BY Chris Prasad
KUALA LUMPUR – A marked downtrend in market activity over the past two years has had a substantial impact on the property sector, but despite the subdued market performance and a noticeable drop in transactions, residential property prices have continued to rise – albeit at a slower pace.
While this may not spell good news for many homeownership aspirants, it does reflect positively on the overall health of the property market. In Malaysia, property remains a favoured vehicle for investment, wealth accumulation and wealth preservation, and the continued prospects for capital appreciation bodes well for those who already own property and for those who are about to.
“Everyone worries about rising values until they actually buy a property, then they worry about the opposite,” said veteran property investor B. C. Tiang who has been active in the market since the mid-1980s.
“Rising values is a good thing. If you just want a roof over your head, then you should be arguing about rental costs, but Malaysians want to buy property because they want to preserve their wealth and hedge against inflation.
“We shouldn’t be worried about capital appreciation as much as we should be worried about the availability of adequate mortgage financing and the provision of more affordably priced housing so that more people can have access to homeownership,” he said, pointing the finger at the current strict loan regiment of banks and the inadequate supply of lower priced units.
In its summary of the previous year, the Finance Ministry’s Valuation and Property Services Department (JPPH) said KL’s property market had moderated as a result of softening activity in the construction sector.
Market activity across all sub-sectors was on the downtrend, preceded by commercial (-15.0 per cent), industrial (-8.7 per cent), residential (-8.3 per cent) and development land (-6.6 per cent).
However, even as transactional activity continues to take a hit, land values continue to grow. In fact, the only sub-sector that showed positive growth in transactional activity last year was the development land sub-sector which registered an incline of 43.1 per cent.
Similarly, due to limited supply of landed properties within the city, residential properties in prominent and established areas continued to enjoy positive capital appreciation. By contrast, stratified residential units have put in a mixed performance, ranging from relatively static growth for ageing buildings to rapid appreciation for those located close to LRT and MRT routes.
In 2015, the All House Price Index for KL stood at 277.0 points, rising by 6.4 per cent over 2014. The average all-house price rose to RM734,957 (Q4 2015) against RM690,541 (Q4 2014) in the previous year.
Director-general of JPPH Datuk Faizan Abdul Rahman has said that property prices will continue to climb in 2016, but at a slower pace.
“We are still seeing increases in house prices at around 5 to 6 per cent. So, it is still increasing, although at a lower rate,” he said at the Malaysia Property Summit in June this year.
At the same summit, most of the property experts in attendance agreed that the “numbers” look disturbing now only because the property market had been spoilt with double-digit growth since the mid-2000s. Back then, the steady stream of foreign investors encouraged banks to ease their lending regulations, which ultimately caused prices to spiral upwards.
Ironically, to stem that tide, banks have now tightened up and their strict lending guidelines have resulted in loan approval rates of slightly more than 50 per cent.
This situation has had a palpable impact on the secondary market and real estate agents are reporting a marked drop in house buying interest.
“Demand for housing is still strong, but I think many are being put off by the huge hurdle of getting a loan. Add this to the fact that the RPGT [Real Property Gains Tax] rate is high, and what you have is a situation where sellers are thinking twice about selling and buyers are thinking twice about buying,” said a property agent active in the Subang Jaya area.
He added that in the secondary market, this will have an effect on prices, as those desperate to sell because of the poor economy may begin to budge on prices.
“However, this shouldn’t be seen as prices falling in the secondary market. We must remember that much of the asking prices we’ve seen thus far are overinflated, far above the bank valuation of the property. So if the current situation is prolonged, we could see some recalibration of asking prices that will be more realistic in comparison to the bank valuation,” he said.
For the most part, many property owners are expected to hold on to their properties rather than bring down the price to facilitate a sale.
For property owner M Perera, this isn’t just a question of maximising profit from an investment, without capital appreciation home owners would find it hard to break even.
“We are not just talking about inflation here. Don’t forget that by the time you finish paying a home loan, you haven’t just covered the price of the house, you’ve also paid a considerable sum towards interest. In most cases, your total investment could amount to more than 50 per cent of the initial house price… and these are things most property owners will take into consideration before selling the house,” he said.
Indeed, government statistics show that overall real estate investments have dropped by 70 per cent, but industry stakeholders agree that so long as prices continue to grow, property will remain a key investment target for Malaysians and there will likely be another boom on the cards as soon as the macro economic situation improves.