Will 2020 be a recovery year for the property sector?

THE current sluggish housing market does not appear to pick up anytime soon. In fact, the outlook seems rather uncertain for the Malaysian property industry.

Sime Darby Property Bhd acting group CEO Datuk Wan Hashimi Albakri Wan Ahmad Amin Jaffri says the local property market is still consolidating but there are indications to suggest that the market is responding well to supporting measures introduced by the government in 2019.

“We will see several property-related measures to improve the current supply and demand mismatch in the sector next year (year 2020) with the National Housing Policy, adjustments to the Real Property Gains Tax (RPGT), lowering of the threshold for foreign buyers and government financing schemes like the Rent-to-Own (RTO) scheme for first-time homebuyers.

“With the help of the Home Ownership Campaign (HOC), property developers were able to open to a bigger group of first-time homebuyers and upgraders, which in turn helped to reduce inventories,” he tells FocusM.

Young working adults of low- and middle-income brackets would have options to buy or rent then own their own home with supporting schemes like the Youth Housing Scheme administered by Bank Simpanan Nasional.

In fact, the federal government provides the RTO scheme for those who are unable to afford the initial 10% deposit and access financing to buy their first home, Wan Hashimi says.

“The initiative to assist youths and first-time homebuyers will leave a positive impact on affordable housing projects in Malaysia.

“It will also help to reduce inventories for projects and encourage developers to do their part in providing housing for low- to medium-income earners in the country,” he notes.

Stimulating the property market 

Most property experts and players expect the soft market conditions to continue into 2020 with affordability and a property overhang remaining as the major issues. However, opportunities still exist for the discerning buyer and investor.

There are 80% of housing loan rejections as of June 2019, mainly due to houses being priced more than three times the applicant’s annual income ratio, according to Bank Negara Malaysia.

This was due to the lack of awareness of the home loan application process prevalent among prospective Malaysian homebuyers, especially those who are buying for the first time.

Other reasons for housing loan rejections include lack of repayment capabilities, unfavourable credit score, banks’ diverse risk appetite and other financial commitments that may affect the success rate of the loan application.

iProperty.com Malaysia Sdn Bhd general manager David Mawer says one of the main issues faced by many Malaysians is on fully understanding how to successfully secure a home loan.

“We have a lot of young people who are just starting out their careers, and even for those aged 30 and above, there seems to be little awareness and education on the home loan application process, which ultimately means that it’s a challenge for a lot of Malaysians to purchase a home,” he says.

Based on the property portal’s findings, only 43% of iProperty users are familiar with debt servicing ratio (DSR) and how it affects their home loans.

Earlier last year, iProperty had conducted a survey concerning the subject of home loans. The two biggest consumer demographics in Malaysia, the B40 and M40 groups, revealed that their biggest home purchasing challenge is to successfully secure a home loan.

The B40 group found the loan application process to be the most important and difficult whereas the M40 group indicated that it is the most difficult task.

“The concept of DSR is new to many people. Often, they don’t understand that each bank has its own DSR benchmarks. The DSR shows how much of a person’s income is used to service debt instalments and is represented as a percentage,” says Mawer.

The downside of not understanding it, he says, is when people enter the market without the education, their home loan applications may get rejected by banks. This might delay or discourage them from purchasing a house.

Macroeconomic factors and the road ahead 

Property Guru International (Malaysia) Sdn Bhd country manager Sheldon Fernandez says mixed macroeconomic indicators also point towards a lacklustre year ahead for the property.

“The US Federal Reserve cut interest rates three times in 2019, with Bank Negara following suit in May and analysts projecting another potential cut mid-2020.

“These moves have the effect of creating positive interest rate environments at home and abroad. This is conducive to home purchases in the short term, with prospects for capital appreciation in the long run, as cheaper loans drive property prices up,” he says.

In addition, an influx of interest from regional purchasers may cause an upswing in sentiment for the near future, driven by unrest in other markets such as Hong Kong, as well as relaxed foreign ownership guidelines laid out in Budget 2020.

