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100 Days On, Is there Hope in Pakatan Harapan?

Today marks Pakatan Harapan’s 100th day in power since the political earthquake that shook Malaysia — the 14th General Election.

The pressing question is whether the nascent government has delivered on its word and lived up to the expectations of Malaysian voters thus far.

The last three months for Pakatan has been like a walk on the proverbial tightrope, with the coalition struggling to deal with the threat of bailing investors and a sovereign downgrade, and a national fiscal debt that has turned out to be more critical than expected.

A survey carried out by the Merdeka Centre earlier this month (August 2018), found that Malaysian citizens were largely satisfied with Pakatan Harapan ministers, but with some concerns about the economy, and racial and religious rights.

As part of its election manifesto, the government had pledged to deliver 10 promises in 100 days, but not all of these promises have been fulfilled.

Tun Dr Mahathir Mohamad, the Prime Minister, said that the reason behind the government’s inability to fulfil the 10 promises was because they had to prioritise other important matters.  

“The government’s focus is not only on the 10 promises in 100 days, the government has a lot of work to do and this includes ‘cleaning up’ the government which was tainted with corrupt practices and abuse of power during the past administration,” he said.

Harapan Tracker, a website which monitors the government’s performance, gave Pakatan a score of 45%, a cumulative average from its two scores of “the letter of the promise” (30%) and “the spirit of the promise” (60%).

 

Housing Not Part of 100-day Pledge

The housing sector, in particular, was not included in Pakatan’s list of 100-day promises. 

Many Malaysians are concerned about housing, and rightly so. There has been a glut of high-end residential property and a scarcity of affordable housing in the country —  an imbalance that has caused many Malaysians, especially those from the bottom 40% of income earners (B40), to be unable to afford their own homes.

Pakatan’s 10 pledges to be achieved in 100 days

Dr Carmelo Ferlito, an economist with the Institute for Democracy and Economic Affairs (Ideas) said the spectacular growth of the high-end property segment was ignited by rising profit expectations, growing demand and easy credit conditions.

“The mix of elements generated a bubble which reached its peak between 2012 and 2013.”

Zuraida Kamaruddin, the new Housing Minister, has embarked on a consolidation of all affordable housing projects under the Ministry in an effort to streamline the building of affordable homes. Certain projects like the 1Malaysia Housing Programme (PR1MA) were previously placed under the Prime Minister’s Department.

The new National Affordable Housing Council is expected to begin its work this month (August 2018) once papers regarding its set-up are finalised by the Cabinet. The council will monitor the construction of affordable housing, coordinate databases and implement a self-renting scheme for the B40 and M40 (middle 40% of income earners) groups nationwide.

Ms Zuraida also plans to set up a one-stop online platform for affordable housing that would enable buyers to submit an application online, and find out their approval status within days.

In an effort to further bring down the price of housing in Malaysia, Finance Minister Lim Guan Eng announced that building materials and construction services will be exempted from the upcoming Sales and Service Tax (SST). The SST is set to kick in on Sept 1.

Under the previous Goods and Services Tax (GST) regime, building materials and construction services were subjected to a 6% tax. However, players in the construction industry are not optimistic that the tax exemption will impact house prices significantly.

Datuk Steve Chong, chairman of the Real Estate and Housing Developers’ Association (Rehda) in Johor, thinks that the exemption is insufficient to bring down the prices of homes.

“We believe that the savings is too small to be passed on to homebuyers which will not in any way translate to a significantly lower price for homes in future,” he said.

Malaysian Institute of Architects (PAM) president Ezumi Ismail added that raw materials only accounted for less than a third of the total development cost, and other factors contributed to high housing prices.

“The rest … would consist of the cost to purchase the land and other compliance charges that come with the building the houses or units. SST may reduce the house prices but it may not be much.

“Some projects require the developers to construct basic infrastructure and facilities that are supposed to be built by utility companies. The added cost would then be (pushed) back (to) the consumers. It would be better if the authorities come up with a building master plan that could address these issues,” he added.

A new National Housing Policy is expected to be announced in September with a considerable number of changes, one of which includes the rental-tenancy market.

