REAL ESTATE BUBBLE – TRUTH OR FALLACY?
The past year has witnessed a growth in foreclosures where properties being auctioned off is on the rise. According to data compiled by online auction house AuctionGuru.com.my.; as of Q3 2016, the total value of properties that went under the hammer topped RM6.39 billion, an increase of 17.7% from the year before. Moreover, many secondary property owners are settling for lower selling prices in order to get rid of their units.
The uptick in auction activity confirms one thing – the property market is going through a correction. Between 2012 and 2014, the period saw speculators taking advantage of the Developer Interest bearing Scheme (DIBS), where hopeful investors aggressively purchased properties without assessing their financial capability.
Only when they receive the keys a few years later, did these individuals realise that they either cannot keep up with their monthly instalments or do not have sufficient holding power while waiting to secure a tenant. This is why the bulk of auction transactions that we are seeing today consist of new properties that have just come into the market.
Nevertheless, this does not mean that property values will decline . There might be a slight correction in prices ranging from 10-20%, but prices have been inflated in the first place during the DIBS era. Many locals have surmised that all these ‘adjustments’ will plunge our property market down the same path as the US in 2008 when crashed due to a sub-prime mortgage crisis.
On the contrary, our central bank has placed the necessary regulations and controls when the market got overheated a few years back. This reconsolidation that we are experiencing at the moment is necessary. Even though the property market is considerably slower, it is moving towards a “new normal” of safer and more sustainable price growth.
CHINA TO SERVE AS CATALYST
Evidently, softer commodity prices in the past year hurt global economies – However, emerging countries in Asia including Malaysia remained largely resilient. It was stated in Bank Negara Malaysia’s (BNM) latest annual report,” Despite the challenging fiscal environment, the Malaysian economy registered a commendable growth of 4.2% in 2016.”
Contributing to this positive note is the considerable investment inflows from China where 14 Memorandum Of Understanding (MOUs) worth RM144 billion were signed with Malaysia in November 2016. One of which concerns the construction of the East Coast Railway Line (ECRL) project by China Construction Communications Company (CCCC). The 600km rail line will connect Klang Valley, Kuantan, Kuala Terengganu, Kota Bharu and Tumpat.
The rail’s spillover effects are already being felt. In the recent few months, MCM Group received numerous enquiries from Chinese businesses, mostly MNCs regarding the availability of corporate towers along the upcoming rail line. These foreign investors are anticipating robust development along Malaysia’s east coast and are looking to stake a claim in this future economic region.
Also, specific terms in the MOU which state that CCCC must work with local partners to help create more jobs and business opportunities for Malaysians, especially the rural folks.
The recent Digital Free Trade Zone (DFTZ) jointly created by China’s Alibaba Group and the Malaysia Digital Economy Corporation (MDEC) will be an added boon to the local industrial property market. The partnership will enable local e-commerce companies to significantly expand the scale of their international trades. This growth translates to a greater demand for warehouses, storage facilities and industrial parks in the next few years.
THERE IS GOLD IN CORPORATE TRAVEL
Besides China, Singaporean investors are keeping close tabs on Malaysian real estate. The lower Ringgit has attracted quite a few family-owned businesses and unit trusts from across the Causeway to purchase secondary hotels and serviced residence towers in Klang Valley, especially in KLCC, Bukit Bintang and around upcoming MRT stations. These investors are targeting business travellers to fuel the demand for corporate accommodations.
POINTERS FOR INVESTORS – SEEK AND YE SHALL FIND
A savvy investor is one who makes decisions based on sound fundamentals, which will not waver in times of volatility or stagnancy. Hence, even when the majority holds steadfast to the ‘wait-and-see’ attitude, the select few who recognise future growth potential are putting their money into promising commercial and residential properties. These potential goldmines include Government-backed projects such as the Menara KL118, Kwasa Damansara and Bandar Malaysia.
One note of caution, aspiring investors must be extremely careful about a product’s quality and sustainability, which is the key for Return on Investment (ROI). No investment is entirely fool proof but if there is one product that comes close, it is properties located in university/college townships. A research conducted by American real estate specialist, OnBoard in 2008 revealed that in the US, the demand for housing from students and faculty staff kept university/college town homes’ prices stable during the housing market downturn that began in 2005.
These developments can generate an ROI of at least 6 to 8%, which is higher than the 3 to 4% yield of other residential products in the current market. One such promising product is the Xiamen University integrated development near Dengkil, Sepang.
Ultimately, 2017 is an appropriate time for property buyers. There are good deals waiting to be snapped up in the secondary market. It is just a matter of identifying them.
DISCLAIMER: The opinions stated in the article are solely of Max Shangkar and are not in any form an endorsement or recommendation by iProperty.com. Readers are encouraged to seek independent advice prior to making any investments.