This article first appeared in City & Country, The Edge Malaysia Weekly on August 2, 2021 - August 8, 2021

The residential property market, which was already muted prior to the Covid-19 outbreak early last year, has remained in the doldrums throughout the pandemic. With movement restrictions in place, buying a property in the subsale market can be challenging.

“The secondary market was affected by the recent Full Movement Control Order (FMCO) as physical property viewing, which is preferred for subsale homes, was made logistically complicated for buyers. Despite the emerging trend of virtual viewings/tours and the rising number of online sales, physical property viewing is still a must for most subsale buyers as it allows potential buyers to see the upkeep, interior conditions and renovations made to the property on offer,” says Knight Frank Malaysia deputy managing director Keith Ooi.

Meanwhile, Henry Butcher Real Estate Sdn Bhd chief operating officer Tang Chee Meng notes that owners are still hanging on to their asking prices, which buyers are not prepared to match. “Valuations are not able to support asking prices, and therefore, borrowers are unable to secure financing for the required amount. Banks are now more cautious and have adopted stricter criteria in processing loan applications, leading to more aborted deals when buyers are unable to secure a loan for the required amount.

“Some people have put off decisions to upgrade or buy a new home because of the uncertain economic environment and lack of job security. They are hesitant to make a big financial commitment. With the pandemic still raging, some people are reluctant to inspect properties or allow strangers to visit their homes. This will affect the sale process.” 

He adds that the ongoing Home Ownership Campaign (HOC) and the incentives given will draw buyers’ interest away from the secondary market.

According to Tang, his agency did see an increase in enquiries for subsale properties not long after MCO 2.0 was lifted in Kuala Lumpur and Selangor in early March, and this continued until the ­Covid-19 infection figures went up and the government imposed MCO 3.0.

“Although this anecdotal evidence may not represent what is happening in the overall secondary market, we believe the general trend was an improving secondary market during this period,” he says. He notes that the main focus was nevertheless still on the primary market, owing to the HOC’s incentives for the mid-market segment.

Ooi similarly observes that the secondary market had experienced short bursts of recovery amid the slow economy when movement restrictions were temporarily lifted. “However, with the resurgence in Covid-19 cases and the implementation of the MCO 3.0 full lockdown in recent months, the secondary property market is likely to remain soft for another year,” he says.

Rahim & Co International Sdn Bhd CEO of real estate agency Siva Shanker anticipates an L-shaped recovery. “I thought we would have a slight upswing this year but not any more, owing to the high number of Covid-19 cases, which has more or less destroyed any gains we would have made in 1Q, and I think 3Q will be a bit of a struggle.

“If we gain some traction in the fourth quarter, it will be good. The best-case scenario for 2021 is flat or zero market growth, which is better than negative growth,” he says, noting that the total volume and value of property transactions recorded nationwide last year were -9.9% and -15.8% respectively.

Siva believes the Covid-19 vaccine is the silver bullet for market recovery. “The feel-good factor and perception that everything is going to be alright when the market sees vaccination being rolled out quickly is really what is going to drive the market. Take the US, where two-thirds of its population are vaccinated. Its economy will surge now, and we need that for our economy, otherwise we’re going to be stuck in the doldrums for a long time,” he says.

Similarly, Ooi believes the highly anticipated planned acceleration of vaccine rollout in the coming months will boost hopes of a faster-than-expected return to normalcy. “This will set the pace for recovery of our country’s economy, which in turn may [boost] buying sentiment,” he says.

“We believe there is still strong buying interest in the secondary market, particularly for landed residential properties, owing to these properties being located in mature areas with established amenities, as opposed to a new neighbourhood or township that is situated farther away from the city centre.

“Another possible factor is immediacy, as secondary or subsale properties are available for home seekers to move into right away. With the economy remaining challenging and with the finances of many affected by the current pandemic, owners or sellers are more accommodative in accepting potential buyers’ terms and requests in order to conclude a deal during this period,” he notes.

Owing to a resurgence in Covid-19 cases and the reimposition of a total lockdown nationwide in recent months, the property consultants expect to see a recovery only in 2022.

“We may see an improvement in the second half of 2022 if the government is able to achieve herd immunity by year end,” says Tang. 

“As the business sector and the country’s economy will take a hit from the stricter lockdown, income generation and consumer confidence will be affected, and this will filter down to weaker demand for houses. Therefore, the secondary market is expected to continue to be sluggish until end-2021,” he adds.

Ooi expects overall interest in the residential sector to remain weak until the health crisis is brought fully under control. “The economy is still in a recessive phase and market confidence is expected to return gradually, earliest by 4Q2021 or early 2022, as buyers and financiers are all cautiously optimistic. The property market is widely expected to start recovering on the back of a more positive outlook, with faster vaccine rollout planned in the coming months, coupled with domestic investors shifting to a safer and less volatile alternative investment product from the stock market,” he says.

“With the anticipated recovery of our country’s economy, a gradual increase in secondary market transaction volume in 1H2022 is likely.”

The HOC, which was initiated by the government in 2019, was reintroduced in 2020. It has now been further extended to December this year, as announced under the National Economic Recovery Plan (Penjana).

The incentives under the HOC include a minimum 10% discount by developers on property prices, stamp duty exemptions on the instruments of transfer and loan agreement for the purchase of residential homes priced from RM300,000 to RM2.5 million, and stamp duty exemption on instruments on securing loans.

While the HOC incentives are believed to help spur activity in the primary market, the campaign does not cover secondary market properties , which made up 80% of all property transactions in 2019, according to the National Property Information Centre (Napic). In the story “Should secondary properties be included in HOC?” published in the July 26 issue of City & Country, Housing and Local Government Minister Datuk Zuraida Kamaruddin said the government does not have any intention of including secondary properties under the HOC.

