Summing 2015 in 5 Keywords
2015 has been a painful year for not just the Malaysian real estate market, but the national economy as a whole. With oil at a six year low, the ringgit at a 17-year low, 1MDB scandal and the slowdown in China’s economy; the market found itself with too many uncertainties on its plate.
If we were to summarize the year of 2015 in a few words, what would these words be? Here we bring you a review of 2015 in five keywords.
No surprise here tor choosing tumble to represent the state of affairs in the Malaysia real estate market. After all, we would not be having this discussion if the market was not in decline as it is. As of the end of H1 2015, we saw a decline of 3.5% in national real estate transaction volume to 186,618 cases.
The “pre-GST buy-in” did not occur as expected, while the post GST cooling came as predicted, and together they have ushered in a period of looming uncertainty. The market is well aware of the high loan rejection rate, but what is even more telling is that the applications for loans have plummeted by 24.3% in H1. The continued presence of the market cooling measures has put a tight squeeze on the market and we have seen a slower increase in the Malaysian House Price lndex as the market reacts to the demand and supply.
Historically speaking, Q1 is typically the slow season in the Malaysian housing market before the volume picks up from April to June. However, the trend is significantly different this year as the Q1 transaction volume of 59,626 cases was 1.46% higher compared to Q1 2014, although total amount transacted registered a tall of 3.36% to RM 18.74 billion. In contrast, Q2 saw no significant upswing in volume or value, leading to a largely stagnant result in the first half of the year.
The number of new launches has also taken a tumble with total units added to the market falling by 12.8% compared to last year. Amongst them, the tall launches in Kuala Lumpur, Selangor and Johor are the most significant. Developers are focusing instead on clearing their existing stock and Johor leads the pack with number of unsold units.
Business Confidence lndex (BCI) and Consumer Sentiment lndex (CSI) have also fallen below the key support level and have been hovering at alert level for much of this year.
With sentiments taking a slow hike in the valley, investors and buyers are clearly exercising a more cautious attitude to spending. People are risk adverse in general and are unwilling to make the first move in the market with this much uncertainty.
Our own investor sentiment survey done in the middle of the year has shown a noted decline in market confidence and many have stressed their decision to postpone or even shelve their house buying plans. The weakening spending power and cost of doing business also meant that many Malaysians and SMEs have to re-allocate their household budget to cope with their daily needs.
Although there has been no new market cooling measures tabled in Budget 2015 and 2016, there has also been little to rejoice as many of cooling measures have remained in force. Various new housing acts that came into effect on June 1 have further restricted developers’ cash flow and financial positions.
This meant that developers whom were highly dependent on bank loans, typically the smaller players in the market, are now finding themselves in a difficult cash flow situation. On the other hand, there is plenty to rejoice for home buyers as the new acts ensure that their rights are better protected.
Various state governments across Malaysia, notably Johor, Malacca, Kuala Lumpur, Negeri Sembilan, Perak, Penang and Selangor have also came up with policies designed to shape their respective real estate markets. Policies include building license restriction in Johor, Bumi-policy in Malacca, raising the bar for foreign buyers in Kuala Lumpur, affordable housing in Negeri Sembilan, and more.
All in all, government policies restrict the free hand of the market forces, and more time is needed to fine-tune the policies and assess their impacts on the market.
The world is in a constant state of flux and we all need to transform ourselves to better meet the demands of the world around us.
The supply and demand mismatch has led to the rise of the issue of affordable housing and many developers have reformulated their business strategy to tap into this market segment. There is a clear push for smaller units in higher density developments in the hopes of coming up with properties at a price point that the market can digest.
Due to scarcity, it is impossible for land area in key urban areas to fall and many developers are looking to build new townships in the outskirts of the city. People living in the Klang Valley are constantly reminded of the transportation transformation currently underway with on-going construction work almost impossible to avoid. Without doubt, these factors will transform the landscape of the cities and reshape how the various residential and commercial centres interact.
It is perhaps a cliche to say that there are opportunities in every crisis, but that is precisely the truth. The market has tumbled, investors are cautious, authorities continue to restrict, and the market continues to transform.
The common thread tying them all together is the appreciation of opportunities still waiting to be tapped. Good locations continue to attract launches and buyers still swarm the launches of the projects. Even in the generally bearish Iskandar Malaysia has seen a hike in activities as Singaporean buyers take advantage of the depreciating ringgit to enter the market. One can also look at the real estate market by sectors and there are clear opportunities in areas such as healthcare and tourism real estate market.
Throughout history, the economy is like the phoenix that rises from the ashes of its previous crisis and there is no reason for it not to do so now.