Challenges aplenty in 2021

For the outlook, I will discuss from 3 points of view:

a. Developer

1. The first thing that developers must do is to resolve the overhang issue. They must work with the government to clear the overhang. Otherwise, the situation might get worse giving rise to social issues and town planning difficulties. Secondly, abandoned projects should be revived. Budget 2021 fortunately provides incentives for both developers or white knights and buyers in this regard. Thirdly, developers must start innovating in order to move away from depending on too many workers (especially foreign). Budget 2021 provides tax incentives for adopting integrated building system (IBS).
2. With innovation, the cost of construction can be lowered and buildings can even be built taller with smarter features. By going into 3D printing, for example, developers can print to specifications even for huge developments, thus doing away with certain human intervention. The cost savings will give developers room for profitability while at the same time, lowering prices to cater for demand.
3. The property industry needs the support of foreigners, thus MM2H should be revised to make it easier for foreigners to come. In any international city, especially capital city, the presence of an international community is crucial for its growth and attractiveness to potential foreign investors. Malaysia needs FDIs to grow and prosper. They would not compete with locals as their target properties are serviced apartments, SOHOs and higher end properties. We appear to have overvalued our attractiveness at the moment.A lot still need to be done to attract foreign investors. Except for Penang, we are not anywhere near the world’s most livable city status. Only when we are in that category do we consider penalties like vacancy tax. Cities like Melbourne can levy that due to its status as the most livable city in the world, and much sought-after by international investors. The government needs to do more to market Malaysia. It needs to have long-term plans and benchmark against other attractive cities like Melbourne, Singapore, London or even Perth. It needs to drive the positioning of our country in order for the property industry to tap on it.
4. Developers need to come up with new types of property to cater to new demand from buyers with different mindsets, for example, an extra room to work from home as WFH is becoming the norm now. The office space has moved into everyone’s home. So, repurposing, resizing, and relocating all become important now for survival. Urban farming facilities, a bigger kitchen, and space for home entertaining and working, are what more and more buyers are looking for these days since movement is still restricted due to the continuing pandemic. Equipment for the kitchen and office were selling like hot cakes during the MCO as people start working and cooking at home. Even legal agreements can be signed remotely without stepping into a lawyer’s office. Even court hearings have gone online. These are expected to continue even after the pandemic ends.

b. Landlord

As many businesses a re struggling to survive, commercial property landlords need to be flexible in the rental arrangement to retain tenants. Examples include 50% rental discount for 18 months. Otherwise, good tena nts might just relocate to newer and better premises offerring the same rental.

Landlords with cashflow issues have to decide whether to cut loss and play to win another day, or continue to hold but allow for flexible arrangement. Whoever has cash will win. So, you may sell at a loss but then you can use the proceeds to reinvest in below market value properties.

c. Buyer/Investor

Access to loans and affordability will be major issues. But even more importantly, a new generation is coming into the scene – the Millennials with their mobile and Instagrammable lifestyle. Everything is short-term for them including employment, workplace, etc. Will they go for long-term mortgages? They a re more interested in the infrastructure available such as speed of the Wi Fi and futuristic tools than whether the land tenure is freehold or leasehold.

Eventful year

2021 will be a very happening year where many people will have to make hard decisions and undergo transitions in their lifestyle. The virus will never go away, so we need to have an effective vaccine. But what if this is not realized especially with a mutating virus?
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The takeaway is if social distancing is killing your business, then you need to get out of it immediately. If your business is dependent on the recovery from the pandemic, then you need to have a Plan B.
As business decisions impact a lot on property investing, whatever decisions made will have a huge bearing on how the property market performs. For example, there is no demand now for properties near educational institutions beca use the latter a re closed during MCO.
A lot of businesses as we know it would be wiped out, for example, the owner of a hairdressing salon group has switched to producing surgical masks.
You need to either digitalise your business, innovate it or switch to something entirely different that’s in demand now. The new normal has changed consumption patterns entirely and most people have reverted to basic services only.
Even 5-star hotels a re now offerring their 5-star housekeeping services to private offices. Some are offering their hotel rooms and facilities as co-working spaces.
If you have several properties in hand and have a cash-flow issue, then you need to decide how relevant each one is. The key is: Is your property relevant to your business [and/or life]?

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For me, the property market in 2021 remains challenging as volume would be low. As expected, banks are lending to good profile customers only because of the high unemployment rate and also businesses are not doing well owing to the MCO and CMCO.