“Extending the HOC to the secondary market can further increase property speculation and slow down the sales of newly developed houses. Since the secondary market is already at its peak of above 80%, thus there are more reasons to support the newly developed houses with the HOC as one of the agendas to increase homeownership and reduce overhang houses,” she added.

Tang says the minister’s decision was not unexpected, although there was hope among the real estate fraternity that the HOC would be extended to the secondary market. “There is a lot at stake as property development requires huge capital and the substantial involvement of the financial sector. If the housing sector is hit by an increase in the number of failed projects, it may have a huge impact on the financial system,” he notes.

He adds that the housing development industry also involves the participation of quite a number of supporting industries and the government has to be careful to ensure that these industries are not too affected by a slowdown in the housing market.

Siva says policy-based decisions and a level-playing field are needed for the real estate market. “If the idea is to spur home ownership, why should the focus be only on the primary market when the secondary market is also part of the real estate market?

“And rightfully, if there are rebates to be given, the rebates should come from the person who is motivated to sell. So, if the government decides to absorb [the fees] for the primary market, why can’t the same apply to the secondary market?” he asks.

“A big portion of the real estate market has been ignored and all the attention is given to a small portion of the market that got into this problem in the first place because it has overbuilt. I think it is fine if the government gives developers a hand. But if the idea is to strengthen the market, then strengthen the whole market. I believe a flat-based policy should be there for everyone, rather than one that helps only one part of the fraternity.”

Ooi similarly believes the government should consider giving an equal opportunity to first-time homebuyers of both primary and secondary properties. “We believe redefining the policy is critical as we need vibrant primary and secondary markets to restore market activity in the residential sector during this unprecedented time. The incentives  should not be limited to just new properties in the market but also be extended to the wider pool of market participants within the ecosystem,” he says.

While proving positive for the primary market, the HOC may likely impact the take-up in the subsale market, says Siva. “The Covid-19 pandemic has killed speculation. Previously, speculators were the ones who rushed to the primary market because they thought they could sell in two to three years at a 20% to 40% increase in value. Nobody rushes to buy a property on the secondary market thinking it would make them money quickly.

“So, what is left are the real buyers, who now have incentives to buy in the primary market. That is why I say the policymakers have made a major error by excluding the secondary market from the incentives.”

Ooi concurs that the volume of transactions in the secondary property market has stagnated, as homebuyers and investors are more focused on benefitting from the incentives offered to properties on the primary market. “The overall number of transactions will likely decline if the HOC is not further extended to the secondary market as the majority of the total value and volume transacted historically in the residential market is from the subsale segment. We believe that by extending the benefits of the HOC to the secondary market, it will further spur activity in the overall residential market,” he says.

Tang notes that while the HOC is likely to have an impact on sales of properties priced at around RM500,000 in the secondary market, interest in properties priced above RM1 million in the subsale market will not be affected, owing to the lack of options available on the primary market.

“The secondary market, without the incentives offered under the HOC, will continue to attract more affluent buyers who cannot find their dream homes among the current offerings of affordable homes on the market, and these would be higher-priced properties in popular locations,” he says.

In terms of the oversupply situation, Tang opines that the government should not just focus on reducing the property overhang but should also be actively taking steps to prevent an overhang from developing. “This will be done by making sure the developers do not overbuild and that they focus on properties that are in demand. Developers should carry out thorough and unbiased market studies, whether done internally or through external professional consultants, to ensure that they come up with projects that can sell easily and not just those that make the highest profit.”

The lack of incentives for secondary-market properties is among the main complaints. If the incentives currently offered to the primary market under the HOC can be extended to the secondary market, it will certainly have a positive impact on the market, says Tang.

In addition to the incentives offered under the HOC, Ooi adds that the overnight policy rate should remain low, and that there is a need to improve the loan financing approval rate by having innovative financing packages from financial institutions to support homebuyers, especially first-time purchasers. “These people are younger and have just started work, and therefore may have less savings and reserves. Innovative financing should take into account their potential career progression. An example is a step-up instalment financing plan, which takes into account that in the future, with higher salaries, these borrowers will be able to afford higher monthly instalments.”

Reducing or waiving the 5% RPGT after five years for Malaysians and permanent residents will be an added incentive for more homeowners and investors looking to sell their assets and upgrade to other properties during this period, says Ooi. “With lower disposal cost, sellers may also be more flexible in negotiating sales terms and prices,” he notes.

Exemption from or reduction in stamp duty beyond the incentives offered under the HOC may further spur activity in the secondary market. “Unlike the RPGT exemption that benefits sellers, stamp duty exemption or a reduction in stamp duty rates may motivate potential homebuyers as it reduces the cost of their overall property acquisition,” he explains.

With signs pointing towards a recovery in 2022, Ooi says it is timely to revive the suspended Malaysia My Second Home (MM2H) programme, with more attractive measures introduced in stages to benefit the secondary residential market.

Siva hopes that state approval processes for secondary market transactions can be improved. “By default, we have an inefficient system in which it can take anywhere from three to eight months or longer for transactions to occur. Rather, they should take weeks or even days. This is not helping the market. For more transactions to happen, things need to be speeded up. If we can improve on efficiency, we can move the market along better.”

He also hopes to see a recovery in 2022. “No matter how inefficient we are, the vaccine rollout will have picked up steam towards year end and the feel-good factor will start kicking in. I think we will see positive growth in 2022. I don’t expect anything magnificent; even a small 3% to 5% increase in the total number of transactions would be good.”

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