Malaysian Property Market-What Can Happen in 2014 and Thereafter

Millions of ringgits abodes

This article by Cheryl Poo in the Online The Star 25 Feb 2014 makes interesting reading.

I have edited it.

"Siva Shanker,the president of the Malaysian Institute of Estate Agents opines that the current glut of resal estate in the country will clear over time.

His reasoning?

The local economy is healthy and not in a tailspin. That means that the property market will be able to withstand the pressures of speculation and the curbs imposed by Budget 2014.

An artist impression of big bucks residences

For example, he said the Mont Kiara (excluding the surrounding Segambut areas) has in the last 20 years built an estimated 20,000 units. Iskandar Malaysia, on the other hand, has built some 40,000 units in the last three years. All this has created a lot of pressure on supply and apparently the market has already adjusted by staying away.

Meanwhile, on short term, this oversupply will continue to run its natural course. Expect many units placed in the market would not sell easily for now. However, he expects that by the second half of 2014, after a period of consolidation, buyers will emerge as they come to terms with the realities of the market.

2015 will possibly see an uptick in the property sector with the upturn going into 2016.

Siva believes that in the medium term, much of the oversupply will naturally sort itself out, adding that the
country’s relatively low exposure to the “international economic ups and downs” compared with Singapore will be an advantage to Malaysia.

“There’s also the trickle down effect from large infrastructure projects as more industries benefit from them,” he said.

Siva reported that apparently buyers were not keen on the secondary market, although it made up 80% to 85% of the local property market transactions in the last three years. He believes as high-rise property prices surges, buyers would be forced to look elsewhere for more affordable landed property – and they will find this in the secondary market.

Siva forecast that property prices around the KLCC area will reach RM 5,000 per sq ft within the next three to five years.

“As it is, Four Seasons Place in Ampang is going at RM3,500 per sq ft.

A very clear third strata will form now, which are properties that were completed in the last two years but flipped into the market. Those properties will face the most selling and renting pressure because they were purchased for sale on the day of completion.”

So, for those who intend to buy, know your budget and what you are looking for from now on. For sellers, best to wait out this current year before thinking of selling.

Remmeber the government's RPGT will bite quite deeply this time around.

Beyond Reach!

Just Beyond your Grasp

A household is categorically defined as members in a family who share the same rice-pot.

Relating affordability to house purchase, a Sime Darby-Universiti Malaya study discovered that to own a home in selected areas  in the Klang Valley, you must have at least RM14,600 household income (HHI). Their formulaic assessment is based on household spending trends, house prices and mortgage rates.

Bukit Jelutong

For those who intend to purchase houses in such strategic areas, they must ready resources that is 56 X their monthly household income. This same group of potential purchasers must at least have 26% of their income to service mortgage loans.

The study identified these areas as having potential to appreciate and would attract potential buyers.

They ranged from:

Melawati Area: At least RM9,360 HHI (RM3,120 for Mortgage loan (MG)

Nilai Area: At least RM9,430 HHI (RM3,143 MG)

Bukit Subang Area: At least RM9,670 HHI (RM3,223 MG)

North Klang Region: At least RM11,300 HHI (RM3,766 MG)

Putra Heights Area: At least RM12,190 HHi (RM4,063 MG)

Kajang Area: Atleast RM12,300 HHI(RM4,100 MG)

USJ Area: At least RM13,320 HHI (RM4,400 MG)

Klang Valley Region: At least RM14,580 HHI (RM4,860 MG)

Denai Alam Area: At least RM15,160 HHI (RM5,053 MG)

Ara Damansara Area: At least RM15,660 HHI (RM5,220 MG)

Subang Jaya Area: At least RM15,660 HHI (RM5,220 MG)

Bukit Jelutong Area: At least RM17,310 HHI (RM5,770 MG)

Mont Kiara-Duta Hartamas ARea: At least RM20,160 HHI (RM6,720 MG)

So, what is the message that is being sounded through this solitary study; if at all it is to be accepted as credible?

These will be the layman's off the cuff conclusions:

Unless you earn a HHI of at least RM10,000, do not expect to buy any house in these areas or anywhere strategic in the Klang Valley.Even on a joint husband-working wife salary they will be hard-pressed after having to deduct for rentals, car loans and sundry overheads such as EPF deductions, SOCSO and the household budget. If you have children, it could be much worse as you may have to pay towards childcare, school bus-fares, insurance and tuition.