Banks are most worried about the high percentage of Non-Performing Loans (NPL) which is expected to increase in 2021 once the moratorium or financial assistance is over. Based on news reports, close to 500,000 applicants sought for further financial aid after the moratorium ended and especially with the re-imposition of the CMCO.
Unless government assistance comes in, we might see a disaster in the property market in the 2nd half 2021 when there might be a lot of foreclosures of properties by banks. If this happens, it will be a slowdown of the property market for 2021 and 2022 because of our oversupply situation in most of the sectors.
Overhang properties (defined as property still with developers 9 months after vacant possession) are at a record high plus vacant units held by individuals that are not accounted for. The generally low income of Malaysian working class couples who are also saddled with high household debt ratio isn’t good either.
Based on the above, the property outlook for 2021 is not good other than our low interest rate. The low interest rate reduces the installment payment but there won’t be growth if the banks are not lending.

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I foresee that by the 2nd half of 2021, the market will rebound slowly. It won’t be a V-shaped recovery, but more of U- shape for the property market. 2022 and 2023 will be a hot market.
I foresee that by 1Q 2021, the vaccine will be rolled out, first to frontliners and senior citizens, then to the police, etc, and by 2H, the general public. So, the confidence will come back amid a pandemic that will slowly go away. I believe the vaccine will be effective.
In terms of overhang units and oversupply, the government is still extending what we are already enjoying in 2020. But to speed up the absorption of overhang products, I believe developers will come up with more sexy packages.
As for foreign buyers taking up the slack, I hope the government can come up with some good news in 1Q 2021 especially in respect of new policies for MM2H. However, that also depends on whether we will have more stability in the government. Only a strong and stable government can lead the nation to a better future. Then only will foreign investors have the confidence to come in.
Currently, construction costs have lowered by 10%. A lot of contractors are looking for jobs. So, it’s good news for buyers because they can enjoy lower pricing on housing.
The current market favours middle income buyers, who are one of the target markets. It will be a good season for first time home buyers but end-financing might be an issue. Bankers will be extremely cautious during the 4th quarter 2020 and very selective during 1Q 2021.
In 2021, we will also see a lot of new joint ventures between land owners and new or small/medium sized developers. This is due to the expected recovery and demand for new property products from next year onwards.
Also, from the feng shui and I-Ching point of view, we are now at a transition period from a dark to a brighter cycle. From 2024 – 2043, it is considered a new era bringing with it a new future with a lot of exciting and new things coming up such as 5G, cryptocurrency, etc. There will be new hope and confidence, and people will want to make changes to their life including changing house, location or direction.

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Given the continued great uncertainty and volatility of chance, I will respond in the following manner:
Slow recovery: 30% chance
Market move sideways: 50% chance
Market move downwards: 20% chance

Overall, given how bad it is this year, next year is, on probability, likely to improve, and not worse, although we need to consider a potential lagged effect for the economic pain to work through the system before seeing better days ahead. Most businesses and households will try to rebuild their battered financials before considering major real estate purchase unless they buy on an opportunist basis and with a longer term view, given that the excess supply will still persist.
 

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Weakness from 2020 to continue, with low buying transactions for 1st half 2021, and gradual improvement in 2nd half 2021.

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The headline issue in 2021 is still Covid-19. As long it’s not resolved, we will continue to grapple with issues which we inherited from 2000’s such as unsold property, affordability, access to financing, and the middle-income trap.
Even if the vaccine is rolled out possibly in mid-2021, hence spreading a feel-good sentiment, there are still issues such as how will it reach the entire country’s population.
Having said that, the main problem is still bread and butter issues. When people are in survival mode, buying property will not be a priority.
There are 2 main groups now in our society:

1. Those whose livelihood is impacted by Covid-19, e.g. salaries, wages, and allowances cut; lost jobs; no-pay leave; can’t do business or business income is severely impacted and those who survive only on daily income.
2. Those not very impacted and are able to maintain their income; in fact, some have increased income e.g. essential services, trending products/services.

Group 2 should take this opportunity to grab crazy good deals that will emerge in 2021. These deals are already emerging now.
For example, developers are slashing prices 20% – 30% below the price that they sold 2 years ago, and unsold units are being discounted. It’s easier to negotiate with owners of subsale properties due to the soft demand. For auction properties, you can buy at 45% below market value.
In 2021, I will look at the residential segment while keeping an eye out on commercial but only if the latter are super duper deals. This is because many businesses are struggling and have trouble paying rental.
This is also a good time to relook at hotspot areas which are considered expensive during pre-pandemic times. You might get lucky and catch a super deal but in general, prices are still holding up in very strong hotspots.
In summary, 2021 is a continuation of a flat 2020 but with opportunities for good deals.

