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Economic Anomaly: The Impact On Property Investment In Malaysia

The turbulence at the economic front has ignited a market slowdown, which has blazed across many industries. In addition, the financial realities, inflation and the turmoil that engulfed the country have also landed our people in the middle income trap, with practically stagnant growth in terms of disposable income. In such a bitter market, the investors will often avoid major decisions for instance, as yesterday’s top performers become tomorrow’s underperformers in a split second.

The government has presented the lofty Economic Transformation Programme (ETP) in September 2010. This programme supposedly would surge the nation upward via six Strategic Reform Initiatives (SRIs), with various the policies to strengthen the nation’s companies by introducing a cohesive ecosystem where the market players can keep growing and become competitive globally. The government’s role was to assist the programmes via funding, narrowing disparities, and cultivating skilled workforce to achieve the initial vision.

However, due to a series of missteps, the property development sector has found itself in a dire situation since a few years ago. Property Investor, formerly vice president 1 of Malaysia Property Incorporated (MPI), David Shieh Chong opined that, “Property development is one of the leading industries with high economic multiplier effect to the Malaysian economy” With active construction and property sales, jobs and values will be created in many other fields, such as manufacturing, architecture, consultancy, banking, logistics and many others. Therefore, a healthy property development with vibrant activities and sales contribute to the growth and is a catalyst to the economy.

TIME FOR PORTFOLIO EXPANSION

In contrast, he added, a slower economy would definitely impact buyers’ decision to invest, as prospective buyers would postpone or call off their purchases, as they prefer to secure a better career with a more stable earning capability first. Besides, with banks becoming increasingly reluctant to borrow the umbrellas during the rainy days,  the overall lower approval rate coupled with the lower loan margin approved (for example, just 70% of the home price, instead of 90%) will undoubtedly hurt the all the related industries as a whole.

On the prospect of property investment, David shared that, “Whether investment in properties strengthen or weaken someone’s financial standing in the soft and uncertain market today, ultimately depends on the goals and purposes of their investment,”. But in the long term, property investment is commonly acknowledged as a good form of savings with good opportunities towards capital appreciation, which over time when the loan is paid off will likely increase a purchaser’s net worth.

Also, if purchasers are skilful in bargain hunting for below market value deals, they more often than not can generate healthy cash flow and increase one’s net worth through asset ownership. Taken all the factors into consideration, David believes in the age-old adage of buying low and selling high. Therefore whenever market prices are low, it is a good time for prospective home buyers or investors to climb up the investment ladder, according to expert comments.

RESEARCH IS CRUCIAL

David estimated that market would stabilise with more offerings that suit the market’s appetite in the next two years to come. He also revealed that the best ways for investors to gain even during the attack of anomalies, is to understand and be clear about their ‘game plan’ and ‘timeline’. Never buy just because everyone else is buying, and never say ‘No’ to buying just because property investment may not be the ‘sexiest thing to talk about on making money now’.”

“I was having a chat with a friend on some launches recently, where purchasers are queuing just to get a unit. Nothing wrong with that as I believe many have done their research or have good justification for ‘queuing’ up,” said David. He advised the buyers to conduct their own research by comparing similar offerings around the area. To get a clearer view of the market performance, David believed that people must carry out long term research on the general areas of choices before deciding on the targeted areas.

Instead of simply searching for price per square foot, one should observe and analyse whether such units would be in demand, who would be the targeted tenants that would be keen to live there in the future, or whether there huge government-backed affordable housing schemes will be readily available within the targeted price range.

SOME QUESTIONS TO PONDER

David stressed there are currently a large supply of certain types units in the market, and upcoming developments would be sufficient in the next 2 years. For those who wish to invest, David asserted he believed in sub sales for the next 2 years, where a ‘lack of uniformity in prices’ is present clearly. In such a situation, different owners have different levels of motivation for selling, unlike the more uniform pricing in the primary market. As such, patient purchasers who could push motivated sellers for good purchase will surely emerge as the winner.

The Valuation and Property Services Department (JPPH) has revealed that in the 3rd quarter of 2016, Malaysia’s national house price index rose by 5.36% y-o-y (3.81% inflation-adjusted), slightly lower than the 7.35% y-o-y (4.61% inflation-adjusted) price increase during the same period in the previous year.

Investment Strategist Dr Ong Kian Leong also shared on the keys to profit during these uncertainties period. The prominent financial educator said, “While waiting for the economy to become more certain, holding power is the key to profit in long term, particularly when oil price picks up an uptrend again. Higher oil price will support economic growth, hence boost the confidence of buyers in property market eventually.”

Regarding the strategies for the current year, Dr OngKL shared that, anything that generates positive cash flow, enjoys high rental demands and low financial / investment risk should be considered a great deal. In view of this, he would prefer to focus primarily on the sub sale market for the time being.

On the question whether the notion of buying good properties at below-market valuations still carries water today, Ong predicted that it is always be valid and applicable, since the relatively lower initial cost provides buyer more buffer / margin in the present market, which can be translated into a stronger holding power.

Cheer up and have faith, ladies and gentlemen. While we as a nation try to sort out the economic anomalies by restoring our financial health and competitiveness, do explore the opportunities in the property market. By conducting an in-depth research in terms of supply and demand, purchasing power and the risk factor, everyone will stand to gain from the market. 

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