Property market stuck in the doldrums even as prices rise elsewhere

This article first appeared in The Edge Malaysia Weekly, on August 16, 2021 - August 22, 2021.
There will be more property overhang in the market as the affordability gap increases with decreasing household income. (Photo by The Edge)

There will be more property overhang in the market as the affordability gap increases with decreasing household income. (Photo by The Edge)

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THE Covid-19 pandemic may be far from over, but property prices have hit new peaks in the past few weeks in cities such as London, Paris and Vancouver, as well as much of New Zealand.

Across the Causeway, SRX Property said last week that there had been a significant rebound in condominium resale volumes. Real estate data on its portal showed a rebound of 22.5% in July after falling for two consecutive months, and prices have continued to climb as buyers rush in.

Three weeks ago, a five-room Housing Development Board (HDB) flat in Bishan sold for a record S$1.295 million (RM4.04 million), breaking the previous high of S$1.268 million. A Bloomberg report last week said the island nation’s residential market had seen S$32.9 billion spent in the first half of the year alone, calling it “the city’s biggest frenzy in more than a decade”.

The last time Malaysia saw a similar frenzy was between 2008 and 2013, when transactions for residences and apartments were snapped up even before their launch and deals were clinched at record prices. Will we ever see a return of the property price boom?

Perhaps not to the extent experienced previously, real estate experts tell The Edge, noting that Malaysia lags behind many countries in terms of the attractiveness of its property market. Foreign direct investment (FDI) is crucial for the market to recover, they say.

Foo Gee Jen, group managing director of CBRE | WTW does not expect a repeat of the property boom years of 2008 to 2013 as he is doubtful purchasers will “jump in to buy property”, as they did a decade ago. Instead, he believes buyers will do thorough research before making an investment decision. “We also have the nomad-like generation, for whom long-term investment is not a priority,” he adds.

Thus, he projects that any property market recovery moving forward will be slow and steady.

Siva Shankar, CEO of real estate agency at Rahim & Co, concurs. “It is time Malaysians accept that the heyday of fantastic price increases are long over. Any recovery we see from now on will be steady growth and more organic in the long term. We need to get used to this kind of growth rather than the dizzying highs and crashing lows of previous years.”

On the other hand, Stanley Toh, executive director at LaurelCap Sdn Bhd, expects that once the oversupply issue is resolved, there may be “pockets of property boom” for some segments of the real estate market or in certain geographic locations. “Asians like property [as a long-term investment], and Malaysians have a herd mentality and like to jump in and buy when everyone else starts buying,” he observes.

But all three property experts say FDI is an essential factor if the property market is to recover.

Countries such as Singapore, Thailand, Indonesia and Vietnam are ahead of Malaysia in terms of attracting FDI, Foo points out. The country also lags its neighbours in terms of infrastructure readiness.  

“FDI is a catalyst. Once it is there, we will see an increase in high-value assets and properties. We need new investments, especially from foreign investors,” he says, adding that this would require government policies that treat all business owners equally.

“This may then generate more employment and business in the country. Massive additional new infrastructure investments are not necessary, only a government that is supportive and responsive to the needs of the business community on an all-inclusive basis,” he elaborates.

“A revision of the current policies and incentives are crucial to rebuild the confidence of foreign investors in our country. Viewing foreign investors who have been in Malaysia for many years through a ‘them and us’ lens is an outdated approach that must be replaced.”

Siva questions whether Putrajaya’s FDI application announcements actually translate into approvals and real investments.

“The property market should recover once confidence returns to the market. We are currently lagging behind two to three years when compared with other countries. Historically, when FDI comes in, it creates a feel-good factor and we see a boost in the property market,” says Toh.

He opines that it is political instability that has hampered foreign investments in the local economy. Many business decisions related to real estate have been shelved in view of the current political scene in Malaysia.

Technology is the way forward, whereby companies need to pivot into digital and e-commerce in order to stay relevant. On the property side, things like virtual viewing and selling of properties online will still be relevant after the pandemic is over.

“So, even though Malaysia’s vaccination programme has been impressive with 400,000 to 500,000 people being vaccinated a day, the political instability and the pandemic will most likely see Malaysia lag behind in terms of property market recovery,” says Toh.

“There will be some revenge spending looming on the horizon, but it is most likely to be delayed by a year or two as the country needs to grapple with the pandemic, political instability, oversupply situation as well as the paradigm shift from traditional offices and retail to working from home and online shopping respectively.”

Foo believes that the local real estate market is undergoing a major realignment and Malaysians will need to learn how to manage Covid-19 on a permanent basis. “The Malaysian real estate scene can be affected or ride above the pandemic waves, depending on the government policies to normalise operations subject to observance of the required SOPs (standard operating procedures),” he says.

“A slower growth of the Malaysian economy is expected, primarily due to the ineffective government policies to manage the pandemic rather than Covid-19 itself. There will be more property overhang in the market as the affordability gap increases with decreasing household income.”

Meanwhile, Malaysia finally announced last Thursday that it would reactivate applications for the Malaysia My Second Home (MM2H) programme beginning in October, but with much stricter criteria. These include an increase in fixed deposit to RM1 million from between RM150,000 and RM300,000; higher monthly income from overseas of RM40,000 from RM10,000; and RM1.5 million in liquid assets compared with RM300,000 and RM500,000 previously.

Will the latest move have an impact on the local property scene?

Siva is of the view that while every investment opportunity should add up, “it [property investment from MM2H] is so insignificant in terms of numbers that is not going to make a difference to the property market in the grand scheme of things”, he says.

 

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