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Is Now A Good Time To Buy A House?

SU Pi Magazine Feb Issue 44

Malaysia is facing many challenges both within the country and internationally, including the decelerating economic growth rate, lower oil prices and falling value of the ringgit. On the backdrop of all these, the domestic housing market has entered into a sluggish phase, adversely affected by the pessimistic sentiment over the uncertain economic outlook.

The country is in the midst of a turbulent economic-social-political environment, beset with perennial problems from political tussles to weak governance. It does not help that bad news, be they facts or rumours, usually receive greater attention. As such, people’s confidence gradually erodes. This negative perception is shared practically by all those interviewed from both the supply and demand side of the housing market.

While the development of external challenges is not within our control, the government of the day must put in concerted effort to draw up effective policies to ride through these rough patches. Most countries face the same external factors but handle them differently, as demonstrated by the better economic performance of some of our regional neighbours.  

To immediately improve the public sentiment and produce a chain reaction, the Government needs to focus on key areas of concern and implement bold but positive policies to gain back the Rakyat’s confidence as well as to demonstrate its capacity creating sustainable economic growth.

Malaysia is currently in the midst of the downward trend of the most recent housing price cycle which has commenced around 2010. The growing slack in housing sales is apparently gaining traction as shown by the increasing number of unsold houses at the end of the 2nd quarter of 2016, a jump of 16% over the previous quarter. In the secondary market, offers are aplenty. Meanwhile, the brakes are being applied on construction activities as witnessed by the falling number of piling drivers and sentry cranes on the horizon.  (D1)

SU2 Pi Magazine Feb Issue 44

YEARS FROM 1990 – 2016

There are three cycles of house prices during the periods from 1990-1993, 1994-1997 and 2010-2016. The first two cycles involved rapid increase in house prices and subsequently followed by sharp drop, which are basic characteristics of a housing bubble.

However, the third cycle demonstrates a comparatively more gradual rising, peaking at a year-on-year increase of less than 20% between 2010 and 2013 when the trend reversed. The downtrend is also taking a rather gentler gradient. This means that this time around, the housing market will not be as turbulent. This can be attributed to the interventions taken by the government as well as the quick adaptive approach of housing suppliers.

Opinions gathered through interviews with developers, architects, project senior managers, civil engineers and marketing officers, point to a serious confidence crisis in the national economy being the primary factor that is depressing the housing industry in general, a point that seems to be supported by statistical figures. GDP growth rate has declined to about 4.5% which is 0.7% lower than the 5 years (2011 – 2015) average.

Private sector spending has slowed down considerably. Both consumption and investments saw a slower growth in 2015 of 4.4% in Q3 compared to 5.7% in Q2 and 9.6% in Q1. Consumer spending (51% of demand) had its annual growth pulled back sharply to 4.1% in Q3 from 6.4% in Q2. These drops in economic growth, consumer spending and investments are shown in Figure 2. Many opined that concerted efforts by all parties and the right policies are vital in restoring the confidence of both our people as well as foreign investors. (D2)

The housing industry in Malaysia generally caters mainly to the local market with only a small percentage going to foreigners. With supply being highly inelastic in the short-run, the effect of dedicated government policies will take a while to kick in.

While consumers complain of the skyrocketing of housing prices, some developers feel that housing prices have over the years moved up but in a controlled manner. As land become scarcer in the city, property prices would naturally spike up. But with the improved infrastructure (existing and proposed highway, LRT, MRT networks), new growth areas further away are developed at more affordable prices. Such new growth areas included Cyberjaya, Semenyih, Rawang, Nilai, Seremban etc., offering lots of choices.

Nevertheless, house prices are moving up largely due to higher land cost, construction cost and compliance cost but still have not moved beyond affordability. And again due to these high costs, house prices are not likely to come down. According to these developers, the best-case scenario is that prices will stabilise because they, the developers, will hold back new launches once they think that they do not make reasonable profit from it.

The days of volatile housing prices are over and speculators have long retreated to the sideline as commented by a developer. Due to slowdown in sales, developers have become more adaptive to the market, adjusting to the needs of the buyers in terms of product type, specifications and neighbourhood facilities. If developers are not able to price their houses within the competitive range, they will lose out.

Additionally, they lamented that sales are significantly affected by the low approval rate of bank loans following more stringent regulations imposed by Bank Negara Malaysia. With the already very high household debt (reported currently at around 90% of GDP), the more demanding loan approval criteria aims to protect the borrowers and the stability of the local financial industry, which will check the risk of housing bubble threat.

A further concern raised by one of the developers is the aggressive participation of foreign developers in the local housing market with mega projects. Nevertheless, the feeling is that it is now a buyers’ market where they are spoilt for choice.  However, with the low confidence in the outlook of the economy and future prospects, people are paring down their expenses. Would people be so willing as yet to pick up another long term big mortgage bill?

Concern has also been raised of foreigners taking advantage of the weakened ringgit and entering the housing market to snap up properties and thus could contribute to unhealthy price hikes and more serious consequential slowdown effects on the housing market.

Yet developers have a different view. Foreigners are attracted to premium areas mainly KL, Penang, Iskandar Malaysia and Melaka, where foreigner buying has minimum influence on price movements. Additionally, the foreigner purchase trend over the years show a relatively low uptake, within the 20% to 30% range and on properties in the high price category.

Yet looking at the above scenario, therein lies a seemingly ironical situation – that of affordability. There is much concern of the growing inaccessibility of housing, particularly to those in the 20s – 30s age group, that has gotten society worried sick lest they become a “homeless generation”.

When the market was running up steeply, the Government implemented various measures to control the housing price rally and has since taken concerted efforts to help target groups on homeownership. The bottom line is still the purchasing capacity of the consumers which is significantly linked to disposable income, a factor that in turn is dependent on economic growth. If history is of any guide, economic activity is cyclical.

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