Although the public assumes that property prices will plummet after the moratorium period ends by October 2020, bear in mind that property will still not be affordable for everyone.
This article was translated from ‘4 Ramalan industri hartanah selepas moratorium berakhir pada September 2020 nanti’ by Mursh Matsom.
The COVID-19 pandemic that has struck the country since early March 2020 has worsened the current real estate market situation. Prior to the pandemic, the real estate industry had started to show a gradual improvement after the Home Ownership Campaign (HOC) which had successfully sold more than 28,000 residential units.
Due to the lack of government’s stimulus injections and packages for the real estate industry in previous years, the first quarter of 2020 had been sluggish for the property market and has distressed many property developers.
Today, we see real estate developers offering various great deals such as cashback and up to 30% discounts, including up to 13 months monthly instalment payment plus free furniture and electronic appliances to buyers.
However, upon closer inspection, the property prices had not declined as expected. This shows that even without the COVID-19 pandemic, the real estate industry in Malaysia was already in a critical state!
It is inaccurate to assume that house prices have taken a nosedive due to the COVID-19 pandemic. This is because there is no sudden decline across the country from both residential and commercial type properties.
Yes, it is true that some residential units, especially in the subsale market, are sold cheaper than the current market median price, but these are a minority and isolated cases. Therefore they cannot be seen as a phenomenon of decreasing prices collectively.
For that, this article will explain about property predictions after the moratorium ends in September 2020.
1. Significant increase of Non-Performing Loan (NPL) cases
After the moratorium period ends, banks are giving homeowners an extra three months to make payments before their housing loan becomes a Non-Performing Loan (NPL). The biggest reason for the significant increase in NPL is due to insufficient household incomes to repay housing loan instalments.
The unemployment rate is at 3.9% in the first quarter of 2020, and this number is expected to continually increase. As of 1Q2020, Malaysia recorded the highest unemployment rate in the last 10 years totalling 615,000 Malaysians in March 2020!
2. More auction properties in the market
Bank Negara Malaysia (BNM) will deem the loan as an NPL if homeowners fail to make payments on their loan instalments for three consecutive months. The bank will start issuing Mortgage Defaults to property owners who fail to make payments, five months after the moratorium period ends.
During that period, the bank will appoint a real estate appraiser to assess the value of the property for auction. After seven to eight months, the house will be declared for auction and will be advertised on the bank portals. Subsequently, the house will start to be advertised on social media and online portals owned by auction agents appointed by the bank.
3. Banks will be more selective in approving home loan applications
Even though banks have reduced the interest rates, the number of approved loans will be lower due to many Malaysians no longer having a fixed income or losing their source of income altogether. 50 out of 100 loan applications are denied due to various basic issues even before the COVID-19 pandemic.
Unemployed people taking advantage of e-Hailing as an alternative source of income does not increase their chance of getting their loan approved. This is because most e-Hailing companies do not make the Employees Provident Fund (EPF) contributions, let alone give them job offers on a contract basis. The public is seen to be doing any odd job as long as it can help them get by.
4. 10% – 15% price drop for houses
One of the last resorts a homeowner will succumb to when they have a loss source of income for a long period is to dispose of their assets. Most businesses and organisations will also liquidate their assets either to save the business or because of the difficulty of getting tenants for their commercial units.
We predict that house prices will drop by at least 10% -15% of the current median price. This is in line with the Malaysian house price index which saw a decline in house prices in 1998 with a rate of -9.5%.
Many homeowners advertise their homes online, yet still, sell them at current median prices. The current state of the slow-moving real estate market is not limited to Malaysia and the Asian region but is happening globally and countries with a high number of cases of infection are much more affected.
However, this polemic can be addressed with various stimulus packages offered by the government so that the public has more spending power and in turn encourage a positive cashflow.
If you still have a job today, be thankful because out there is a mass of unemployed people who have lost their source of income and will be further affected by the economic downturn and the COVID-19 pandemic occurring simultaneously. In conclusion, save up and spend wisely!
This article was originally published as 4 Ramalan industri hartanah selepas moratorium berakhir pada September 2020 nanti by Majalah Labur and is written by Mehmed Aezhad.