However, these positive factors are balanced by the ongoing US-China trade tensions and their consequences for global economic expansion.

In particular, slowing growth in China and escalating trade tariffs may dampen global value chains, with spillover effects for markets with high exposure such as Malaysia.

According to Kenanga Research, the ringgit remains volatile as well to-date, trading at an average of RM4.18 to the US dollar as of Dec 4,  with a target of RM4.20 to the dollar by end-2019.

It says this volatility, along with socio-political uncertainty as the euphoria of Malaysia’s 14th general election fades against a backdrop of increasing dissatisfaction, would have a negative impact on investor appetites – again, with the exception of Johor, which has seen optimal investment numbers to date.

“Moving forward, we anticipate proptech and fintech to play larger roles as international trends find their way to local shores and industry stakeholders seek to differentiate themselves in a heated market.

“Deloitte, for example, has reported in its 2020 Commercial Real Estate Outlook that it’s no longer about ‘location, location, location’, but ‘location, experience and analytics’,” says Fernandez.

Marginal uptick

According to the Valuation and Property Services Department Malaysia (JPPH), the property market performance recorded a marginal increase in the first half of 2019 (1H19) compared to the same period last year.

The property sector recorded 160,172 transactions worth RM68.3 bil in 1H19, an increase of 6.9% in volume and 0.8% in value compared to 1H18 which recorded 149,862 transactions worth RM67.74 bil.

The residential property continued to support the overall property sector with 62.4% market share, followed by agriculture property with 21.6% share.

CCO & Associates (Selangor) Sdn Bhd CEO Chan Wai Seen says the country’s gross domestic product (GDP) is expected to grow at 4.7% in 2019 and 4.8% in 2020. The growth rates are about the same as the 4.7% growth rate in 2018.

“At these growth rates, the general property market sentiments are expected to remain stable in 2020. Uncertainties in the economy, namely high household debts, inflation (due to the impending withdrawal in the fuel subsidies) and the decline in exports (trade war) will prevent any significant improvement in the property market.

“Overall, the property market in 2020 is expected to remain steady,” he opines.

Chan adds that most of the existing RTO scheme is planned based on certain assumptions. For instance, when the tenant/buyer’s income increases, the property prices will increase simultaneously in the future.

“However, the RTO may fail if these assumptions do not materialise and may create more financial hardship to the participants.”

Demand starts picking up for affordable house 

Mah Sing Group Bhd founder and group managing director Tan Sri Leong Hoy Kum says as affordability remains the key focus in homeownership today, there is a rising demand from buyers for affordably priced products of good quality in the city centre.

Projects within the affordable segment in the city centre are highly sought after in view of its prime location as it provides home-seekers with the prospect of having easy access to ready amenities and infrastructure, coupled with strategic access to highway connectivity and transportation hubs, he tells FocusM.

“The growing interest seen in the market, especially in the affordable segment, has returned buyers’ purchasing confidence.

“We are still positive on the property outlook as Malaysia has a large young population with 69% of its population being below 40 years old,” he says.

According to Leong, these people have a higher demand to buy property, especially those who are starting a family.

He says the medium- to long-term outlook will continue to be strong for property buyers who are buying to own or for long-term investment.

Property has always been one of the preferred investment options for Malaysians as it is among the most secure forms of capital outlay and a good hedge against inflation, adds Leong.

The incentives from the HOC/stamp duty exemption and waivers, which were extended until Dec 31, 2019, are also an impetus to assist and encourage homeownership.

“We hope that the property market will continue to be resilient and we welcome any other new initiatives that can encourage homeownership and address the demand for affordable homes.

“We believe that properties in the affordable range and at good locations are still seeing good demand. Hence, we will continue to roll our affordably priced quality projects in strategic locations to meet the market expectations.”

In a recent JPPH report, it says the property market is expected to remain resilient moving forward.

The report said the growth is underpinned by the strong GDP growth of 4.9% in the second quarter of 2019 and several government-driven initiatives to further support the market activities in the housing sector.

