Paradigm Shift In The Residential Market

Paradigm Shift In The Residential Market

KUALA LUMPUR

The All House Price in KL recorded the highest in the country for H1 2015, at RM 701,823. Will residential prices in KL continue to see an upward trend in 2016?

CKL: No, the prices will be seeing a downward trend instead. As warned by the International Monetary Fund (IMF), the current low oil price situation could persist for a ‘few years’ and this implies that the economic slowdown in Malaysia would continue in 2016.

JT: I do not expect to see a hike in property prices next year, with the exception for selected areas namely Bangsar and Taman Tun Dr Ismail (TTDI), which might see a slight or moderate increase in prices. The main reasons are:

  1. With banks consolidating, there will be a tightening of credit facilities. This translates to even less home loans being given out.
  2. The implementation of GST has reduced the rakyats’ household disposable income, resulting in higher inflation.
  3. The reduction in subsidies has severely affected the cost of living and Bank Negara Malaysia’s (BNM) stricter lending guidelines have led to less home loans being approved.

DSC: In my opinion, the overall economic sentiment and current lack of investors’ confidence will see a KL property market that would be slightly lackluster in 2016 and the overall residential prices would generally remain slightly stagnant. It will be challenging for developers to sell new launches. Hence, we will most probably see even more innovative marketing ‘freebies’ by developers to entice house buyers.

For the sub-sale market, sellers that are more motivated to offload their properties quickly may decide to place more competitive prices as compared to new launches and other similar sub-sale properties in the market.

​The Report states, “The construction activities in Kuala Lumpur were encouraging in the review period (H1 2015). Residential sub-sector recorded more completions, starts and new building plan approvals, largely contributed by the high-rise units”.

 

How will the primary residential market fare with the increase in supply upon completion of said units in 2-3 years’ time? Will it throw the market off-balance?

CKL: No, it will not throw the market off-balance. Instead, there will be more demand for properties that fall under the affordable category. Developers are not expected to reduce prices but may offer more ‘freebies and rebates’ to entice new house buyers.  Developers with deeper pockets will probably defer further new launches as they adopt a wait-and-see attitude until the economy recovers.  As a result, the primary market is expected to see less launches next year.

JT: Property speculators who entered the market when it was more ‘friendly’ a few years ago, will be looking to sell off their properties as they will have a tough time servicing their mortgage instalments loans. It will be a tedious task however, as newer properties in the market will always take prevalence over the older ones. However, there is still a demand for reasonably priced properties with good infrastructure in new, well-planned townships.

DSC: In an oversupply situation, I believe that good properties and unique product differentiation will set the more successful developers and development apart from the lesser ones. Many developers are already feeling the need to create ‘more innovative residential products’ in their upcoming launches that will be completed in a few years time. For instance, developers are pushing for more viable concepts such as smaller ‘shoe box’ studio apartments with high quality furnishing and dual key units.

No, I do not think that the market would be thrown off-balance. On the back of the government’s  initiatives and private sector investments in developing Greater KL, I am confident the city’ population will continue to grow at a fast pace and will hit the 10 million mark in 5 – 6 years time. Hence, I believe that the oversupply is a temporary situation, where these next few years will allow the market to absorb the completed property stock. Good developers with quality concepts, products and developments will still do well.

Chang Kim Loong (CKL)

Honorary Secretary General, National House Buyers Association (HBA) 

James Tan (JT)

Associate Director, Raine & Horne international

David Shieh Chong (DSC)

Senior Vice President, Malaysia Property Incorporated

 

JOHOR 

According to NAPIC Report H1 2015, demand for residential properties for Johor in Q1 2015 saw a drop of 6.8% as compared to Q1 2014. Property prices in Johor have remained flat and have not appreciated with residential properties’ average price devaluing by 0.7%. Why do you think this is happening?

ST: Johor Bahru in particular is at a transitional stage at the moment. The drop in transaction volume of 6.8% is to be expected given the current economic climate. Also, bear in mind that we are now in the post-GST period, where buyers’ sentiments have deteriorated. Paying testament to this is the falling Consumers Sentiment Index (CSI) as tracked by the Malaysian Institute of Economic Research (MIER).

However, we need to take into account that the base year used, that is H1 2014, had a buoyant property market. Developers are still maintaining their selling prices but as they are giving more rebates and freebies to attract purchasers, it is only typical that the average price for residential properties is lower.