The rising supply of residential properties, particularly condominium and apartment units, has caused rentals to continue to drop in Kuala Lumpur.

Previndran Singhe, CEO of Zerin Properties said, “It is a tenant market right now as they have plenty of choices. There have been drops in rental in KL, generally around 10%.”

“Some owners have to reduce their rents because their units are already old and they will not be able to compete (with newer properties) if they don’t upgrade their homes.”

 

Silver Lining

There is a silver lining in sight. Yet, it may be a long while before housing issues are fully addressed in the country. Until then, what stands to remain is the loftiness of house prices in prime areas like the Klang Valley and Penang — and to a certain extent, Johor Bahru —  which will impact not just first home buyers, but also local property investors.

With economists slashing economic growth forecasts due to weak economic data (ahead of Bank Negara Malaysia’s release of GDP 2Q2018 figures), and potentially more fiscal tremors ahead, a single 5-year term may not be enough for the government to make the changes it wants to.

Investors should continue to maintain a wait-and-see stance before embarking on investment-related decisions in the local property market or, alternatively, look beyond Malaysian shores. Virata T of CSI Prop says that investors can still get good returns on properties in countries abroad.

“With rental yields dropping locally, investors wanting to invest in property could look overseas to get better returns on investments. There is a rising interest among Malaysian investors for this type of investment,” he said. 

“Up-and-coming cities in countries with a stable economy like the UK and Australia, are particularly attractive as they provide good returns while reducing investors’ exposure to economic risk.”

What do you think of Pakatan’s performance so far?  Leave us a comment below!

If you are curious about investing overseas and the returns you can obtain thanks to low vacancy rates, call (+65) 3163 8343 (Singapore), 016-228 8691/ 9150 (Malaysia), or email us at info@csiprop.com!

By Ian Choong
Additions & Edits by Vivienne Pal 

Sources:

  • https://www.thestar.com.my/news/nation/2018/08/15/merdeka-centre-august-poll-show-voters-happy-with-pakatan-leaders/
  • https://www.thestar.com.my/news/nation/2018/08/17/pakatan-govt-needs-to-make-good-on-its-promises/
  • https://harapantracker.polimeter.org/
  • https://www.nst.com.my/news/nation/2018/07/392262/pm-concedes-government-not-able-realise-10-promises-100-days
  • http://www.theedgemarkets.com/article/housing-and-local-govt-ministry-set-online-platform-govt-affordable-housing
  • https://www.thestar.com.my/business/business-news/2018/07/25/changes-in-national-housing-policy-to-be-unveiled-in-september/
  • https://www.thestar.com.my/news/nation/2018/08/12/guan-eng-construction-services-building-material-costs-exempted-from-sst/
  • https://www.malaymail.com/s/1662133/johor-developers-sst-exemption-wont-impact-homebuyers
  • https://www.malaymail.com/s/1661951/sst-wont-mean-much-cheaper-homes-says-architect-group
  • http://www.thesundaily.my/news/2018/06/12/national-affordable-housing-council-begin-work-august
  • https://www.edgeprop.my/content/1407669/new-national-housing-policy-rakyat-december
  • https://www.thestar.com.my/business/business-news/2018/07/25/review-on-housing-policy-next-month-says-minister/
  • http://www.thesundaily.my/news/2018/08/16/kl-rental-drops-rising-supply
  • http://www.theedgemarkets.com/article/hlib-cimb-research-slash-msia-2q18-gdp-growth-forecasts-amid-weaker-data
  • Featured image: malaysianaccess.com
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Can Tun Mahathir Solve the Malaysian Housing Crisis?

Houses in Malaysia are seriously unaffordable for the masses (Source: The Malaysian Insight)

UPDATED; 5/6/2018

Uncertainty has been reflected in the volatility of the stock market ever since the country voted in a new ruling coalition. In the past few weeks, steps have been seen to be taken to address corruption and debt in the country. A new Local Government and Housing minister has been elected and her first order of business is to discuss with the Finance Ministry and Bank Negara Malaysia, the difficulties faced by first-time house buyers to get loans. It’s a start, but can the Tun M and his merry men (and women) of the Cabinet take Malaysia through the housing crisis? 