Sadly, you are unlikely to buy any low to medium cost houses as you are the middle income group caught in a pincer trap as tax payers sans any help from the authorities. So, you may have to pay taxes with little return from the government. Feeling sad and abandoned, already?

If prices of houses in these identified areas continue to rise 5% per annum, forget about ever buying them. Just rent them as these highly capitalised houses need not fetch high rentals. Sometimes commuting from a faraway place such as Seremban is marginally cheaper but you will inadvertently have to pay the toll in body and mental health besides putting yourself and your vehicle under severe stress. Rent near to your place of work or the schools your children attend. It's a much safer bet!

As Malaysia is now in the tingling throes of high inflation, you may want to buy into some land in your kampungs; with the hope that they will appreciate in time and you can protect the value of the cash ringgit (which is slipping southwards) in a more permanent mode. Or even buy some foreign currencies to ward off the diminishing value of your ringgits.

Do find out also if you are eligible for those government sponsored schemes which are highly subsidised and those earmarked ones at the old airfield in Sg. Besi and also the ex-RRIM land in Sg. Buluh which is about to be farmed out for development.

Do not be hasty in buying a house which is a big ticket item. Do not be slave to the bank that will tie you up for life. Buy only when you are comfortably ready!

Property 2011-A Mixed Bag

Angie Ng of the STAR reviews the property market and its potential in 2011 and came away with different outlooks for different pockets of the sector.

Every one of course concur with her that 2010 was quite an eventful one for the local housing market with strong demand and record prices registered in key property hot spots that included the Klang Valley and Penang.

Concerns over potential overheating had culminated in Bank Negara’s imposition in early November of a maximum loan-to-value ratio (LVR) of 70% for third home mortgages.

Buyers of landed properties in sought-after locations have benefited from good capital appreciation, with prices appreciating by between 20% and 30% year-on-year.

Most of the home-buying activities were fuelled by cheap cost of funding and huge liquidity in the banking system.

So, what is in store for 2011? Will home sales and prices continue to strengthen or will they sustain at current levels or start to head south?

CB Richard Ellis Sdn Bhd executive chairman Christopher Boyd believes the prices of landed properties in the Klang Valley and Penang will continue to rise, supported by a strong economy, which will be spurred by heavy expenditure on infrastructure and other projects, and high commodity prices. However, the effect in Johor will be more muted because demand has not been so strong.

“I believe the root cause of the strong growth in landed property prices in the Klang Valley and Penang in 2010 was a reduction in supply which followed the global economic crisis. Developers simply turned off the tap for a while until the future became clearer, and this is supported by data from the National Property Information Centre.

“The economy and confidence soon bounced back and so the result was a temporary supply squeeze which of course will ease this year as developers increase supply,” Boyd says.

As finance is still cheap and confidence remains high, he expects landed property prices to continue to rise in value, albeit at a slower rate. However, luxury high-rise residences in the Kuala Lumpur City Centre and Mon’t Kiara localities will continue to face a challenging market in view of ample supply and weak rental demand.

“Well-located medium-cost high-rise dwellings will remain in strong demand from younger middle-class buyers and we will see a continuation of the trend towards building small affordable units close to the central business district.” Boyd does not see any material impact from the 70% LVR ruling on third mortgages but says it is nevertheless a very timely message “that one has to be careful not to over-commit because prices may level off, making it more difficult to exit.”

He says the redevelopment of the Rubber Research Institute land in Sg Buloh and the Sg Besi airport has the potential to be phenomenal success and will benchmark Malaysia’s skill in producing large-scale developments of a very high quality.

According to ECM Libra research head Bernard Ching, property sales and price appreciation are expected to moderate in 2011.

He expects slower speculative demand due to the central bank’s LVR cap. Furthermore, the intense competition among banks in the mortgage market is not sustainable as net interest margins (NIMs) have compressed to very low levels.

He believes that banks may have to raise rates and/or cease offering zero-moving cost mortgages to alleviate further pressure on NIMs. This will result in higher financing costs to house-buyers. On the outlook for the commercial property sector, Boyd says there will be further upsides in the office market, especially if the country’s economic recovery is sustainable.