RK: There has been a gradual drop in property prices in Singapore since mid-2013. This affects the luxury property market in Iskandar Malaysia where a significant portion of its demand is from Singaporean buyers. With them backing down, this causes a slowdown in Iskandar’s property market. However, the lower-priced property segment is still healthy. 

DC: It is difficult to make a conclusion based on average pricing alone without studying the actual composition of the residential market. A lower price average does not necessarily mean that residential properties’ values are decreasing, for instance it could be a result of more affordable homes being launched into the market.

 

Will the weakening Ringgit (drop of 17% from Q1 2014 to Q1 2015) be a lucrative demand for foreign investors such as Singaporeans to buy properties in Johor?

ST: A weakened Ringgit will certainly attract Singaporeans and Malaysians working in Singapore. If they perceive that the Ringgit will strengthen further, it will make sense to invest. On the contrary, if they believe that the Ringgit will weaken further, they will not buy in, due to caution of foreign exchange risk. There will be investors who will buy properties in Johor as they are generally cheaper as compared to the ones in Singapore.

RK: The weakening Ringgit is a double edged sword. Property buyers from Singapore will perceive the falling Ringgit as a bane as the capital values of their investments have fallen. However, over the longer run, a weaker Ringgit supports the idea of them living and working in Iskandar. I would also like to point out that there is a misperception that the demand is primarily from Singaporeans. According to the World Bank, a significant portion of the demand comes from Malaysians working in Singapore, where the reported figure in the past decade is close to a million people.

DC: I do not think that the drop in Ringgit will generate a strong demand in the short-term. I would say that foreign investors are in no hurry to make purchases as they are expecting the Ringgit to remain weak for some time.

Ryan Khoo (RK)

Co-founder and Director, Alpha Marketing 

Samuel Tan (ST)

Executive Director, KGV International Property Consultant SdnBhd

David Chong (DC)

Co-founder PropertyGeek.my

 

PENANG

The Report states, “The number of transactions in the Penang property market saw a decrease of 11.3% in volume and 2.2% in value against H1 2014. In contrast, the state’s All House Price Index increased by 5.1%, where the All House Price for the “average house” increased from RM344,163 to RM361,777.”

What does this mean for aspiring home owners, with prices increasing even with the slowdown in the market?

MY: The increase in prices is of no surprise as it is getting difficult to build more properties on Penang Island due to the land scarcity. If you were to study the chart of house prices over the span of last 10-20 years, you would notice that the figures have continued to see an upward trend. The demand is still there however, as property investors with the financial means will continue to buy as Penang remains as a viable location for many. For first time home buyers, however, they will have to turn to affordable homes by the state; which is going all-out to assist aspiring home buyers. Also, aspiring home buyers are now shifting their attention to mainland Penang where prices are considerably lower.

Another issue at hand is that property buyers are being weighed down by the sentiment that obtaining a home loan from banks is near to impossible. I have spoken to quite a few potential buyers who feel defeated even before they attempt to purchase. There is a pressing need for proper education to offset this pessimistic view. Those looking for more insights on bank loans are encouraged to read my articles at www.miichaelyeoh.com.

KS: Despite the overall slowdown of the property market, the residential sub sector remains resilient and stable, with the exception of a few fire sales; where properties are being offered at extremely discounted prices by distressed sellers. Those who are waiting for the right time for a good deal should reconsider doing so to avoid disappointment later on.

 

The Report states, “Compared to H1 2014, construction activities for residential and shop sub-sectors was on a low mode, evident from fewer completions, starts and new planned supply.” What do you think should be done to encourage developers in meeting aspiring house buyers’ needs in the current economy?

MY: With the current economy, many developers are putting the brakes on new launches. I believe that if the location and price is right, buyers will still buy as there are still many people with high purchasing power.

KS: At the end of the day, it boils down to supply and demand. Factors such as  the rise in material and construction costs due to GST and soaring land prices might impact developers’ supply decisions,  but regulatory factors such as the abolishment of Developers Interest Bearing Scheme (DIBS) and tighter loan approval requirements plays a more vital role in influencing demand. Perhaps some relaxation on these constraints would boost demand, hence motivating the developers to build.

Miichael Yeoh (MY)

CEO and Founder, GM Training Academy PLT

Kevin Singham (KS)

Director, Reapfield Properties (PG) Sdn Bhd

 

This article is first published in iProperty.com Malaysia December 2015 Magazine. Get your latest copy in selected bookstores and newstands or go to www.iproperty.com.my/magazine to subscribe.

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