Will Malaysia’s Property Market Crash In 2018?

Property

Will Malaysia’s Property Market Crash In 2018?

Malaysia’s real estate market looks set to continue on its downward trend into the new year.

Published on 11 January 2018

Among property market analysts, there’s no question of “if” Malaysia’s property market will go up or down in 2018, it’s more a matter of by how much will it go down by. Malaysian online property portal PropertyGuru recently released their Property Outlook Report 2018 and the signs seem to be pointing in the direction of a continued drop in prices – this isn’t unexpected though.

The PropertyGuru Market Index shows that Malaysian property prices have dropped 2.3% since Q1 of 2015, however, the rate of decrease in different states varies and it’s not all negative news. Johor, for instance, actually saw a 7% increase in prices for the year ending Q3 2017. Kuala Lumpur has seen a decrease of 2.3% over the same period, while Selangor’s prices have decreased 4.6% and Penang’s by 3.4%.

Supply glut

Malaysia, real estate, 2018, crash, property

One of the main factors contributing to the dip in prices seems to be a surge in supply. Malaysia’s Deputy Finance Minister Datuk Lee Chee Leong recently stated that there was an increase of 40% in residential properties that had been completed but unsold in the first half of 2017 compared to the same period last year. More homes on the market usually means saturation and lower selling prices – creating a buyers’ market. As such, according to PropertyGuru’s report, Kuala Lumpur’s subsale properties are being discounted between 20% to 30%.

Even with declining prices, it’s not becoming easier for individuals to purchase property, or at least it shouldn’t be. The Department of Statistics Malaysia noted that the Consumer Price Index (CPI) rose by 3.6% from October 2016 to 2017. Median incomes are also far below the average house price, at 4.4 times the median income as cited by PropertyGuru. With average home prices hovering at more than RM300,000 (US$73,540) across the country, unless salaries increase substantially, purchasing a home will simply be too expensive for many Malaysians.

However, according to chartered property surveyor Ernest Cheong, developers are now accepting only 1% deposits up front on new builds, versus the 10% deposits that were previously required. And Bank Negara has said that loan approval rates are high at 73% as of Q3 2017. When developers start making it easier for people to purchase homes because they can’t sell them and lending becomes to easy or people are getting financing and buying homes that shouldn’t, then you have a problem. Albeit it is also a problem if the developer can’t find individuals to purchase their homes as they’ll either not get the loans they need or will be stuck with a high level of debt.

In order to further assist with oversupply, the government has put a temporary freeze on the construction of high-end condominiums (over approx. US$245,000), amongst other commercial buildings. The ban on new projects took effect November 1st as Malaysia tries to focus more on building affordable housing. Johor currently has the largest supply of unsold properties, including commercial units, at 120,000. The ban is set to stay until demand for more expensive properties increases. However, Moody’s Investor Services has noted that they do not believe the temporary stop will have an effect on prices, as the properties already under construction will enter the market anyway within the next five years.

What does this mean for the investor?

Wait if you’re conservative! Basically, with prices in their continued downward trend, there may still be some way to go before the bottom shows itself. But it’s all relative, and you would have done well to invest in places like Johor over the past 12 months.

Also, keep in mind there are differing opinions among experts: Cheong, for example, expects property prices to crash, whereas Kelvin Yip, Associate Director of Knight Frank Malaysia, thinks that the market is ready to turn in 2018 due to the economic figures released earlier this year. It’s interesting to see how two individuals in the same, relatively small market, can have such drastically different opinions.

It’s important to do your due diligence when investing in any property. Look at the comps in the area you wish to purchase and remember that the markets are very different depending on where in Malaysia you are.

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