Recently the International Monetary Fund (IMF) has said that house prices in many countries are still well above their historical average relative to income and rent. Malaysia like some of these countries has seen a rapid increase in property prices over the past four to five years with the excessive speculation in the property market driving property prices to an artificially high level. However, the property market is still resilient and with the market cooling measures introduced by the Government last year, the market will correct itself and see growth in the coming years.
According to the Knight Frank Global House Price Index, released earlier, it shows that while Malaysia’s housing prices have risen by 8% in the first three months of 2014 (1Q14) compared to the previous corresponding period last year where the rate of growth had slowed down.
Continued growth
The first half of 2014 has been relatively quiet as predicted earlier, as the real estate market has been absorbing the market cooling measures.
Siva Shankar, President of the Malaysian Institute of Estate Agents (MIEA), explains, “2012 and 2013 saw a 6% to 7 % drop in transactions in the market and that this downwards slide will reduce, making next year (2015) somewhat flattish and there on continue to rise upwards slowly beyond 2016 and 2017. The market appears to be self-correcting slowly.”
Generally prices for properties with good infrastructure and amenities will continue to climb however, transactions for condominiums will drop slightly as well as the rental market due to oversupply, but this is seen to be only a short term effect.
BNM rulings taking effect
The Bank Negara Malaysia (BNM) rulings announced last year are taking effect causing banks to be more cautious in their loan criteria and to tighten property financing to buyers. Therefore, buyers are seeing up to 60% to 70% in rejection rate at the first instance of application.
According to BNM’s Monthly Statistical Bulletin for March 2014, in 1Q14, some RM25.4 billion in property loans were approved from RM47.6 billion applied for, translating into a 46.6% rejection rate in terms of loans value. In comparison, 1Q13 saw higher rejection rate at 54.6%.
However some markets like Kuala Lumpur and Selangor are seeing less overall transactions yet higher total transacted value. This marks a trend that reflects the nationwide property market trend — total number of transactions dropping but an increased transaction values for the past three years, based on the annual Property Market Reports published by the National Property Information Centre (Napic), Ministry of Finance.
Growing interest in secondary market
Interest has peaked in the secondary market as the primary market slows down due to the cooling measures. Developers are also holding back their launches amid weaker market sentiment and revisiting their development plans to cater to current market demands and trends. Currently the secondary market is becoming slightly more active and prices in select locations are now looking relatively attractive. Buyers, are now turning their attention to this secondary or sub sale market, though there is hefty down payment and higher costs to acquire these properties their prices are still comparatively lower than newer launches. In other words there is a shortage of supply for secondary properties making it attractive in terms of capital appreciation.
Speculative buyers a threat to the market
The most worrisome factors for the market are the speculative short term thinking investors. These are speculators who bought directly from developers with the intention of flipping when the property is ready.
However, with the new ruling where a 30 % real property gains tax (RPGT) is being implemented on first year disposals as well as an oversupply, it seem that it is them who are now at risk as they have no holding power. They will try to dispose their properties either at a lower price or try to rent it out, in either case they will be competing with others in the same location, creating a price war.
In the worst case scenario they cannot afford to pay their mortgage instalments and the banks are forced to auction off their properties, affecting the industry to a certain extent. Serious investors won’t be worried as they usually plan for between three to 10 years, hence they have holding power and will not face such problems.
Overall market sentiments
Overall investors’ sentiments looks to be very cautious; some share the feeling that this year is not a good year to invest or buy properties as there are too many uncertainties and are taking a wait-and-see attitude. On the up side, generally the housing market looks to be stable, and will continue to grow as it has proven itself resilient and there is a constant demand for properties.
Zulhilmi Ghouse is the editor of Prospek Hartanah Malaysia, the premier property and business magazine in Bahasa Melayu. He started his career as a writer for Property Insight Magazine and has been involved in the property industry for the past year. Prior to that, he was a freelance translator, having worked on several book translation projects ranging from fantasy to politics and religion.
