I read an interesting article about the five trends in property market Malaysia from a BM Website; gilahartanah.com. Thus, I think it’s good to translate and share with everyone including my personal comments. This is where more investors can read and decide which are the trends they would like to believe in. There’s really no need to listen and follow only one source, two sources or even the most famous property guru in the market. Haha. The five trends are as follows:

Trend #1: It’s a renter’s market and they are smiling happily 

Actually the number of people renting homes in major cities are increasing, that’s for sure. The only issue is that the number of condos flooding the market is even faster which meant many house owners are now ‘throwing’ rental. Instead of leaving it empty and earning nothing, many are willing to take something. The focus is to survive until better times. (Seriously, if one can pay rental for a condo in a great location, it’s wiser to buy a secondary unit in a farther area. With completion of MRT Line 1 first 15 stations by end of 2016, this opens up many new opportunities. The remaining 16 stations will be completed by July 2017. Read here: MRT stations will change the area dynamics

Trend #2: Investors with the most cash would be winners.

Many projects completing within 2016 were those which started in 2013. It was in November 2013 that DIBS was stopped. Due to this, many of those who were looking to flip as soon as the project is completed are now trapped due to the rejection ratio, rising interest rates and slowing demand. Some of them may be willing to sell to break-even and some may be selling below the price they bought because they did not want to face bankruptcy. This is why investors with cash will have the most number of opportunities. (Do note that those who bought at too high price points will suffer because when we look at some of the newer launches of today, by building higher density, the developers are able to offer at even lower price points compared to those in 2013! Affordability is key and this is mostly applicable to properties worth +/-RM500,000. Read here: Property investment: size, area, price, affordability)

Trend #3: It’s getting harder to get a home loan.

Banks have lent too much due to the hotspots in Johor and Kuala Lumpur since 3 years ago. Bank Negara has also issued a guideline to all banks to get them to be more conservative in their lending. This meant that even more applicants would fail in their applications for a home loan. The estimated rejection rate is 50 percent. (Actually, it’s higher. Read here: Jan 2016: Whopping 62 percent loan rejection. This will likely continue because banks are now worried about the rise in non-performing loans, especially from borrowers in the oil and gas industry.) 

Trend #4: The public will continue to focus on affordable homes.

It’s a fact that everyone needs a roof over their head. During those 3 years of HOT times, developers were building homes which were priced beyond the average Malaysians. Actually these luxury properties were aimed at foreigners, investors and even buyers who has strong financial standing. Thus, despite the falling prices for some of these luxury properties it is still not affordable enough. This meant that demand for affordable homes will continue to increase and will be the trend throughout 2016. (I have written about this before. Read here: I do not believe majority can buy RM900 per sq ft, sorry Instead of trying to over-stretch ourselves, it’s good to understand how much we could really afford,safely. Read here: Stay safe, buy within affordability and stop bubble building

Trend #5: Property prices will continue to rise. 

Why are the prices still inching upwards even with lower demand? Reasons stated include GST and the depreciation of Ringgit meant a higher cost of construction. Currently, developers are trying to maintain their prices. The margins of the luxurious ones are bigger but for the typical mass market homes, it is lower and not many developers would want to sell below the cost of construction. (I beg to differ slightly. I wrote about this before: Increase selling price due to GST, it depends on margin Besides that, the prices would normally inch up because of demand versus supply. Look at the popular areas, the prices are moving up faster than the less popular ones. This has nothing much to do with GST or even the Ringgit. It has more to do with supply scarcity within that particular area versus demand. Read here: Demand vs Supply, Location versus price, your decision Thus, in order to beat others in getting one, the buyers would offer ever higher prices. Read here: Prices up because of location supply scarcity)

How many of these trends are applicable depends on what is our aim currently. If there are many loving to rent, then we need to love buying properties instead. Keeping cash and wait is not as good as buying a good property and wait. Loan approvals will always depend on whether you over-stretched or now. I seriously would hate it if the banks lend money easily. It would make me scared! Affordable homes is the only way to go moving forward because the developers themselves are willing to sacrifice some profit margins. This will not last forever be reminded. Last but not least, there is no way property prices would drop unless we face another crisis. Oh yeah, except kept for the crazily high ones. Happy investing.

written on 25 Mar 2016

Next suggested article: More supply equals lower prices? Or less demand?


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