With the recent change in government, all eyes are on Pakatan Harapan to solve the housing supply-demand crisis in Malaysia. The current situation is dire with a severe lack of affordable housing, and a glut of expensive properties, and many Malaysians not being able to afford to purchase their own home.

The previous Najib administration had set a target of building 1.1 million affordable homes by 2018 to address the shortage, but after 5 years, only 23% (255,341) of the total was completed.

In November 2017, Tan Sri Noh Omar, the Urban Wellbeing, Housing and Local Government Minister blamed state governments for the delays, citing a lack of cooperation.

Addressing a question in the Dewan Rakyat, Noh said that 25.6% (285,097) of the houses were still under construction while 39% (432,415) was in various planning stages. He said the remaining 12.4% (138,775) had yet to make it to the planning stage.

At the same time, there was an overhang in the amount of PR1MA homes for sale nationwide. Slightly under half (12,492) of the total PR1MA homes (25,132) had yet to be sold.

The PR1MA Malaysia Corporation was established under the PR1MA Act 2012 to develop housing for middle-income households in key urban centres, with a target price range of between RM100,000 to RM400,000.

This programme that was initially meant to help the average Malaysian buy his or her first house was relaxed in 2013 to allow purchases of second homes, and eligibility was widened this year to include households with a monthly income of RM15,000.

The overhang showed that PR1MA homes were still priced out of reach for its target market. The maximum affordable house price in Malaysia is estimated by Bank Negara to be RM282,000.

Property expert Ernest Cheong has said PR1MA should stick to its objective of providing affordable homes to middle- and low-income earners instead of jumping on the high-end property bandwagon. In PR1MA’s Jalan Jubilee development in Kuala Lumpur, the largest unit, a 1,089 square foot unit with three bedrooms and two bathrooms, was going for RM445,000.

A nationwide housing expo was held in March this year entitled “Housing Sale Expo Towards a Million Dreams, Experience A Wholesome Lifestyle”. The expo was a joint initiative by the Ministry of Urban Wellbeing, Housing and Local Government, the National Housing Department (NHD), PR1MA Malaysia Corporation, Syarikat Perumahan Negara Bhd (SPNB), 1Malaysia Housing Projects for Civil Servants (PPA1M) as well as state government agencies.

According to a report by The Malaysian Insight, hopeful buyers at the expo in Kuala Lumpur were disappointed with the severe lack of homes below RM250,000 for sale.

Pakatan’s pledges for the housing sector

Pakatan has pledged to institute a couple of reforms in the housing sector. One of those reforms is to ensure that developers under the PR1MA program do not merely build a small number of affordable houses, after obtaining land at discounted prices.

However, Pakatan’s manifesto has not addressed the pricing issue that PR1MA is currently facing. The reforms they undertake must include pricing homes within the means of the average Malaysian, otherwise the current overhang of PR1MA homes will continue.

Pakatan plans to establish a National Affordable Housing Council which will:

  • Build 1 million affordable houses within 2 terms of their administration, by 2028;
  • Coordinate an open database on unsold affordable housing;
  • Coordinate a national rent-to-own scheme for the B40 and M40 group, with a special scheme for young people;
  • Coordinate with the banking sector to expand access to financing for first-home buyers.

Building one million affordable homes by 2028 is a more realistic target versus the previous one set by the Barisan Nasional administration. Nevertheless, current house building efforts must be doubled to meet this target, judging from the rate of construction we have seen so far.

The open database on unsold affordable housing is a welcome one in the interests of transparency, allowing potential house buyers to find information on available affordable housing. This will prevent unscrupulous developers from hiding information from unwitting house buyers, and maximising their profit by marketing the premium market instead.

The expansion of financing for first-home buyers will allow more Malaysians to own their own homes, while the rent-to-own scheme acknowledges segments of the population that do not qualify for financing, or are otherwise unable to purchase an affordable home.

