PROPERTY DEVELOPERS saw a pick-up in sales in October after experiencing a nearly 50% drop in the first half of the year. Another round of pent-up demand is expected before the Goods and Services Tax (GST) is implemented next April, says Real Estate and Housing Developers’ Association (Rehda) president Datuk Seri Fateh Iskandar Mansor.
However, after that, developers anticipate a challenging six to nine months. On top of the difficulty in obtaining end-financing, factors such as the higher cost of living and lower affordability are also contributing to the lower take-up rate. Until there is easier access to financing, the developers will have to be more creative and diligent in coming up with better product offerings and pricing, Fateh Iskandar tells The Edge.
The Edge: In Rehda’s view, what was the trend in the property market in 2014?
Fateh Iskandar: There were fewer previews and launches in the first half of the year with many developers holding back as a result of buyers adopting a ‘wait-and-see’ attitude pursuant to the various cooling measures announced by the government in Budget 2014 as well as the Responsible Lending Guidelines imposed by Bank Negara Malaysia. A similar trend could be seen throughout the second half of the year. The lack of impetus in Budget 2015 for the property market reinforces the industry’s neutral-to-pessimistic market outlook for the second half. The Rehda Property Industry Survey 1H2014 reveals that close to 90% of respondents experienced a slowdown in sales due to the cooling measures imposed. Nevertheless, we notice there has been pent-up demand since the budget announcement in October.
In September, Rehda said that demand had fallen to ‘worrying’ levels? What is the situation now?
The slow demand is mainly attributed to the problems faced by buyers in getting end-financing, as reported by 80% of the survey respondents. Reasons for loan rejection include income ineligibility, lower loan margin, Central Credit Reference Information System (CCRIS) records and stricter lending policies.
Previously, for a house priced at RM400,000, the buyer had to come up with a 10% downpayment as well as legal fees and stamp duty. With the 70% loan-to-value ratio practice, buyers now have to come up with RM120,000 plus the other expenses [for the third house onwards]. The challenge is coming up with the downpayment. This situation will continue should there be no easing in the housing finance policies.
What are Rehda’s expectations for 2015?
As in the past, the first quarter of the year will see an initial slowdown but we are expecting pent-up demand nearing the implementation of GST. In the first six months after the GST is implemented, there will be a knee-jerk reaction. It will probably take six to nine months for business to get back to normal. It will be challenging.
The cooling measures and stringent loan approvals might continue to have some negative impact on the property market, but projects in choice locations with access to public transport, road networks and amenities will continue to be in demand.
What are the other factors that could further dampen demand?
The other factors could be the higher cost of living and lower affordability due to the increases in electricity tariff, toll charges, gas prices and, for certain areas such as Kuala Lumpur, higher assessment charges. Cost of development has gone up significantly and the industry continues to face challenges in increased cost of compliance and cost of doing business.
Do you see buyers opting to buy from the secondary market instead of the primary market?
The secondary market has always been the prime mover of residential transactions and accounts for around 70% to 80% of total sales. Purchasers tend to favour the secondary market as the houses are in more mature areas (nearer to the work place, education and retail) but their prices are often much higher when compared with those in the primary market.
When the property market slowed previously, many property fairs were held and developers were throwing in lots of perks. Can we expect to see a repeat of this? What other methods can be used to entice buyers?
The requirement to disclose all details pertaining to sales pricing, including benefits and incentives offered to buyers (as announced under Budget 2014), has been quite a challenge for developers. In addition, the prohibition of developers from giving perks such as free legal fees, sale and purchase fees and renovation, has also affected the buyers’ ability to purchase as they have to raise the cash for these incidental costs on top of the deposit.
With the various stringent measures in place, developers will need to be more creative and diligent in coming up with better product offerings and pricing. Perhaps, they will need to focus more on research and marketing to reach their target market.
Will the softening in demand cause land and property prices to come down?
Property and land prices are unlikely to drop with the continuous rise in the cost of development, not limited to but including high land cost (conversion fee, development charges, quit rent and stamp duty), scarcity of land, especially in urban areas, increased cost of doing business and high capital contributions/ compliance cost and restrictive planning requirements. Compliance cost has tripled to 20% to 25%. Labour cost has gone up. In 2008, a non-skilled Malaysian tiler was paid RM80 to RM100 a day. Today, he is paid RM200 to RM250 a day while a foreign worker gets RM150 a day.
An effective way to make pricing more competitive is to bring in more supply. Currently, the imbalance between supply and demand in some segments of the market, especially in the urban areas, is one of the main factors pushing house prices up.
Where can we expect a major mismatch between demand and supply? Affordable housing versus people who need it? Middle income versus access to loans?
A major mismatch between demand and supply will be expected in highly urbanised areas where land, among other resources, is scarce and expensive. As these areas are the centres of administration and/or businesses, demand for properties come from various segments of society — high, medium and low-income groups.
The infeasibility of developing affordable housing in these areas will result in demand moving to the outskirts, especially to ancillary towns with good access and connectivity and also more urbanised areas, especially in the Klang Valley (Puchong, Cheras, Kota Damansara, KLCC and Shah Alam). Penang and Seberang Perai will continue to be sought after.
We note that the government is trying to build a significant number of affordable housing as detailed in Budget 2015, and while we think it is a good move, such efforts should be properly rationalised to avoid overlapping.
More importantly, the target market of such affordable housing should have easier and facilitated access to financing, as supply is only one part of the mismatch. Financing continues to be a major facilitative factor for the general public in purchasing homes.
This article first appeared in City & Country, The Edge Malaysia Weekly, on 22 - 28 December 2014.