Given the twist of unexpected crises – both political and in terms of the pandemic that has struck a nasty chord of fear globally and locally – what lies ahead and what can be done?
We have just crossed the second quarter of this year and nothing can be worse than what we have all already experienced in the first few months of 2020. Not long ago, we were just watching the US-China Trade AWar from the sidelines and the overstretched protest that happened in Hong Kong. How fast things have changed when both of these events were silenced just before the Lunar New Year as the world was caught unprepared with the spread of the Covid-19 virus outbreak that started in Wuhan, China.
Eventually, as we know it by now, this has become a pandemic across the world and brought the whole global economy to its knees. Malaysia is not spared from the reeling effects of the aftermath either, especially since its ruling Government of 22 months was abruptly replaced with a new Government – after a month into the lockdown in China. While parties from both sides of the divide fought it out, the rakyat could only watch in horror as the nation was grappled with an unprecedented political impasse for almost a week. The Movement Control Order (MCO) was also extended another two weeks after the initial MCO stretching from March 18 – 31, 2020.
As the new cabinet was sworn in, they were taken to task to handle drastic measures to contain and curb the epidemic that had already seeped across international borders and also on localshores. Before long, Malaysia was partially in lockdown from March 18, 2020, with the invoking of the Restrictive Movement Control Order (RMCO) for a duration of two weeks. Commercial (Hotels, Retail Malls, Shoplots, Offices) and Industrial sectors (Warehouses, Factories) were hit by a devastating perfect storm that has affected many industries on the local front. Firstly, the economy was badly hit in terms of the aviation and tourism sector. The hotel and short stay industry already felt the impact since January when many rooms were cancelled as Chinese tourists form a majority of tourist arrivals here. Then, insult to injury was made worst when most hoteliers faced a nightmare with Malaysia’s move to ban tourists from countries which were affected by the Covid-19 pandemic from coming over. The last straw came when the country went into partial lockdown resulting also in the barring of all foreign travellers including neighbouring Singapore into the country!
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As things got worse, footfall at retail malls were seriously thinning out due to the fear of the virus spreading among local communities. These are definitely hard times for those in retail businesses. While office space remains a challenge with incoming supplies overcoming demand, industrial space may seem to be the least affected as business goes on as usual.
Owners of industrial land that were occupied for the manufacturing of goods for export however, found themselves caught in the global supply chain disruption as many components come from China which was undergoing a lockdown. Basically, almost every sector of the real estate industry was affected.
On the flip side of the coin, all is not lost as this is the golden opportunity – amidst a crisis, for many companies which love to expand – to own their premises by getting good deals from the somewhat distressed market today.
There are also opportunities for those who saw the changing trends and who leveraged on available spaces to be converted into profitable ventures apart from the conventional method of earning through a single stream of income from the usage of the demised premise.
The Residential (Strata Apartments, Condominiums and Landed Properties) sector meanwhile witnessed residential landlords likely to feel the effect of the slowdown in the economy as well. As tenants face predicaments like salary cuts or worse still – job losses due to belt tightening measures by their employers, they too would in turn, consider downsizing or finding difficulty in paying the monthly rental.
We have seen how banks allow a moratorium of six months to alleviate loan instalments and this should be a relief to many property landlords who are now caught in this conundrum.
For those who are ready to invest, one can expect a further reduction in bank interest rates by Bank Negara Malaysia (BNM) to spur domestic consumption and such a move shall be welcomed as a bonus to produce positive cashflow when one invests in the right property.
With so much uncertainty in the market, the golden question on each landlord’s mind is:- “How do I keep my current tenant longer in order for them to continue to stay on?”. Given that the outlook for property is not that great currently, I would advise property landlords to learn the skills of maintaining great relationships with their tenants in order to maximise on the returns from the rental yield. It is already not easy to procure a good tenant who can afford to pay promptly. So why bother to replace them or let them go due to hiccups which nobody could anticipate?
In tough times like this, it is highly recommended for landlords to work out a flexible repayment plan should the need arise from the tenant to cushion the impact of their financial cashflow.
Communication is key while also managing expectations between both parties. It is already considered a stroke of good fortune for one’s unit to be tenanted at this time. So one should count one’s blessings and remember that it is ok to lose in order to win. As the saying goes:- “Do not be penny wise but pound foolish”. One’s considerate gesture towards one’s tenant may be returned multiple times fold in the not too distant future. So there is wisdom in one being a compassionate landlord. The choice remains in one’s hands.