Other plans Pakatan has for the housing sector include raising the quota for affordable houses; to introduce a time limit for developers to complete constructions, so that land-hoarding can be avoided; and tax incentives for developers who focus on affordable housing, to encourage the use of efficient building technologies to reduce cost.

The new government’s manifesto appears to address many issues in relation to affordable housing shortage. Still, one hopes that the PR1MA reforms they take will fix the current lack of focus in the programme. The nascent Pakatan administration is yet untested, but under the experienced hand of Malaysia’s longest-serving prime minister, buyers and stakeholders alike can look forward to a comprehensive reform of the housing sector, with hope that the current crisis can be solved.

For a start, Housing and Local Government minister Zuraida Kamaruddin will meet the Finance Ministry and Bank Negara Malaysia to discuss difficulties faced by first-time house buyers to get loans. Zuraida promises that the ministry will find the best mechanism to ensure related issues can be resolved, namely involving applications for the purchase of affordable housing.

 

Investment prospects in the housing market

The current glut of higher-end housing, and undersupply of affordable housing is causing activity in the investor market to remain stagnant. If Pakatan can correct the supply-demand imbalance, property prices may start to rise again. Policies will take time to be implemented, and it will be some years before we see real change.

As we have said previously, the local market in 2018 is shrouded in uncertainty — a situation thrown into even sharper relief as the nation waits for the current Government’s plans to take effect.

With the recent fall of the UK and Australia currencies, properties in those markets are more attractive than ever, offering investors an opportunity to take advantage of the currency rate and get on to the overseas investment bandwagon.

Do you think Tun Mahathir and Pakatan can do better than BN in addressing housing affordability concerns in Malaysia? Share with us in the comment box below. If you think your money would be better spent on property investment overseas rather than the local market, give us a call at 03-2162 2260! 

 

Article by Ian Choong

  • http://www.thesundaily.my/news/2017/11/02/affordable-housing-project-lagging-behind-target-11-million-homes
  • http://www.thesundaily.my/news/2017/11/21/overhang-pr1ma-units-calls-review-approach
  • https://www.themalaysianinsight.com/s/24137/
  • https://www.themalaysianinsight.com/s/45067/
  • https://csiprop.com/the-general-election-2018-and-malaysias-property-market/
  • http://pakatanharapan.com.my/diymanifesto.php
  • https://www.nst.com.my/news/nation/2018/06/376559/housing-ministry-look-ways-solve-loan-issues-faced-first-time-house

 

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Are We Birkin Up The Wrong Tree?

The Hermes diamond and Himalayan Nilo Crocodile Birkin handbag at Heritage Auctions offices in Beverly Hills, California September 22, 2014. Image credit: REUTERS/Mario Anzuoni/File Photo

The iconic Hermes Birkin handbag is said to be a worthy investment, outperforming gold and the S&P 500 in investment returns and stability. CSI Prop investigates how this bag holds up against brick and mortar.

So the Birkin smashed the almighty Box Office of Buzzwords a few days ago when a raid at one of former Malaysian PM Najib Razak’s residences uncovered the haul of the century: 284 boxes of luxury handbags, a good number of which were in the signature Hermes orange hue.

The former PM’s missus, as the entire world probably knows by now, is a huge fan of the Birkin. Word on the street is that a rare, record-setting Hermes Birkin could be among the 284 handbags seized during the raid. The purse, which has white gold and diamond hardware, fetched an eye-watering $221,755 at an auction in Hong Kong in 2015 — the most expensive bag sold at auction at the time.

One wonders if Datin Sri Rosmah’s collection could give Victoria Beckham a run for her Birkins (note: Mrs B apparently has 100 Birkin handbags). Especially since a New York Times article reportedly quoted a broker’s estimation of Datin Sri Rosmah’s Hermes Birkin collection to be worth at least US$10 million.

Whatever the rumour, it looks like the cat’s finally out of the handbag…err, bag.

So, what has a handbag got to do with property, you might ask. Here’s our cheeky comparison between bag and brick — after all, both are investments in their own right and share many similarities. Or do they? You decide.   