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2020 is the year when the real estate sector in Malaysia had a downward price adjustment due to the Covid-19 pandemic. Good news is now coming out where various vaccines may be rolled out globally by the end of this year.
2021 would be a Year of Adjustments as it may take time before we get back to pre-Covid -19 normalcy. Meanwhile, a large segment of the working population have adapted to some form of working from home, and shopping patterns have changed with stronger online commerce.
Tourism would in all probability still be weak in 2021. I see the residential market being weak but sta ble in 2021 as our country’s economy struggles to get back on its feet. However, we have good news as va rious Infrastructure projects like SUKE, SPE (DUKE 3), EKVE a nd DASH are expected to be completed in years 2021, 2022 and 2023. Furthermore, Bandar Malaysia and MRT 3 Circle Line were slotted into the recent October Budget and that will definitely boost the construction and real estate industry.

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The outlook is going to be strongly influenced by the future development of the Covid-19 pandemic. We have done a survey which revealed that there is a good and healthy demand for properties. However, huge concerns a bout the future, especially job and income security, have thrown cold shower on the market.
Our surveys in the market found that there is now higher interest for suburban properties compared to before the pandemic; and stronger demand for bigger built-ups which is mostly influenced by a full Work From Home (WFH) adoption.
According to data from the Department of Statistics Malaysia and Statista, Malaysia has at least 7 mil professionals (mostly employed in the service industry) who have been switched 100% to WFH mode.
Our expectations is for a quite flat first half of the year, with possible volatility in the second quarter generated by higher numbers of auctioned properties. During the second half, there should be more movement but, as mentioned above, the pandemic is the “key strategic factor” for a fast or slow recovery.
All the above refers to residential properties mostly priced below RM900K. Commercial space in terms of retail and office will need a much longer time to recover.

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Despite recent news on the imminent availability of the Covid-19 vaccine by year end, the property market will not immediately improve. Judging by NAPIC da ta, it will take some time before the property market bounces back to pre-Covid-19 times. Even before the pandemic, the property market was already slowing down.
In the first half of 2020, the residential property market contracted 26.1% by volume compared to the same period in 2019. The commercial property market fared worse at more than 33% volume contraction, contributed by lower occupancy rate of purpose-built offices and shopping centers which went down to about 74% and 76% respectively.
The pandemic has also affected businesses and employment. Unemployment rate has slightly increased this year, and this will give some impact on how the property market will behave in 2021. Property buyers will be more cautious in selecting the types of properties that they buy, either for their own occupation or for investment purposes.
The economic hurdles do not change the fact that urban populations are still in need of housing. For those who proceed with buying properties, they will be more cautious in their purchase, resorting to sub-sale properties to eliminate the risk of non-completion of new developments.
To further cushion the economic impact, buyers a re choosing properties priced a t RM300,000 or below, classified as affordable homes. NAPIC data reported that almost 62% of residential property transactions for H1 this year is for affordable homes. Developers are aware of this trend which is why more than 50% of residential property launches so far this year has been for affordable housing more than in any other price range.
I expect the cautious buying trend will continue into 2021. It would take some time to regain buyer confidence to invest in property since it very much depends on how well the vaccines are able to protect against Covid-19 when it is made available to the public

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Whiteher Tourism?

Due to Covid-19 pandemic crisis, travel and hotel business is not expected to recover until after 2022. There are reports saying that globally, the tourism industry would only recover in 2023.
Due to MCO of various categories being imposed in Malaysia, most hotel operations were halted almost totally. From Mar – June 2020, the estimated losses for hotels amounted to a bout RM3.3 bil. Several hotels have closed down for good when the MCO was further extended while many suspended operations indefinitely.

Staff were either put on no-pay leave, half-pay or even expected to work without pay. Some others were terminated or retrenched. There are no official numbers but it could be between 3,000 – 4,000 staff affected.

Hotels a re facing critical cash flow problem with no or poor returns against high fixed operating costs. With the situation not expected to improve much, it would be difficult for hotels to get back on their feet and continue opera ting normally as before. Unfortunately, we are seeing more cases of infections and red zones towards the end of the year.
Borders a re still closed and no inbound tourists a re allowed while domestic tourists a resubjected to restricted movement. Hence, the situation is still very bad and as such we have no projections for 2021.
The Ministry of Tourism, Arts & Culture (MOTAC) has reported tourist arrivals during the period Jan – June 2020 down by 75%. The loss of revenue is estimated to be in the region of RM44 bil (RM31 bil international and RM13 bil domestic).

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Tourism outlook for 2021 is bleak; the vaccine will take some time to take effect as one needs to vaccina te up to 70% of the population. Many countries cannot afford this.

 

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