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Cash-rich investors to emerge big winners in 2016 Cash-rich investors to emerge big winners in 2016
Share this on WhatsAppBY Chris Prasad Halfway into the year and we are beginning to get a clearer picture of where market trends are... Cash-rich investors to emerge big winners in 2016
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BY Chris Prasad

Halfway into the year and we are beginning to get a clearer picture of where market trends are heading. At the onset of 2016, property investors were bombarded with an onslaught of predictions, many offering contrasting perspectives, which did more to stoke uncertainty rather that allay fears.

As we head into the second half of the year, we are now armed with numbers that provide a more accurate narrative, and the story they tell is those who predicted this year would be worse than the last were right on the money.

Other predictions that are beginning to ring true are facts such as higher loan rejection rates, sustained high prices for housing, a drop in property transactions and diminished foreign investment interest.

Ironically, all of the above culminate to lend credence to another potential outcome of the current poor market scenario that only a handful of astute market soothsayers managed to predict: that cash-rich investors will be the big winners in 2016.

Among those who spotted this likely outcome early are property gurus such as Rachel Lim and Michael Tan, who shared this view at the “Unleashing Your Wealth” property summit late last year.

“Many of the units completing this year started in 2013, where the Developer Interest Bearing Scheme (DIBS) sparked a big wave of speculators who bought properties expecting to flip them upon completion. In 2016, with tightening loans, rising interest rates and demand dropping like a rock, these speculators are now in a desperate position,” the pair said in a joint article posted on www.coreinvestors.asia.

Strict loan regulations continue to price many out of the market, giving those with fiscal strength the upper hand.

Strict loan regulations continue to price many out of the market, giving those with fiscal strength the upper hand.

“Some of them may have bought multiple units only to find no buyers even at break-even price. To avoid bankruptcy, some of them are going to choose to sell much lower below cost. This is why cash-rich and savvy sub-sale investors can find really good deals in the market now.”

Another factor that will be playing into the hands of those with deep pockets is many developers are currently freezing new projects to clear their backlog at attractive prices. While this point seems like good news to all bargain hunters, the truth is only a few are likely to benefit. This is because banks have tightened up on loans and recent reports show that only 50 per cent of loan applicants (that’s one in two) are getting their loans approved.

This means those who can dish out a greater sum up front are at an advantage, and are likely to face very little competition from a vast majority of home seekers – which, in turn, further boosts their bargaining position.

It is important to note that while bargain prices are attainable for completed projects, it is highly unlikely that prices will drop for new and upcoming projects. This has been adamantly argued by the Real Estate and Housing Developers’ Association (Rehda), which has taken great pains to consistently point out to those clamouring for lower prices that inflationary factors and rising cost of building materials make this goal extremely hard to achieve.

The rising cost of construction material has made it difficult to keep prices down.

The rising cost of construction material has made it difficult to keep prices down.

Despite some misled predictions, it is very likely that prices will continue to go up. Rehda has said that while falling demand will certainly reflect on prices, this will be negated by rising construction costs, the devalued ringgit, rising land prices and the impact of GST implementation.

Coupled with the inability to secure a loan, many would-be buyers will continue to be priced out of the market, leaving those with fiscal strength spoilt for choice.

Local commentators have also pointed out that much of the current inertia in the market is due to buyers waiting in the wings for the predicted price drop. Unfortunately, many might have waited too long, and it has now become harder for them to secure a purchase.

Another prediction that has not come to pass, say market observers, is the supposed influx of foreign investors. This was expected following the dramatic drop of the ringgit, but larger global economic forces and the perceived political instability in Malaysia may have played a part in its absence.

Furthermore, international property news portals such as globalpropertyguide.com observe that while Malaysia remains an enticing investment option, international investors generally wait for signs of recovery before committing to a foreign market.

International investors are clearly in a “wait-and-see” mode, despite the fact that Malaysia continues to be identified as being among the Top 10 markets in Asia with booming house prices by leading global property firms such as Knight Frank LLP.

However, such reports are also accompanied by a note of caution, saying that the market here has begun to slow and is now rising by less than 6 per cent as opposed to the 8 per cent it enjoyed the previous year.

“The slowdown has followed a series of measures taken by the government to dampen the market, including doubling the minimum price for offshore buyers (RM1 million) and a big hike in the real property gains tax,” stated one report.

Again, this provides local cash-rich buyers with an advantage, as they are now able to snap up the plush properties targeted at foreign buyers without the inflated premium price tags.

Real estate agents also note that while foreign investors are waning, the expatriate workforce in the country remains sizeable and many short- to mid-term consignees will be looking to rent properties of this calibre, which bodes well for those who own them.

Foreign buyers are shying away.

Foreign buyers are shying away.

On the subject of rentals, another prediction that has yet to materialise is a drop in rental rates due to economic difficulties. While some landlords could be forced to drop rental rates in order to secure tenants and repay banks, many are holding out because they anticipate that the lack of buying power will push many home seekers towards the rental market, say property agents active in Kuala Lumpur area.

“In general, we find that those who have managed to secure new properties, and are not pressured by financial burdens, are also securing reasonable rents. This is because new properties sit higher up on the demand curve and those who saved up to buy a home but did not make the cut are now willing to spend that money on a comfortable rented property,” said a real estate negotiator from a prominent firm that declined to be named.

He also pointed out an unfortunate twist to this situation, with regard to incoming supply of new properties.

“We read that some property developers are making a genuine effort to launch fresh products that cater to medium income buyers. Despite the lower price on offer, banks remain stringent on loans and will favour those who can put up bigger downpayments. These units will be snapped up a lot faster by those with stronger cash power, who will subsequently rent it out to those without.”

Justifiably so, he observed that a sad outcome of the current economic downturn could be that the “rich will become richer, and the poor will become poorer”.

 

Property 360 Online

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