Malaysia is at the bottom end of the property cycle, said WARRICK. The proof is in the figures; latest data from NAPIC shows that property transactions continue to decline and inventories are building up rapidly. In 2016, overhang residential units recorded a year-on year increase of 43.8% and 70.7% in volume and value, respectively.
As cost of living continues to climb on the back of dismal income growth, it is no wonder that many Malaysians fail to qualify for home loans. “Even developers are struggling to obtain financing from banks. In tandem to the masses’ sub-par purchasing power, some banks have stopped lending to residential developers,” he shared.
According to WARRICK, we are in an era of ugly debt; Malaysia’s household debt is still one of the highest in the region at 88.5%. Economic indicators are unlikely to improve considerably in the next year or two and it is anticipated that the strict lending requirements will persist.
“Thus, the need for property investors to switch gears; they must use economic signals to see what investments will shine at this turn of the property cycle,” he added.
PRICE IS WHAT YOUR PAY, VALUE IS WHAT YOU GET
There is no universal blueprint for property investing, but sophisticated investors will tell you this: they are looking not just for growth, but sustainable growth. Hence, they depend on statistics to ensure results (value), whereas unsavvy investors are motivated by price.
“Property market cycles influence the difference in value and price, a property’s value is judged by its highest and best use. Currently, the prices of most properties are higher than the value due to the affordability issue and demand-supply gap. The current economic climate does not support a robust tenant market,” explained WARRICK.
He elaborated, “A slower economy does not mean it is bargain city. ‘Profit-seekers’ with a short-term approach to property investment will snap up primary and secondary properties just because it is being sold off at a discount. Those investors who are unable to obtain tenants will see their units (assets) turning into a cash sucking liability.
These investors will be forced to play the waiting game, which requires considerable holding power. The thrill is in the hunt, but once you gain possession of the orchard, it turns into an ‘alamak’ (oops) moment” he added.
The effects of this misguided behaviour are already visible; many over-eager investors purchased properties during the Developer Interest Bearing Scheme (DIBS) era between 2012-2014 without doing any due diligence. Consequently, many investors who cannot keep up with their monthly repayments are now seeing their properties being repossessed.
“Previously, foreclosures only occur after six to nine months of defaulting; but due to the sheer volume of defaulters, banks now only allow property owners two to three months, said WARRICK.
TAKE THE ROAD LESS TRAVELLED BY
What are the alternatives?
So what are the alternative investment opportunities that investors can capitalise on in a bottoming property cycle? WARRICK’s advice – Look at rent-to-own schemes or venture into land banking through group purchases. The former does not require any capital to get involved whereas the latter is a good strategy to hedge your money against inflation.
For land banking, aspiring investors should look at group ownership to reduce the cost of capital. Future growth areas such as the Eastern Economic Region and Bandar Malaysia as well as agricultural land zoned for township developments are promising options.
AUCTION TO TAKE CENTRE STAGE
Besides that, investors should try their hand at auction properties as the number of units going under the hammer has risen exponentially in the past year. WARRICK, who is also a registered auctioneer says that there are approximately 70,000 units in the local auction market. Purchasers could possibly obtain up to 70% discount for auction properties, even in hot spot areas.
“For instance, one of the auctions that I oversaw recently was for a penthouse apartment in Mont Kiara which was sold off at half its market value; at RM450 per sq ft from RM900 per sq ft. A corner lot double storey terrace home in Punchak Prima, Sri Hartamas also went under the hammer for 40% below its market value,” shared WARRICK.
Nevertheless, investors should take care to sift through and select value-added units. “Take the time to study a particular property not only for gains in price but for stability in rent, its location and overall quality of the neighbourhood,” he cautioned.
