MIXED MOOD ON RECOVERY

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Asian Property Review asked 7 industry experts: How will the recovery in Malaysia’s property market look like and how to speed up the recovery process?

“It will be a long recovery road because we are facing multiple issues:

1. Affordability

2. Covid-19 risk

3. Oversupply

4. Mismatch

Personally, I believe it will take at least until end 2021 only before we start seeing any clear improvement. It will be difficult because Covid-19 is still around and the business operating environment has not fully recovered yet.

In the property market, there are too many developers and some continue to build in whichever niche market is then considered in ‘demand’.

The only way out is for the country to become very business friendly to the world in order to attract foreign investments in a big way, just like how Dubai is attracting global investments unlike other Middle Eastern countries.

In Malaysia’s case, investors are interested due to the trade war between China and America.

Personally, I think there will be measures coming to control supply and ensure existing stocks including developers’ overhang units and investors’ unoccupied units, are dealt with.

The implementation of HOC to improve developer sales is not enough; we must match the real demand with actual supply in the market so that we achieve occupancy rates of between 80 – 85%. Then only, we could consider releasing more projects into the market.

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On the planned supply side, we have to ensure that it matches real demand.

The government can control the supply by introducing Build-Then-Sell (BTS), and by collecting data on actual unoccupied units.”

The property market consists of both primary and secondary markets:

• For the primary market, new launchings are slow because of the lack of support from banks which is one of the key drivers for the property market. Currently, banks don’t support valuations of new launches because of the perceived overpricing or overvaluation. Developers are also giving out a lot of rebates which skew the actual valuation.

Without the loans, which include term loans, bridging loans and especially end-financing, many developers dare not launch. Previously, the conversion rate to sales would be about 50% but now, it’s about 20- 30 % conversion rate.

This is because banks are deferring giving out loans due to the spread between Fixed Deposit rates and mortgage loans not being in their favour. So the banks are waiting for the FDs (from last year) with up to 4% interest rate to expire before they are willing to give out new mortgage loans which earn them only about 3.0% – 3.1% interest rate.

Having said that, banks are currently still supporting some new launchings but only for those which they deem as not overvalued, for example those which give out few or no rebates.

• The subsale story is different because the banks rely on their own valuers which usually give a lower property value. This makes it safer for banks although the overall effect is to bring down subsale prices. Most subsale buyers are buying for their own use so banks prefer that rather than investors buying to rent out.

Recovery

To speed up the recovery process, the Covid-19 vaccine must be in place and stable. But even if the vaccine is still not stable or fully effective, I believe banks will still support especially in the 1st quarter of 2021. This is because lending money is their core business but the situation will revert to the same as now, for example, high rejection rates resulting in a slow market. To fully recover, all countries must also open their borders for visits and business.

“The recovery in the property market is likely to be L–shape — slow growth given the following scenarios: higher unemployment/salary cuts, existing high household debt ratio, pricing unaffordability issue, excess supply, and political uncertainties. The government is also reviewing the MM2H program so there could possibly be fewer number of foreign retirees in the future.

To speed up recovery, the government should continue to reduce red tape in the approval process and reduce political interferences in the market, for example, imposing quotas and cross subsidisation, etc. The government should provide and ensure good new policies for efficient operation of the market.”

“The Malaysian economy has shown signs of improvement since the movement control order was relaxed. We foresee a V-shaped recovery because many buyers remained active even during the MCO and others are entering the market now.

Especially nowadays, when share markets have become so volatile and unpredictable, property is still viewed as the most attractive investment choice.

We expect the market to pick up further as the economy returns to rapid growth later this year and in 2021.

While the market slowed down during the first half of the year, it did not collapse. In fact, IQI’s sales in Malaysia were 30% higher in the first half than they were in the first six months of 2019.

COVID-19 has made everyone think deeply about how and where they want to live. People have been spending so much time at home and now have a very clear idea of what they want. In many cases, what people want now is different than a year ago. Now, your home has to also be your office, your school, your gym, and your restaurant. The home has now become a hub for every activity.

