Will the property market crash this year?

By Sharina Ahmad

THE property market in Malaysia is expected to face challenging times due to the Covid-19 pandemic. How huge will the impact of the crisis be on the local residential property market? Industry experts were mixed on the matter.

“Covid-19 is the ‘shock catalyst’ which has been, and is, accelerating the downward debt spiral all around the globe. We are near a recession and this means, unfortunately, asset prices will fall.
“We have been seeing the Kuala Lumpur Composite Index (KLCI) moving consistently down for the past several weeks. The property sector might be performing a bit better, though,” REI Group CEO Dr Daniele Gambero told FocusM.

He said this was due to the fact that Malaysian property prices were “abundantly downrated” compared to neighbouring countries (this is supported by the ratio resulting from a comparison between per-capita income and the average price of residential units as shown in the table below).

Noting that the Malaysian economy has already slowed, the situation was further worsened by the weak property market, weakening ringgit, falling crude oil prices, stock market selldown and political uncertainty. The worsening Covid-19 outbreak, which emerged last year in Wuhan, China, is taking its toll on the global economy.

“Asset values will drop, for sure, please don’t take it as a crash but look at it as an opportunity,” Gambero said.

Consulting firm Living Space Ventures Sdn Bhd managing director Ikhram Merican told FocusM that the current situation is not a breakdown in financial systems.

“The property market is not going to crash although everyone is heading into tough times. We may see a muted market but not a crash. It is not a financial crisis. We have a pandemic that has had the effect of restricting people’s movements and spending,” he said.

On the back of this, Ikhram said Bank Negara Malaysia (BNM) has offered the lowest interest rates in over a decade, a reduced Statutory Reserve Requirement (SRR) and introduced economic stimulus packages.

“I think once the pandemic is brought under control, pent-up consumer spending will be unleashed, bringing a rebound to economic normalcy,” said Ikhram.

He said based on previous outbreaks like the Severe Acute Respiratory Syndrome (SARS), people did not hold back on their spending for a whole year.

“With Covid-19, China is already reporting that it has no new locally transmitted cases for the first time. The temporary hospital it built in Hubei has been taken down. All this happened in under four months.

“These are good signs. People’s lives will quickly return to normal once the virus threat is under control,” he opined.

Nawawi Tie Leung Property Consultants Sdn Bhd executive director Brian Koh said all sectors of the economy will be affected.

“Not just property, every economic activity will be undergoing stress. Banks will try to manage non-performing loans (NPLs) by giving leeway but there will certainly be more forced (property) sales, maybe six to 12 months down the road,” said Koh.

He mentioned a lagged impact on property sales, especially in the secondary market. However, the primary market will see sales evaporate but pricing will hold as developers are generally well funded.

On a more negative note, Ernest Cheong PTL Chartered Surveyors consultant and senior partner Ernest Cheong said it is almost certain that the Malaysian property market will crash amid the Covid-19 pandemic.

“The question we now ask ourselves is: How severe will the crash be?” he said.

Cheong said the severity of the crash would depend on the contraction of the economy.

“The length of the partial lockdown per the movement control order (MCO) will determine the damage to the Malaysian economy. During the lockdown, all businesses except for those that provide essential services will shut down.

“Before the start of the Covid-19 crisis, almost 95% of Malaysian families were already living on a tight budget with no spare cash to buy property,” he said.

“With many of these families locked down for 14 days and maybe even 28 days, their family finances would further deteriorate. They cannot think of buying property for many years to come, at least five to 10 years.” — March 23, 2020

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