VISION 20/20: PROPERTYGURU MARKET OUTLOOK

Press Release: VISION 20/20: PROPERTYGURU MARKET OUTLOOK

• PropertyGuru anticipates glimmers of opportunity in 2020 amid a trying market
• Silver linings include proliferation of alternative financing solutions and home ownership initiatives, as well as growth prospects in selected markets
• More industry players to leverage on proptech and fintech as differentiators in an increasingly heated market

5 December 2019, Kuala Lumpur – The coming year resonates with meaning for Malaysians from every walk of life, with many growing up looking forward to it as a vision of promise and prosperity. With 2020 now around the corner, industry stakeholders and analysts can finally evaluate the shared vision of yesteryear against the realities of tomorrow.

With this in mind, as Southeast Asia’s leading property technology company and in line with its commitment to keeping consumers informed with the latest market insights and policy updates, PropertyGuru Malaysia has adopted a neutral outlook for property prospects in 2020, with glimmers of opportunity amid a trying market.

There have been targeted measures introduced in Budget 2020 to address specific issues in Malaysia’s property landscape, along with scattered feel-good factors for the market, such as a positive interest rate environment. However, mixed internal and external economic indicators, including a global economic slowdown due to US-China trade tensions as well as volatility in the Ringgit, have hindered growth prospects moving forward.

Pushing new frontiers in property

“The year 2020 has been positioned as a landmark time for Malaysia, with targets for high-income status and economic self-sufficiency, including an equivalent gross domestic product (GDP) of RM920 billion in 1990 Ringgit terms – what would now be about RM1.81 trillion,” says Sheldon Fernandez, Country Manager, PropertyGuru Malaysia.

“With a GDP of RM1.45 trillion in 2018, we’re not too far off the mark. It’s undeniable that Malaysia has come a long way since the 1990s, and with Budget 2020’s focus on digital transformation, it looks like we’ll go even further. The Securities Commission has already registered the country’s first property crowdfunding platform, and other innovations are finding their way into the industry, increasing its diversity and resilience.”

Crowdfunding, rent-to-own (RTO) schemes, and financial eligibility tools such as PropertyGuru Loan Pre-Approval (www.PropertyGuru.com.my/preapproval) are solutions and alternative platforms introduced to address home ownership challenges faced by Malaysians. In particular, Budget 2020 has emphasised on RTO, with a financial backing of RM10 billion, including a RM3 billion guarantee by the government.

The RTO approach, in which purchasers can occupy a unit immediately with rental in lieu of a downpayment, is favoured by some industry analysts as it addresses the prohibitive upfront costs of home ownership for many home seekers. Others note that RTO schemes can incur significantly higher total costs compared to conventional mortgages.

While RTO terms and feasibility vary from programme to programme, numerous financial institutions and developers have already adopted the approach, including Malayan Banking Bhd (Maybank) and Gamuda Land Sdn Bhd.

Other alternative housing strategies in Malaysia include micro-housing and co-ownership. There is no single definition of micro-housing; however, it generally includes compact living spaces and communal living elements.

Micro-housing was piloted by Kuala Lumpur City Hall (DBKL) earlier this year for youths in the B40 segment at Jalan Tuanku Abdul Rahman, and is also being explored for University of Malaya students in association with the Malaysian Institute of Architects (PAM).

Meanwhile, co-ownership is the practice of combining income to jointly purchase property, and is seeing popularity as a solution due to affordability concerns. The proliferation of these solutions illustrate how the property purchasing journey is evolving with time in Malaysia, as we move into 2020.

Home ownership: a contemporary dilemma

However, the need for these alternative solutions also underscores the ongoing issues facing domestic property, and these issues are set to continue into the next year. Affordability, supply-demand imbalances in the market and loan financing remain key challenges.

With regard to loan financing, for example, Bank Negara Malaysia (BNM) has seen an uptick in defaults from 2018 through 2019, particularly among those with variable income and those with properties worth more than RM500,000.

“These issues are not limited to the Malaysian property market, and are a product of increasing population pressure and decreasing land availability in urban hotspots. As more purchasers compete for fewer properties, prices are driven up, with developers catering to segments with higher profit margins,” says Fernandez.

In Malaysia, these trends are underscored by perceptions of income stagnation and rising costs of living. The Department of Statistics Malaysia’s (DOSM’s) most recent Household Income and Basic Amenities Survey reported the median monthly income in the country as RM5,228 in 2016, growing at a rate of 6.6% per annum.

The Consumer Price Index (CPI), meanwhile, has grown at an average of 2.5% year-on-year (YoY), with an increase of 1.1% YoY in October. The disconnect between real and perceived inflation is explained by BNM as a function of frequency and memory bias.

Regardless, with the benchmark for affordability set by US-based consultancy Demographia International as three times the annual household income, this means that the price ceiling for affordable housing was about RM188,208 in 2016. Today, this figure has been reported at RM282,000, while the average price for newly launched houses was RM417,262.

Property provisions in Budget 2020

This disparity accounts for affordability and loan financing challenges for Malaysians, as home seekers cannot afford properties or the loans required to purchase them. There is also the demand-supply imbalance in the market, as developers gravitate towards the higher margins for luxury and high-end launches.

“The pressures driving these issues are complex and interrelated, and have been building for decades, leading to calls from some quarters for a fundamental restructure of the property industry in Malaysia. Budget 2020 has taken several steps towards addressing this, through both interim and long-term measures,” says Fernandez.