It said affordable housing and finding the right solutions to property overhang continue to be the government’s main agenda of the government. The launching of the National Housing Policy 2.0 (2018-2025) and the incentives introduced in HOC 2019 are expected to help improve homeownership among Malaysians and the residential overhang situation in the coming half-year.

The expected strong GDP growth, lower borrowing cost, HOC and other housing incentives for first-time house buyers, the new rate for RPGT on the disposal of properties after five years and the increase in stamp duty rates from 3% to 4% for transfers of properties valued above RM1 mil are anticipated to have a direct and indirect impact on the property sector.

Given time, the property sector will undergo market adjustments and corrections accordingly, it adds.

[box] Rental market still in demand

Generally, many homeowners are reluctant to rent out a house to foreigners, but the local community is full of foreigners. Many of the tenants are foreign students. If the agent or online platform can check the tenants’ background and provide them with quality tenants, most homeowners will change their mind.

Some of the high-rise residential properties that are located away from the city centre such as Setia Alam, Kota Kemuning and Puncak Alam have low rental yield growth or rental rate performance.

However, Speedrent Technology Sdn Bhd CEO Wong Whei Meng believes the rental market will gain its momentum in 2020.

“The main reason is that most of these properties belong to the township project and the population development of the community is not yet mature.

“The homeowners who buy houses for investing need to wait. It takes time.”

Wong says there are nearly eight million people living in the Klang Valley and the demand for housing has been increasing. The rental performance is not as bad as everyone thinks

“According to our data, eight out of the top 15 areas we serve have had positive rental growth.

“The region with the highest average rent is still the most popular among foreigners – Bangsar, Mont Kiara/Dutamas and KLCC. The average rent is between RM1,700 and RM1,900.”

Among them, the average rent of KLCC rebounded, growing by 8% year-on-year. The second-highest increase in rents is in the Old Klang Road area. It is believed that it’s due to the fact that there are new office buildings in the area and white-collar workers working nearby are willing to pay higher rent.

Meanwhile, areas with poor average rental growth on the platform include Kepong, Ampang and Bangsar. One reason for the low rent in Kepong could be that nearby tenants had moved out because of the traffic jam caused by the MRT project. Ampang’s poor average rental growth is mostly due to the age of the residential supply on the platform.

For mature communities like Petaling Jaya, the average rental growth has been good in the region with a minimal rent of RM1,500.

Generation ‘rent’

The millennial generation is sometimes called “generation rent” for their inability to purchase properties. According to CCO & Associates (Selangor) Sdn Bhd CEO Chan Wai Seen, there will not be a problem for this generation to rent for the time being since buying properties involve long-term commitment.

“Once the buyers defaulted on the loan, their financial track record across the banking system in the country may be affected. Buyers should only buy when they are financially ready.”

Chan, however, remains unimpressed with the new measures introduced during Budget 2020.

“There is no significant measure being introduced to address the affordability of properties in Budget 2020. Many measures announced in the past budgets are politically driven and did not effectively address the affordability issues.

Nevertheless, he says [email protected] is a good initiative to increase household incomes, which could translate into demand for properties in the medium to long terms.

[email protected] is an initiative that is aimed at creating better employment opportunities for youths and women.

Chan adds that Malaysia has yet to live up to Vision 2020.

“Based on my observations and conversations with people on the ground, the standard of living of most Malaysians have not improved up to the level of Vision 2020. Generally, the social safety net in the country continues to be lacking,” he says.[/box]

 

[box] Price trends and projections for 2020

Perhaps the clearest indicator of market sentiment is seen in pricing movements moving into 2020. According to the PropertyGuru Market Index (PMI) 3Q19, the asking prices for properties across the board declined in three out of four major markets in Malaysia, namely Kuala Lumpur, Selangor and Penang.

It says the overall prices in Malaysia declined 0.9% year-on-year (yoy) in the third quarter, with Penang leading the contraction with a 1.5% quarter-on-quarter (qoq) decrease in its PMI from 94.8 to 93.4 in 3Q19. Johor was the only domestic market that exhibited no decrease in its index; however, it also failed to showcase growth, with a static PMI of 98.5 in the third quarter.

