The ideal time to buy and rent
Sonya Ramachandran 
The softening of the residential property market has resulted in a large supply of homes
With the slowdown in the property market, many property experts suggest this may be the best time to buy or rent properties due to the lower prices and rentals offered.

While that may generally be the case, there are certain areas which are bucking the trend and holding up well. For example, Mutiara Damansara in Petaling Jaya and Taman Tun Dr Ismail in Kuala Lumpur have seen home values increasing, and there seems to be no noticeable drop in rentals.

So is it really a buyer’s market now?

The large supply of residences in the market makes it a buyer’s and renter’s market, says Tang

Henry Butcher Real Estate Sdn Bhd chief operating officer Tang Chee Meng says it is both a buyer’s and renter’s market at the moment in all states due to the large supply of homes.

“The primary as well as secondary residential markets have softened as can be seen from the statistics compiled by the National Property Information Centre (Napic),” says Tang.

“Sellers are now more willing to negotiate on the price to close a sale as compared to a few years ago when the market was still hot.

“Occupancy rates in some areas have declined and rentals have softened.”

Tang adds that real estate negotiators (RENs) have complained that advertisements for sales and rentals are drawing fewer enquiries and that it has become harder to close a sale or tenancy.

High vacancy rate

Royal Institution of Surveyors Malaysia honorary secretary-general Lim Choon Yong also feels it is both a seller’s and renter’s market.

The environment of oversupply, high vacancy rates and poor sales favours tenants, says Lim

He says that while it is generally a tenant’s market, this would depend on the sector, segment and location. “From our observation, the high vacancy rate is one of the indications.”

He adds that the poor market sentiment over the last couple of years has led to a situation where developers are offering high rebates, discounts and freebies. “These contribute to favouring a buyer’s market,” says Lim.

Square Feet Real Estate team leader and REN coach Ganesh Ramanathan foresees it will continue to be a buyer’s and renter’s market for the next three years.

Ganesh foresees the buyer’s and renter’s market to continue for the next three years

He says this situation has enabled people to buy properties at lower prices and renters to rent brand-new or newly renovated properties at prices comparable with older properties.

He suggests a number of renters are business owners who are not doing well and who have sold their properties, amortised their cash flow and are renting instead.

“These people do not want to compromise on their lifestyle and want to rent in an upmarket area. In the current situation they are able to get value-for-money rentals,” he says.

Ganesh observes it is a unique market segment because many landlords aimed for expatriates which was the “traditional renter’s market”. However, due to the slump in the oil and gas sector, this scenario has changed.

He says many areas in Petaling Jaya and the Kuala Lumpur city centre have seen prices drop by between 10% and 15%. The resulting buyer’s market has seen more genuine buyers purchasing for their own occupancy.

Tang believes it will continue to be a buyer’s and renter’s market as far as residential property is concerned, until the property market picks up “probably in the second half of next year”.

Lim feels the renters’ market will continue at least for the next two to three years even if the primary market has recovered.

Office space oversupply

He says the existing supply of purpose-built offices in the Klang Valley stands at 126 million sq ft, of which 88 million sq ft are located in Kuala Lumpur. “There is a huge incoming supply in the next couple of years. Average occupancy stood at slightly less than 75% and is under tremendous pressure,” he says.

Lim points out that the oversupply of office space is dampening the market, and the vacancy rate is on the rise.

“Landlords are offering better and attractive tenancy terms such as longer ‘rent-free’ periods for renovation to new tenants and better deals for existing tenants to renew their tenancies,” he adds.

For the residential sector, he says the situation varies depending on the location and market segment. “Projects nearer to public transport systems such as the Mass Rapid Transit (MRT) and Light Rail Transit (LRT) stations received good support.

“In other markets the demand for similar properties may be different,” he says.

Lim notes that the current market demand is for affordable housing. “Hence, higher-priced residential units are a challenge in the primary market. This in turn contributes to the overhang situation,” he says.

In “overhang” situations, owners or landlords will be pressured to have the units tenanted as fast as possible, he says.

Advertisements for sales and rentals are drawing fewer enquiries, real estate negotiators lament

The DIBS effect

“It does not especially help that the effects of the Developer Interest Bearing Scheme (DIBS) are beginning to be felt by the market. Many units are beginning to flood the market and are facing difficulty getting tenants,” he says.

DIBS was introduced in the first quarter of 2009 and banned on Jan 1, 2014. It is a scheme where the developer pays the interest on the buyers’ loans during the construction period.

Lim says the good sales of properties after DIBS was introduced caused more investors and speculators to enter the market from 2010 to 2014.

“As a result, more and more developers built with the price increases ensuing. Many of these units are now completed or near completion.

“The sudden influx of units purchased by investors and speculators into the market is quite worrisome,” he says.

Some ready to cut losses

He points out that due to the cheap loans available, the supply added into the primary market are largely high-end properties.

“These higher-end units targeted expatriates in the rental market. However, the entry of expatriates has dwindled over the last couple of years due to the poor performance of the O&G sector and cost-cutting measures by corporations.”

The difficulty in finding tenants is a common complaint besides low yields, and many investors are willing to cut losses now, he says.

Lim notes that the number of loan applications for residential purchases has been on the downtrend since 2014 to 2016, at the rate of -6.9%, -10% and -18.4%, respectively. “This year is expected to be the same,” he says.

He adds that transactions in terms of volume have also seen a similar trend, dropping from 384,060 transactions in 2014 to 320,425 last year.

He says that in the primary market, the sales performance of residential properties recorded by Napic indicates a declining pattern with 2016 managing only 31.4%.