In a recent survey, we found that buyers want TV rooms and media rooms more than swimming pools and gyms. TV rooms and media rooms can double up as working space or a place where you can escape if you want to get out of your apartment.

COVID-19 has actually increased demand for new homes as people are more selective about the features they want in their home, in particular good internet connectivity.

Developers have had to be more creative and have had to make rapid changes in the way they design new buildings because COVID-19 has changed what consumers want. People no longer want a study room that is part of the main living space. They want it separated so they can concentrate. No one wants their entire home in the background of their video calls. They want good noise proofing between rooms and apartments. They are more likely to choose to have an extra bedroom if they can afford it. They are more willing to live in a less central location if it means they can have extra space.

The sales figures reveal that appetite for property has remained strong, especially amongst value-oriented buyers. The appetite for property is resilient despite Coronavirus-related restrictions.

We believe the Malaysian government, along with Bank Negara, have taken the necessary steps to help aid the recovery process. Few countries have managed the pandemic as well as Malaysia. Just look at what you see in the United States, Russia or the United Kingdom. Malaysia’s leaders are doing a much better job.

The fiscal stimulus packages, loan moratoriums, stamp duty exemptions, and other monetary and financial measures have improved the economic outlook.

The reintroduction of the Home Ownership Campaign (HOC) is also a step in the right direction. It will help first-time home buyers get into the property market and help developers increase sales.

In 2019, the Home Ownership Campaign generated RM23.2 billion in sales, surpassing the initial target of RM17 billion. This contributed to the Malaysian property market’s improved performance in 2019. Transaction volume grew 4.8% to 328,647 units, while transaction value grew 0.8% to RM141.40 billion.

Bank Negara’s move to lower the Overnight Policy Rate (OPR) three times this year will also aid in the economic recovery.”

“The property market is moving from a ‘zero’ transaction standpoint during the partial lockdown to positive growth called a ‘booming market position’. Both 2018 and 2019 saw growth in the volume of transactions after a six year slowdown since 2012. The trend was dampened by the COVID-19 lockdown and now it’s starting to recover.

In a recovery market, the movement will only go up provided the fundamentals remain strong and growing. The government is providing the stimulus in this endeavour. By 2021, we will see the property market forging ahead with a new vigour and vitality. Today seems to be the best time to take advantage of low prices, poor demand, low interest rates, and tax breaks. The market is opening up for those with the money and the investment spirit.

To speed up the recovery process, build up the property ownership mood; after all the buyers would be building up equity. Prices are down and it’s the right time to invest and own property. The other best way is through legislative and governmental intervention.”

“There’s a rebound in real estate activities the moment the movement control was relaxed, where agents were allowed to conduct physical viewings. The developers have been coming up with promotional programmes, and together with PENJANA which was announced by the Prime Minister, the market had reacted very positively. However, the focus has been given to primary market only so far.

The property market is made up of both primary and secondary property market, and the secondary market is made up of over 50% of the total property transactions. The recovery process will definitely be speeded up if the secondary property market is being boosted through government stimulus policies.”

“The Commercial and Office Sector would be most affected this year and the overall performance in this sector would be described as weak. The bright spark in the property market is the industrial sector namely warehouses and factories that are near highways and airports. These are the net beneficiaries of the US-China Trade War and the e-commerce boom. This sector is performing strongly throughout 2020 and is expected to continue into 2021.

The overall Residential market suffered a steep drop in both activity and transacted prices in 1st quarter 2020. This is due to the end of the HOC which had kept the primary market buoyant In 2019.

The political uncertainty and imposition of the MCO due to Covid-19 pandemic also hit Malaysia during 1Q. The direction-less property market was devoid of closing transaction activities like signing of SPA’s and applications for bank loans. Despite that, the market was brisk with online viewings and booking activities in both the primary and secondary market.

Following the much-awaited results of 2Q, I foresee a picking up of transactional activities as banks, lawyers, valuers and other industry related professionals will be able to close, disburse and complete the transactions.

To speed up the recovery process, the government should utilise the MM2H as a vehicle to link to property purchase in both the primary and secondary market which would benefit the Residential Sector.”

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