“I believe that with the right planning, the office market can be easily well balanced in terms of supply and demand. The Klang Valley office space market will remain quite resilient this year in the face of only moderate new supply and quite buoyant take up.”

Boyd estimates a further 3.5 million sq ft of office space would be completed in Kuala Lumpur this year.

He says it is more of a seller’s market right now as there is not enough investible buildings around to meet demand. Given the lower entry cost, demand is getting stronger especially for office buildings that are well managed and located, have high occupancy and good yields.

“Similarly, the retail property sector is likely to strengthen slightly in 2011 with only moderate new supply and strong demographic of a young and growing workforce,” he adds.

On the interest for commercial property, Boyd says that in the aftermath of the global financial crisis, while commercial rentals fell, the capital value of commercial property held up well.

“The reason for this is that investors had become severely disillusioned with stock markets and were still prepared to pay competitive prices for income-yielding commercial property, so in fact yield expectations dropped.

“This is a phenomenon that was seen all around the globe,” he says.

So, that is the way the cookie will crumble?

Let us see the new year out for the property market.

Malaysia: Expect Price Escalation in 2010

For those intending to buy houses in 2010, this is a good indicative article from Lee Wei Lian,writing for the Malaysian Insider.

She reports on the possible housing scenario in 2010 basing on the expert comments of REHDA and also the outcome of a property price survey among its members.

Let's read her article for whatever it is worth.

"House hunters will likely face higher prices next year as pent up demand and gains from the stock market boost the property sector.

Houses on the secondary market could also be hit by an additional five per cent increase in prices as owners looking to sell try to cover the real property gains tax (RPGT) which comes into effect in January.

According to the Real Estate and Housing Developer’s Association (Rehda), slightly over half the respondents in a survey of its members expect property prices to increase up to 20 per cent over the next six months.

About 30 per cent of the respondents expect prices to remain stable, while less than five per cent expect prices to decrease.

The stock market has made substantial gains this year and investors who benefitted will likely be looking to put their money in property.

“Six to nine months after the stock market increases, it goes into brick and mortar,” said Rehda deputy president Datuk Michael Yam at a briefing today on the property outlook for next year.

On the positive side, interest rates remain low and banks continue to be flush with extra funds, therefore making the arrangement of home financing easier.

Yam, however, stressed that there was still a relatively low barrier to home ownership in Malaysia and ticked off a list of factors in the home-buyer’s favour, including interest rates as low as BLR (base lending rate) minus 2.3 per cent; margins of financing up to 100 per cent; zero lock in period; stamp duty exemptions; and repayment periods extended to thirty years or up to the age of 75.

“Even I can qualify for a (30 year) loan now,” he quipped.

According to REHDA officials at the press conference, the average value of homes transacted in 2009 is estimated to be between RM200,000 and RM250,000 when excluding low cost homes, and about RM168,000 when taking into account low cost houses.

Fresh graduates, however, could face difficulty buying properties in the city where prices are much higher.

Yam said that there were no official figures available for the average price of link homes in the Klang Valley but said that there were terrace houses in some suburbs available for about RM400,000, as compared with RM200,000 in smaller towns and cities like Kluang and Kuantan.

“Graduates may have a problem without help from their parents,” he said.

“They earn maybe RM3,000 to RM4,000 a month, which means they can borrow only RM150,000 to RM200,000. It is not possible to buy a terrace house [with that level of income] but maybe an apartment.”

He added that developers might have to consider building smaller units for the fresh graduate market segment, in the region of 600 sq ft apartments that sell for RM300 per sq ft.

A long term boom is also expected for the housing industry that could put upward pressure on prices as Yam said that slightly over half of the population is below 24 years of age and would later enter the home-buyers market.

“These people will be pushing to enter the property market,” said Yam.

Housing prices in some parts of the world such as China, Singapore, Hong Kong and Australia have risen dramatically over the two years, prompting a public outcry.

Prices of private homes in Singapore reportedly rose by 16 per cent in the third quarter and there are concerns of a speculative asset bubble building in Hong Kong.

According to Ratings Agency Malaysia economist Kristina Fong, asset bubbles were not evident in Malaysia and an over-supply of units on the Malaysian property market is likely to cap price escalation.