“Short-term measures aimed at easing home ownership challenges among Malaysians include the Home Ownership Campaign (HOC) and Bank Simpanan Nasional’s (BSN’s) Youth Housing Scheme (YHS), both of which have been extended from their original timeframes.”

These measures, along with the aforementioned emphasis on RTO schemes, address home ownership among younger and first-time purchasers. The HOC, as well as provisions for lowered purchasing thresholds for international purchasers, also seeks to reduce the ongoing residential property overhang.

The residential overhang is a direct result of the supply-demand imbalance in the market, as developers build properties which buyers cannot afford to purchase. It was most recently estimated at 52,666 units in Q2 2019, including 32,810 residential units, 18,186 serviced apartment units and 1,670 SoHo (small office home office) units, according to Nawawi Tie Leung Property Consultants Sdn Bhd.

Perhaps most importantly, Budget 2020 includes numerous provisions targeted at income and labour reform, including minimum wage increases, changes in overtime guidelines and other revisions to the Employment Act 1955.

However, both interim and long-term measures to address the challenges in Malaysia’s property market will take time to impact established patterns. For these reasons and larger macroeconomic factors detailed below, PropertyGuru remains neutral on its outlook for 2020.

In the meantime, affordable housing quotas and initiatives such as Rumah Selangorku, the Federal Territories Affordable Housing Project and Cagamas Bhd’s Skim Rumah Pertamaku (SRP) are bridging the gap between consumer demand and developer portfolios.

Price trends and projections for 2020

Perhaps the clearest indicator of market sentiment is seen in pricing movements moving into 2020. According to the PropertyGuru Market Index (PMI) Q3 2019, asking prices for properties across the board declined in three out of four major markets in Malaysia, namely Kuala Lumpur, Selangor and Penang.

Overall, prices in Malaysia declined 0.9% YoY in the third quarter, with Penang leading the contraction with a 1.5% quarter-on-quarter (QoQ) decrease in its PMI from 94.8 to 93.4 in Q3 2019. Johor was the only domestic market which exhibited no decrease in its index; however, it also failed to showcase growth, with a static PMI of 98.5 in the third quarter.

“With the exception of Johor, these downticks in asking prices are representative of downward movements in longer-term trendlines across key markets since 2015. While asking prices aren’t necessarily interchangeable with transaction prices, they serve as benchmarks for seller sentiment, and as such, point towards moderate prospects at best for 2020,” says Fernandez.

Industry analysts attribute falling prices to adjustments on the part of developers to clear unsold stock and ease cash flow, along with downward pressure from the HOC. Buyers with sufficient leverage can take advantage of the current market to expand their portfolios.

Johor, for example, is an attractive destination for investment, with the caveat that prices there have seen marked volatility in recent years due to supply and policy shocks. With this in mind, thorough consideration of existing property types and incoming demand in the area is necessary, before venturing into the market.

Further north, property seekers in markets such as Kuala Lumpur and Selangor can hedge their bets, by examining purchasing sentiment. According to the PropertyGuru Consumer Sentiment Survey H1 2019, Malaysians are increasingly open to purchases in the secondary property market.

This is attributed to locational preferences, with younger home seekers prioritising older projects close to established urban centres, instead of new launches further afield. As such, mature satellite townships like Petaling Jaya, Subang Jaya, Damansara, Shah Alam and Cheras offer better prospects for investors, though affordability will remain a concern for home seekers.

Macroeconomic factors and the road ahead

Mixed macroeconomic indicators also point towards a lacklustre year ahead for property. The US Federal Reserve cut interest rates three times this year, with BNM following suit in May and analysts projecting another potential cut mid-2020. These moves have the effect of creating positive interest rate environments at home, and abroad.

This is conducive to home purchases in the short term, with prospects for capital appreciation in the long run, as cheaper loans drive property prices up. In addition, an influx of interest from regional purchasers may cause an upswing in sentiment for the near future, driven by unrest in other markets such as Hong Kong as well as relaxed foreign ownership guidelines laid out in Budget 2020.

However, these positive factors are balanced by ongoing US-China trade tensions, and their consequences for global economic expansion. In particular, slowing growth in China and escalating trade tariffs may dampen global value chains (GVCs), with spillover effects for markets with high exposure, such as Malaysia.

The Ringgit remains volatile as well to date, trading at an average of RM4.18 to the US dollar as of 4 December with a target of RM4.20 to the dollar by end-2019, according to Kenanga Research.

This volatility, along with sociopolitical uncertainty as the euphoria of Malaysia’s 14th general election fades against a backdrop of increasing dissatisfaction, would have a negative impact on investor appetites – again, with the exception of Johor, which has seen optimal investment numbers to date.

“Moving forward, we anticipate proptech and fintech to play larger roles as international trends find their way to local shores and industry stakeholders seek to differentiate themselves in a heated market. Deloitte, for example, has reported in its 2020 Commercial Real Estate Outlook that it’s no longer about ‘location, location, location,’ but ‘location, experience and analytics,’” says Fernandez.

“Accordingly, PropertyGuru has leveraged on its established track record as the region’s leading proptech player to introduce innovations such as PropertyGuru FastKey, PropertyGuru Lens and Listing Performance Insights. These solutions utilise augmented reality and artificial intelligence to enhance the property journey for home seekers and agents alike, cementing PropertyGuru’s status as a proptech leader into 2020.”

— end of press release —

Please LIKE kopiandproperty.my FB page or Sign Up for free to get daily updates about the property market. Else, follow me on Twitter here.

Next suggested article:  Funny but true. Travelling is making it harder than ever to buy a property