Remember my article about the potential of sudden drop in property prices? Read here Please tell me honestly, who wants property prices to fall? Actually, times are getting extremely tough these days. My colleague who has a unit in the KLCC area told me that she has yet to find a tenant who’s willing to pay her the usual rental. I told her that it may be best to rent out sooner rather than later. In fact she has engaged quite a number of agents and on and off, there were viewings but somehow, nothing serious yet. As she has started paying for the second unit, she has started to worry how long would she have to pay in full all by herself.
She recently learnt that an expat renting another unit within the same condo had just moved out to myHabitat for a bigger sized and cheaper unit. Slow times may be here for a while yet. Supply of new condos are also coming in strong, thus causing prices to weaken further. Earlier readings: Luxury condominiums oversupply in Kuala Lumpur The owners of these new units are quite desperate in looking for tenants, else they would have to pay the mortgage in full! There are definitely quite a number who owns more than one unit, a major reason why they are willing to accept lower rentals. Of course, not everyone would think of this oversupply as a bad thing. Read here: Rental is softening.Good news I guess.
Okay, beyond just the oversupply numbers, I think the sentiment plays an important role too. I know, we want to believe that rentals are down because of the closure or scaling down of many oil & gas players. Actually, it takes only a few lower priced rental transactions to start the downtrend. Thus, it’s impossible that the whole rental market is due to just the oil and gas people moving out. The current cautious sentiment meant that some of those who are taking pro-active actions have started to reduce their expenditure. If I have just found a job and wanted to rent in KLCC area, I would find out that negotiation for a lower rental is much easier, thus why not?
Is the low rental happening only this year, 2016? I personally believe the high rental rates of yesterday is not going to return anytime soon. This is the case even if 2017 is said to be the year of property prices recovery. Imagine we had earlier rented an older condo within the KLCC or its surroundings for RM4000. Today, we may have moved to another bigger condo and newer too for lesser. The older condos may have to provide us with a very attractive rate before we would reconsider and the owner of the current one may not want to lose us! I think they would still be worried, even come 2017.
I told my colleague that during slower times, we just have to manage accordingly. Even if the property market cannot suddenly bounce back but anyone telling us that property prices will keep dropping is certainly out of his mind. The fortunate thing is that she did not over stretch herself even during the boom years. Seriously, we should Stay safe, buy within affordability and stop bubble building. I believe she will take appropriate actions and in the years to come will reap huge rewards from potential capital appreciation. Happy investing.
written on 29 Jan 2016
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