Gear up for a bumpy ride this year as the number of unsold units in Malaysia’s residential property market continues to rise. Despite the challenges, there are some opportunities for investors and rent-seekers.
According to the Valuation and Property Services Department’s (JPPH) latest figures, the number of unsold completed residential units rose from 20,304 units to 30,115 units year-on-year as at 30 September 2018.
This represents an increase of 48.35%. Meanwhile, the total value was RM19.54 billion, representing a 56.44% jump from RM12.49 billion a year ago.
However, if JPPH were to also include serviced apartments and small offices home offices (SoHos), this would bring their overhang value to 40,916 units valued at an alarming RM27.38 billion.
According to JPPH, Johor has the largest number of unsold completed serviced apartments and SoHo units at 7,714. JPPH notes that it rose a whopping 191% from the 2,647 units recorded a year ago. The overhang in serviced apartments is valued at RM6.16 billion compared with the state’s residential overhang of RM4.44 billion.
This means the total overall value of its unsold serviced apartments is 1.5 times that of residential housing (terrace homes, semi-Ds, bungalows, townhouses, apartments and condominiums). In summary, Johor has the highest number of completed unsold units in Malaysia at 6,053. This is a 55% increase from the 3.901 units a year ago.
Though not as severe, Selangor and Penang recorded an increase in overhang units as well, up by 25.81% and 43.59%, respectively.
Keeping the less-than-rosy residential market prospects in mind, here are some of the likely property trends to emerge this year:
#1 It will be a renter’s market
The new supply of the completed units plus those from existing units will lead to a downward pressure in the rental market causing rental prices to fall. This is because rent-seekers will be spoilt for choice while landlords will be fighting for tenants.
This will make it ideal for rent-seekers as landlords will most likely be open for price negotiations. Meanwhile, landlords will be on the losing end, regardless of whether they manage to secure a tenant or not.
In the former, the rental will most likely not be able to cover the mortgage resulting in negative cash flow. In the latter, landlords will have to cover the mortgage themselves. Those who cannot will have no choice but to let go of their units.
#2 Secondary property buyers will have higher negotiating power
The property market will also favour sub-sale buyers as property owners/investors will be desperate to offload their properties, especially those who have multiple units. Therefore, buyers will be in a more stronger position to bargain in a market flooded with so many units.
Sellers will be more willing to negotiate on the terms of payment and will likely cut a flexible payment deal via their agents if you do not have a sufficient deposit in hand.
In addition, the supply overhang also means that most properties in the secondary market are priced 20 to 30% cheaper than new launches. However, do bear in mind that you need to fork out a 10% deposit/ downpayment.
#3 Watch out for good deals in the auction market
Considering the overhang situation currently plaguing the housing market, there will also be numerous distressed properties which will be auctioned off in court. If you are looking for a below market value (BMV) property, then this will present a very good opportunity for you.
When buying a BMV, you will need to attend an auction in court and prepare a bank draft in advance to show interest. This will cost you around 10% of the reserve price. For example, if the property is being auctioned off at RM50,000, you will need to prepare a RM5,000 bank draft.
If you have successfully bid for the property, you will need to settle the balance of the payment within 120 days. However, there are a lot of hidden costs, for example, legal, quit rent (cukai pintu), unpaid utilities and maintenance fees, assessments and so on.
Perhaps, the biggest risk is this – while the property is legally yours, you may find it hard to evict the tenants or owners. You may have to apply for a court order, through a lawyer, to evict the occupants.
This process can take you up to four weeks and costs you between RM1,500 to RM2,000. Even so, there are no guarantees they can be evicted as Malaysian laws favour occupiers. When buying a BMV property, it is best to try to find out beforehand if the property is being occupied by tenants/owners.
#4 Developers to offer more goodies for primary properties
Developers have to move their unsold inventory as each unit means added cost for them. As such, developers will be coming up with creative financing schemes such as zero downpayment schemes and such to entice buyers.
Speak to a good developer and check if they have a good master plan to ensure you are making the best investment.
Refer to the 5Cs guideline below before making a purchasing decision:
1) Check the masterplan
A master plan would typically define a township’s development in the next one to two decades. It would also showcase the different designated land use and transportation plans within that particular township. An area deemed highly desirable will attract businesses and residents. With this in mind, you should find out as much as possible about your new neighbourhood.
2) Check the transport masterplan
Generally, properties close to transportation hubs such as MRT or LRT stations can command a premium of between 5-10% over the long term. This is because people generally want to live close to transportation hubs. This demand translates to the property’s higher capital appreciation. Are there MRT or LRT stations that are being planned in an area? What about expressways?
3) Check budget allocation from the government
Government policies do have an indirect impact on property values. For example, a national/state budget allocation for improvements in public infrastructure and new economic drivers will have an impact on new and existing homes in and around the vicinity of an area. So check where the government is building new hospitals or schools.
4) Check for economic drivers
You should study an area before buying your property. The best strategy is to buy in an area that is not yet developed but where there are plans for various economic drivers. A government-mooted economic corridor or a reputable developer that has experience in building townships are great indicators if the area will ‘succeed’ or not.
5) Check for job creation
This is like feeling someone’s pulse. You need to check if the township you are eyeing is going to be a ghost town or a happening place. If it is the former, perhaps you should stay away. If it is the latter, more and more workers will be drawn there, becoming a magnet for people and a hive of activity. People are the lifeblood of a neighbourhood. As the area becomes highly desirable, people will naturally want to live and work in and around the vicinity. As there is an increase in demand, property prices in that area will also appreciate in tandem.
#5 Upcoming Transit-oriented developments (TODs) along MRT Line 2
The Sungai Buloh-Serdang-Putrajaya MRT Line (SSP Line) is one of the few major infrastructure projects that will be continued under the newly elected government. In fact, the project is currently under construction and is fast taking shape.
Some developers have already acquired land banks along this line to build TODs. Areas to watch out for include Kwasa Damansara, Kwasa Sentral, Sungai Besi, Bandar Malaysia and Cyberjaya City Centre.
#6 More restrictions on Airbnb accommodations
Making money from short stay travellers may prove to be even harder even if the government legalises Airbnb. This is because we are seeing trends of management committees barring Airbnb-type of accommodation due to security and safety issues.
So before you decide to list your untenanted unit on Airbnb, it is best to check with your management committee if this is allowed. However, if you happen to own a serviced apartment, this will not be an issue as it falls under a commercial title.