain technology in real estate transactions. Benefits of buying and selling real estate on blockchain include lower fees as it bypasses middlemen including brokers, lawyers and banks. Also, blockchain technology could alleviate real estate fraud and help streamline the sales process as blockchain enables consumer financial information to be securely shared with other parties during a transaction.
Study and fulfil local market demands
The majority of Muslim home buyers will look out for residential units with at least three bedrooms. Simply because it is not proper to house children of the same gender within one room – parents would want separate bedrooms for their sons and daughters.
This demand trend must not be sidelined by developers when constructing high-rise residential units, especially considering that many are now building smaller units in order to bring down selling prices. Even units as small as 750 sq ft should offer three rooms, to attract family occupiers in urban areas.
Warrick Singh, Director of Asian Land Realty SB, Asian Land Auctioneers SB & Starfish Training SB
Better policies addressing supply-demand imbalances; fingers crossed!
The residential overhang issue is still the biggest thorn in the property market’s side, as the gross mismatch between masses’ affordability and home prices continues to be a nation-wide lament.
In fact, the supply-demand gap has continued to fester, as reported in Bank Negara Malaysia’s (BNM) 3Q2017 bulletin, which was published in November 2017. It was highlighted that only 21% of new residential launches between 2016-Q12017 were for homes priced below RM250,000.
Taking into consideration the affordability benchmark, where a home’s selling price should be three times the borrower’ annual household income; one should be earning at least RM7,000 to afford an RM250,000 house. (RM7,000 X 12 months X 3 = RM252,000).
From the earning capacity end, we are not that far off (in the Klang Valley, at least) – The Department of Statistics recently released its 2016 Household Income Report, in which stated Selangor’s monthly median household at RM7,225.
However, property launches in the past year or two were mostly for homes costing above RM400,000. Hence, it is not a shocker when BNM’s same report disclosed that as of 1Q2017, there was a staggering RM35.5 billion worth of unsold or unrealised properties. These comprise of residential (RM20 billion); purpose-built office (RM10 billion) and shopping centres (RM5.5 billion).
Numerous reasons were named for the huge demand-supply disparity, including delay in gazetting of local plans, leading to overdevelopment; no planning coordination and indiscriminate approvals by local authorities; artificial demand over the years and lack of market and financial feasibility studies.
These unattractive findings serve to confirm what most of us already know but are not willing to admit. BNM’s new figures are a wake-up call and the relevant stakeholders are feeling the pressure to take remedial action.
True enough, following the BNM report in November 2017, the government announced a freeze on the development of luxury property products, including high-rise residential units costing more than RM1 million. This knee-jerk reaction has received backlash from certain parties who have voiced out that a blanket ban will not help solve the oversupply issue. Moody’s Investor Service opined that the moratorium would not be enough to correct the oversupply over the next 5 years when property projects now in development enter the market.
However, the finer points of this indefinite freeze have not been finalised. It was reported in the media that Kuala Lumpur might be exempted from the ban, which would be discussed further with the Finance Ministry.
In light of the residential property glut, local think-thanks and industry heavyweights have also rallied for the configuration of a National Housing Act which clearly defines the obligations and powers of local authorities when it comes to development approvals and land utilization. We might just see this materialising, considering the looming general elections in 2H2018.
Should a new Act be introduced, it must serve to institutionalize the housing development process – state and local authorities in charge of granting development approvals must adhere to a formal framework which adopts a long-term approach. Sustainable development should be at the forefront, besides the implementation of proper plot ratios and densities for different locations. Demographic and geographical impacts such as a development’s effect on the area’s overall landscape, residents’ quality of living and the neighbourhood’s traffic conditions must be studied diligently as well, especially in urban areas.
The ball is in the authorities’ court, and hopefully, we will see more comprehensive and effective policies being petered out to help mitigate the demand-supply gap and home-ownership issue.
Adzman Shah, Chief RE Consultant at Exastrata Solutions Sdn Bhd
The right residential, commercial and retail products will do well
The secondary market is where most of the excitement is going to be in 2018. Newly completed properties, which were launched in the past 2 years or so will be coming into the market and this new supply will cause a ripple effect in bringing down the asking prices of sub-sales properties.
Consequently, the secondary residential sub-sector will experience a higher sales volume. With fuel prices and parking costs on the uptrend, the demand for strategically located units within close proximity to public transport nodes will increase, provided that selling prices become more reasonable, of course.
The commercial market will see tenants shopping around for better office accommodation options, which provides lower monthly rent and better leasing terms. Those close to public transportation and with easy access to dispersal highways will continue to be sought after especially in the fringe areas of the city. Rentals in prime grade A office buildings with blue-chip MNC tenants will remain steady whilst older office buildings will be forced to retrofit or refurbish to stay competitive.