“In the Klang Valley, the overhang units increased by 82.5% last year from the previous year. The recorded overhang last year was RM8.56 bil in value,” he says, adding it is estimated to hit RM10 bil this year.

Thus, Lim says the current market conditions of oversupply, high vacancy rates, poor sales and high overhang numbers favour tenants.

Ganesh adds that rentals have not increased in tandem with inflation. “It is also a renter’s market because landlords will be desperate to rent out their properties, and they will rent them out as quickly and as cheaply as possible,” he says.

Opportunities galore

On why he thinks this will persist for the next three years, Ganesh says it is because of the “economy, stringent financing and the oil and gas sector”.

Another reason is the liquidated ascertained damages (LAD) compensation received by purchasers from the developer for late delivery. “This in turn allows the purchasers to sell their units at between 10% and 15% below market value,” he says.

Ganesh adds that the influx of new properties will also lead to a drop in prices.

“There are many new developments due to receive vacant possession in 2018 and 2019, so there will be an influx of new properties in the sub-sale market.

“If the holding power is not there, the owners will try to push the properties cheaper in the market,” he says.

“That is why I anticipate that people with money will be able to buy a lot of undervalued properties in 2017, 2018 and 2019.”

However, it is not all gloom and doom. Certain areas are seeing price and rental increases despite the softer market.

You could get a double-storey terraced house in Bandar Sri Sendayan in Seremban, Negeri Sembilan for about RM250,000 in 2012. Today, they fetch over RM500,000.

Rentals are also in the range of RM800 to over RM2,000 in this township despite the huge supply of ready homes for rent as well as an incoming supply of new ones.

PPC International managing director Datuk Siders Sittampalam says areas like Bandar Sri Sendayan are seeing increases in prices and rentals because it is a “huge township which is still at its infancy stage”.

“It is a very well-planned scheme and it will soon become another focal point of growth. Buyers are taking advantage of the reasonable prices because you can’t get that kind of price for a well-planned new scheme.

“If you are looking for landed property in a very well-planned township development, you are bound to see capital appreciation in a matter of time,” says Siders, who is also immediate past president of the Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia.

For comparison, Siders says rentals in areas such as Mutiara Damansara in Petaling Jaya are more constant because it is a mature housing scheme.

Lim concurs. “In the case of Mutiara Damansara, it is a well-established self-contained township connected by a good network of roads and expressways, with the latest being the MRT station.

“The township is almost fully built and land is scarce,” he says.

Ganesh, however, says rentals in Mutiara Damansara have actually gone down. “The rentals are stagnant. They have not increased.

“House prices in areas such as Mutiara Damansara and Taman Tun Dr Ismail have gone up but rentals have not, which does not co-relate with inflation as rentals should rise with the value of the property, which they haven’t,” he says.

Henry Butcher’s Tang argues that residential prices and rentals in Seremban are at a lower base level compared to those in Kuala Lumpur so there is scope for prices and rentals to go up.

“Secondly, there are not as many modern well-planned townships in Seremban compared to the Klang Valley. So townships like Bandar Sri Sendayan, which has facilities like international and national schools, clubhouse with a full range of recreational facilities, besides parks and a well-landscaped environment, are able to maintain higher prices and rentals compared to other less well-planned areas in Seremban.

“In the Klang Valley, prices and rentals have already gone up quite high. So, in a soft market, there is downward pressure on prices and rentals, especially in areas where there is a high percentage of investors compared to owner-occupiers,” says Tang.

Data tell a different story

PPC International managing director Datuk Siders Sittampalam feels there is currently neither a buyer’s or renter’s market.

“The market is consolidating and being predominantly flattish over the last couple of years, the volume of buyers declined significantly as shown by the National Property Information Centre (Napic) data.

“Developers were deferring or reducing the scale of development with regards to new launches so new supplies dropped subsequently and the supply in the renter’s market also declined,” he says.

However, Siders points out that even though the supply decreased, it did not have any impact on the rental market, except for the high-end segment.

He says the demand for housing would depend on price and access to financing. “If you look at loans applied versus loans approved since Bank Negara introduced the responsible lending guidelines sometime in 2012, loans approved were only in the region of 40-50% from 2012 until the first quarter of this year,” he says.

Siders points out that although it has been said it is a good time to buy since the market has cooled down, the data show otherwise. “Data for last year show no notable drop in values, which means we still cannot call it a buyer’s market.

“Although the volume of sales dropped, prices did not drop,” he says, adding this is predominantly so for the Klang Valley, Seremban, Johor and Penang.

However, Siders points out there were slight declines in prices with the high-end market seeing a decline in capital values. “Houses below RM500,000 or RM600,000 did not see much of a drop in value,” he says.

He says it is not a buyer’s market “simply because of the stringent lending requirements”.

“Even if there is demand, it is not an effective demand because you probably may not qualify for a loan.

“And the market has not seen any ‘fire-sale’ where you see desperate selling because the seller is in desperate need of money and so on, or a ‘free fall’.

“All these indicate that the market is still holding up well,” he says.

Siders’ take is that the market will not see an upsurge in prices as happened in the past years. “This will not be the case in the near future because what we will see will be a more organic growth in values supported by fundamentals and so on.”

However, he does see a renter’s market in the future. “If rentals don’t grow in tandem with prices, then it eventually becomes a renter’s market.

“And with the market having a very gradual growth rather than a sudden surge as far as prices are concerned, then it will eventually become a renter’s market because you won’t get many investors or speculators coming in and buying properties.

“So there will be no rush to buy,” he says.

This article first appeared in Focus Malaysia Issue 248.