Pakatan Harapan suffered its fourth defeat in a by-election at the recent Tanjung Piai by-election, suggesting dissent to the incumbent government. Against this political backdrop, here are the top five predictions for Malaysia’s property market next year.
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by, the mood on the ground is clear – Malaysians are frustrated with the lack of reforms, election manifestos that were rescinded, high cost of living, in-fighting among leaders and a society that appears to be increasingly divided along race and religion fault lines.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 with a landslide 15,086-vote majority against Karmaine Sardini, Pakatan Harapan’s candidate from Bersatu.
The by-election is particularly significant as Tanjung Piai has a sizable Chinese and Malay voters. This does not bode well as the property market is very much sentiment-driven.
In addition, the latest trade data from Bank Negara show that Malaysia’s economic growth has slowed down from 4.9% in the second quarter of 2019 to 4.4 per cent in the third quarter.
With a lacklustre economy, a looming global recession and a stagnating wage growth, 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 under corporate or personal leases.
As such, this is the first sector that will be hit once the economy comes to a grinding halt and the expatriates are sent home. This is because landlords of these high-end properties are hardly able to cover their mortgage even with such tenants, 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 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 meagre profit margins for owners of such properties.
2. Kuala Lumpur: Supply glut makes renting even more attractive
According to data from the first half of 2019 from the National Property and Information Centre (NAPIC), there is a total of 54,0078 unsold residential property worth RM37,229 million throughout the country. Kuala Lumpur alone has 4,731of 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. Under the recent Budget 2020, the government announced a Rent-To-Own (RTO) scheme for those who are unable to afford the initial 10 per cent deposit and financing to purchase their homes.
In RTO, the government will be collaborating with financial institutions to help people purchase homes priced up to RM500,000. 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 the first year, you have an option to purchase the house based on the price fixed at the time the tenancy agreement is signed.
After five years, the developer will then ask you to sign a Sales & Purchase Agreement.
The government will provide stamp duty exemptions on the instruments of transfer between developers and financial institutions, and between financial institutions and buyers in this scheme.
3. Iskandar Malaysia, KL & 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 in Hong Kong. This helps 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 of property developers.
So amid the gloom and doom, the protests in Hong Kong have given a flicker of hope to our real estate sector which had been in the doldrums. The result is a positive trickle-down effect for the Malaysian economy that will help create jobs in the property, law and finance sectors.
4. Iskandar Malaysia, KL, Selangor & 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). Take advantage of the HOC as you can get a 10% discount for qualified properties that will be matched with stamp duty exemptions.
This is because land is a state matter and the federal government may have difficulty implementing such schemes 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. On the other hand, private developers are in the business and have the means to deliver such homes.
The lack of a single government agency to spearhead the affordable home segment also complicates the matter. One government agency may not be communicating with another. In addition, the limitations imposed on low-cost housing built by either the state or federal government may impact your capital appreciation in the future.
This is for those who do not want to take part in the RTO scheme but choose to come up with the 10% deposit on your own, you may want to apply for a joint home loan with your spouse or another individual. Combined finances will increase your chances of getting your loans approved.
When choosing a home, apply the 5Cs: check the masterplan, transport masterplan, budget allocation from the government as well as for economic drivers and job creation. More on the 5Cs here
5. Confusing message from the government may result in a “wait-and-see’ situation among foreign investors
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, Malaysia My Second Home (MM2H) applicants now can no longer import a car, according to MM2H agents involved in such applications, and will require additional approvals from the Housing Ministry.
This, they said, results in a longer processing time and sends a confusing signal to foreign investors on Malaysia’s intention to lure them. So, except for Hong Kong investors, the rest may likely adopt a wait-and-see approach until they see some clarity.
Read this next to gain some insight into this new government proposal: Foreigners can soon buy cheaper properties in Malaysia – Will it help reduce the property overhang?
*This article was repurposed from Malaysia property market outlook and predictions for 2020, first published on khaliladis.com. | Edited by Reena Kaur Bhatt