Malls with strong international branding, i.e those which are popular among the tourist/expat crowd will be able to retain rental rates. Meanwhile, their lesser-known counterparts located in fringe areas and suburban neighbourhoods will need to work harder in attracting shoppers. Retail outfits who fail to retain crowd-pulling tenants and keep up strong advertising and promotion (A&P) activities will suffer a drop in occupancy and rental rates.
Quite a few transactions of commercial properties have taken place in 2017, probably in anticipation of the proposed increase in stamp duty rates for properties costing above RM1 million, which was announced during the tabling of Budget 2017. However, it was just announced on December 20, 2017 that the proposal has been scrapped off. Significant measures as this must be carefully considered before being announced or enacted, as sudden and on-or-off policies are detrimental for investors’ confidence.
Developer’s strategies in 2018
- More developers will start paying special care during the planning stages of strata developments in order to avoid difficulties in property management upon completion. With the Strata Management Act fully in force, there is a higher awareness among the strata residential owners on their rights and developers’ obligations.
- Niche developments with value-added lifestyle features and comprehensive security systems will fare better.
- Incentives such as deferred payment schemes, 90% payment upon completion and special rebates being offered by developers could stir purchasing interest. However, these initiatives may put a dent in developers’ books in the long term as they will need to recoup these expenditures.
- The tightening of loan approval process for government servants may affect the rate of successful loan applicants for PPA1M homes.
- For PR1MA and other privately driven affordable housing, the pricing of homes should be fine-tuned according to location – homes built further away from city and town centres should bear lower price tags. This will allow home buyers who are willing to stay further away and experience longer commutes to save on purchasing costs.
- A local bank recently launched a rent to own scheme, which does not require any down payment while offering a locked-in purchase price for home buyers. Though it will definitely lend a hand towards increasing home-ownership, the success of the RTO scheme is dependent on the candidates’ qualifying criteria and proper implementation of terms and conditions.
Investor survival kit – Top Tips for 2018
Mark Chua, Property coach & Bestselling author
1. Be careful of disparity in sq ft pricing
All that glitters is not gold; when it comes to making a purchasing decision, many home buyers are blinded by ‘special features’ or facilities gimmicks. A case in point, a residential development in Kota Damansara which is connected to the nearby MRT station via a covered walkway is going for RM 1,200 per sq ft (PSF). Whereas, nearby residential projects with similar specifications and which are about the same distance away from the MRT station are going for one-third the price at roughly RM400 PSF!
ALSO READ: MRT Line 1: The good, the bad & the ugly
Remember to conduct a thorough cross-analysis of all the residential options in that area before settling for the ‘most attractive’ option. Doing away with one or two novelties could save you boatloads of cash in the long-run.
Similarly, do not be mislead by what is perceived as affordable properties. A unit that costs RM400,000 is not necessarily affordable if it only measures 500 sq ft – that is RM 800 per sq ft for you. Do not be so quick to jump the gun – always base your purchasing decisions on PSF and not the final price tag.
2. Do not succumb to high-end units which offer high rebates
It is expected that Bank Negara Malaysia (BNM) will raise its Overnight Policy Rate (OPR) as early as January 2018, causing a rise in interest rates. Property owners will have to fork out more for their monthly repayments, hence putting the luxury residential segment at risk.
Investors should be wary of purchasing higher end units, i.e those costing above RM800,000; especially those which offer excessive rebates of up to 20-30%. Remember that there is a distinct difference between Ease of Purchase and Investment Viability. Higher monthly repayments brought on by the interest rate hike coupled with stagnant demand from the masses will not bode well.
3. Beware the hotspot syndrome
News of an up and coming hotspot which you absolutely must purchase into surfaces from time to time – do not be swayed by hearsay or by the fear of missing out. Also, think twice before investing in a residential/commercial product pushing the latest fad or trend just to leverage on cash rebates.
The days of overnight profits and rapidly climbing capital appreciation figures are behind us – investors should instead have a multi-decade view and focus on long-term gains.
Consistency is key in property investment; personally, I am huge believer in ‘boring’ properties, i.e bread and butter units in typical residential neighbourhoods but which guarantees a 2-3% capital appreciation per annum. Considering the average Malaysian’s affordability and earning capacity, these are the products which will hold steady over the years as there will always be demand for them.
Looking for more tips on property investment? Swing by iProperty.com’s Home & Property Investment Fair from 19-21 January 2018 to glean the best advice from our list of speakers. Check out the programme schedule here.
DISCLAIMER: The opinion stated in the article is solely of Sarkunan Subramaniam, Ajib Adi, Warrick Singh, Adzman Shah and Mark Chua and is not in any form an endorsement or recommendation by iProperty.com. Readers are encouraged to seek independent advice prior to making any investments.