“With the exception of Johor, these downticks in asking prices are representative of downward movements in longer-term trend lines across key markets since 2015.

“While asking prices aren’t necessarily interchangeable with transaction prices, they serve as benchmarks for seller sentiment and, as such, point towards moderate prospects at best for 2020,” says Property Guru International (Malaysia) Sdn Bhd country manager Sheldon Fernandez.

Industry analysts attribute the falling prices to adjustments on the part of developers to clear unsold stock and ease cash flow, along with downward pressure from the HOC. Buyers with sufficient leverage can take advantage of the current market to expand their portfolios.

Johor, for example, is an attractive destination for investment, with the caveat that prices there have seen marked volatility in recent years due to supply and policy shocks.

With this in mind, thorough consideration of existing property types and incoming demand in the area is necessary, before venturing into the market.

Property seekers in markets such as Kuala Lumpur and Selangor can hedge their bets by examining purchasing sentiment.

According to the PropertyGuru Consumer Sentiment Survey 1H19, Malaysians are increasingly open to purchases in the secondary property market.

This is attributed to locational preferences, with younger home seekers prioritising older projects close to established urban centres, instead of new launches further afield.

As such, mature satellite townships like Petaling Jaya, Subang Jaya, Damansara, Shah Alam and Cheras offer better prospects for investors, though affordability will remain a concern for home seekers.

JPPH’s report shows that Kuala Lumpur has Malaysia’s most expensive houses, with an average price of RM786,800, followed by Selangor, at RM479,894, Sabah, at RM452,965 and Sarawak, at RM440,515.

The cheapest housing in Malaysia can be found in Kelantan, Perlis and Melaka, with average prices of just less than RM200,000.

Knight Frank Malaysia Sdn Bhd residential sales and leasing associate director Kelvin Yip expects to see more motivated sellers and discerning buyers be present in the residential market.

“Malaysia’s residential properties will continue to be attractive in the eyes of foreign buyers as a result of our liberal policies, reasonable valuations and no extra stamp duties,” Yip adds.

CCO & Associates’ Chan says after three consecutive years of decline, the property transactions in the country stabilised in 2018.

“The property market is expected to improve this year. Barring any unforeseen circumstances, we expect the market to continue to consolidate in 2020. The high household debts will continue to limit the growth in the property market, for instance – spending powers and banks will continue to be cautious in approving loans.”

To address the issue of overpricing for property prices, one of the possible ways to encourage developers to develop affordable properties is to increase the plot ratio or development density for the land.

Chan says high-density developments need to be supported by adequate infrastructures. The government needs to address the core issues such as land prices, development costs, density/plot ratio, infrastructures and more.

Reducing property overhang

During the tabling of Budget 2020, the government lowered the threshold on high-rise property prices in urban areas for foreign ownership from RM1 mil to RM600,000 in 2020.

It was earlier reported that Housing and Local Government Minister Zuraida Kamaruddin says the threshold of RM600,000 only involved 3,938 unsold units of such residences.

“This is only valid for one year, from January to December next year (2020) for apartments and condominiums in the city.

“It also applies to completed houses. There is speculation that developers will build more houses (for foreign buyers). It will be ridiculous if the National Housing Department were to approve the matter,” she was quoted as saying in the news report.

She said the implementation is hoped to restore some of the developers’ financial position to help ease their cash flow so that they could continue to be involved in the construction of affordable housing.

Finance Minister Lim Guan Eng announced during the tabling of Budget 2020 that the government will help reduce the bulk of RM8.3 bil worth of unsold condominium and apartment units by 2Q19.

Zuraida also urged all parties not to worry as the total homeownership by foreigners for the January to June period was very low, at 398 people (0.4%), compared with Malaysian ownership of 99,524 people (99.6%).

CCO & Associates’ Chan says the lowering of the threshold prices will provide opportunities to monetise the oversupply units and create cash flows in the market. Some developers in Malaysia have adapted to the latest market trend and will capitalise on this opportunity to dispose of these overhang properties.[/box]

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