Where Will the Market Swing?
With a host of negative factors surrounding Malaysia’s real estate market in the first half of 2015, it is little surprise that its performance has been lacklustre. What has H2 2015 in store for Malaysia?
According to a survey published by MIER (Malaysian Institute of Economic Research), the consumer sentiment index (CSI) for HI 2015 fell to 72.6 points, its third quarter of consecutive decline, reaching its lowest level in 6 years and edging dangerously close to the 2008/09 levels.
Prior to the implementation of the GST, the industry has already come to the consensus that the tax will undermine consumer confidence and reduce market demand. Many developers reacted by postponing new launches which significantly curbed the market supply.
Transaction volume in HI 2015 fell by 6.95% from the same period last year to 93,735 cases while transaction amount fell 2.34% to RM 39.46 million.
During the same time, the MHPI (Malaysia House Price Index) fell 1.8% to 211.1 points, the first time the MHPI experiences two periods of consecutive decline since 6.5 years ago. The figures also show that prices have risen by 4.1 % to reach its lowest in 5.5 years.
Like any investment markets, there are opportunities even in the hardest of times and this can be bore out when we look at Kuala Lumpur which was able to buck the trend to achieve an annual rise of 7.8%.
New Launches Coming In
Into H2 2015, many developers have gradually begun making their moves by introducing new projects to the market. The market took to these launches enthusiastically and many new projects were able to garner between 60% and 80% of sales days after launching.
Many industry insiders feel that the promising figures should be taken as a sign of market stabilisation and it is still premature to consider this as a sign of recovery. One of the stumbling blocks is the strict lending policy that is still preventing the conversion of buying interest into actual sales figures.
The lack of fresh catalysts has prompted a number of securities firms to hold a neutral rating on Malaysia’s real estate sector, and many expect the slow demand to continue until the end of the year with some claiming that the current situation is likely to persist till 2017.
Beyond internal reasons, there are also worries of the US Feds raising interest rate as well as China’s economic issues that have hogged headlines in recent weeks.
On the other hand, the depreciation of Ringgit might improve the appeal of Malaysian properties to international buyers, but the fact that Malaysia is a largely domestic driven market meant that any such foreign interest will have only a small impact on the market.
Developers Testing Water
It seems like we are stating the obvious when we point out that developers are in the business of developing properties, but it is nevertheless an important fact to consider.
With fix cost to cover, cash flow concerns as well as shareholders to answer to, a developer can ill-afford to sit on the fences for too long.
What this means is that developers are starting to come out from the fences and are slowly putting projects on the market. While most developers have toned down their promotion activities this time round, it is not difficult to see various new launches sprouting out.
The last quarter of the year will be crucial to see how the market pans out, but it would also be helpful for investors to keep a look out for many of the trends brewing under the surface.
Price and Project Rationalisation
Like any businesses, developers will have to offer products that suit the market they operate in. In this environment, it is not unexpected for developers to launch houses that are considered more affordable as the demand for this market segment remains strong.
This is good news for both investors and homebuyers as the projects will be of more reasonably priced and developers will offer more concessions and giveaways.
However, the expected lower prices is not indication of a fall in property prices as the construction cost remains high and the relatively cheaper prices is a form of price rationalisation as the market adjusts to the new economic situation and bring their expectations closer to reality.
Store of Value
On the other hand, there are some investors who have decided to enter the market at this junction precisely because the fall in Ringgit has made properties a relatively good store of value.
High quality properties have their inherent appeals and are relatively resilient to adverse market conditions. These properties include those in prime locations as well as those with unique selling points not easily replicated in other developments.
With this being a buyer’s’ market, it is a good time to shop around and to study the properties carefully before committing. Unlike the red hot market in the past where prospective buyers rarely have the opportunity to study their purchases carefully, the new market conditions meant that sellers are more accommodating to buyers’ needs to research more.
For interested buyers, there is perhaps no better time than now to shop around and weigh your options between different investment engines. For more news and project , please visit our Malaysia Property website .