The cat’s out of the (hand)bag: Some of the Birkin handbags confiscated from one of former PM Najib Razak’s residences last week. Image credit: The Malay Mail Online/Hari Anggara

TOP 5 BRICK VS BAG

  1. Time = Perfection

It takes Hermes artisans a minimum of 5 years training before they’re allowed to independently create a Birkin. The artisan makes a Birkin by hand from start to end, a process which takes possibly up to 48 hours.

A house, however, takes a good many months or years to complete, requiring the skill of experts from various fields in order for it to withstand way more than a huff, a puff and a blowing down by the Big Bad Wolf.

  1. Undersupply = Exclusivity

Birkins are expensive because they are scarce, with only 200,000 bags in circulation around the world. One cannot simply buy a Birkin without a purchase history at the store or knowing someone who has bought a Birkin, before getting on the wait list.

Property prices are also governed by the rule of demand vs supply. The UK is experiencing a critical undersupply of homes, and the government is facing challenges in achieving its goal of building 300,000 homes a year to even out the demand-supply balance. This continues to push property prices upward, making it increasingly difficult for first-time house buyers to get on to the property ladder. Oh, and for the record, you can’t own a property just like that either — you need to clear checks by the regulators first. Think AML, bank loan approvals, that sort of thing.

  1. The Right Price

The price of the humblest Birkin starts at around $12,000. It could go all the way up to more than $200,000. That’s the price of a house in some parts of Petaling Jaya, according to a report in The Star.

Property is expensive, too; the greater the undersupply, the higher the price. Take Melbourne property as an example. AUD$500,000 could likely get you a landed property, but we’re talking some 16km away from the city centre. For AUD$550,000 you may get a 2-bedroom apartment in the stylish Palladium Tower apartments in Melbourne CBD, but apartments in this part of the city, at this price, is becoming a rare find (call us if you’re interested; we can hook you up).

  1. Capital Appreciation

According to research by Baghunter, the price of the Birkin had risen by an average of 14.2% since its launch, outperforming traditional investments such as the S&P 500 and gold markets. A Himalaya Birkin handbag made from the albino Nilo crocodile hide with white gold and diamond hardware and auctioned in 2014, was reported to cost as much as a 2-bed/2-bath apartment in the heart of Brisbane!

Interestingly, Savills predicts that property in the UK will grow by 14.2% over the next five years in spite of Brexit-related uncertainty. One might argue that this was a drop from the 28% price growth between 2013 and 2018 but, hey, that was during the good times. Like, pre-Referendum. We remain confident that the UK will recover after a spell of uncertainty following Brexit in 2019. 

In Australia, meanwhile, the average price of a property in Melbourne had increased by more than 6-fold from A$142,000 to A$943,100 today!

And we haven’t even talked about rental yields yet! Investment in the UK commercial property sector such as purpose built student accommodation and commercial care homes, can fetch handsome yields of up to 9%!

  1. The Show-Off Factor

Of course, all said and done, one can debate that you could bring a Birkin anywhere and show it off to anyone, while a property is most ‘inconveniently’ tied to the location in which it is built.

OK, that’s true but, hey, you can’t live in a handbag, can you?

Birkin worshippers will probably have more compelling reasons why the Birkin makes a fantastic investment, and naysayers would have equally compelling arguments for rebuttal. Perhaps we could all put ourselves in the shoes (or sandals) of the current Prime Minister and think on how to have a bata (better) management of our finances. What are your thoughts? Share with us in the comment box below. Or if you think your money is better spent on property investment, give us a call at 03-2162 2260! Don’t be birkin up the wrong tree now!

Current PM Tun M seems to have a bata grasp of what the simple things in life is. Image credit: gempak dot com
By Vivienne Pal

Source:

  • https://www.straitstimes.com/lifestyle/fashion/284-luxury-handbags-seized-from-najib-linked-apartments-5-things-about-the-hermes
  • www.realstyle.therealreal.com/how-long-it-takes-make-one-birkin/
  • http://says.com/my/lifestyle/what-are-hermes-birkin-bags-and-why-the-heck-are-they-so-expensive
  • www.csiprop.com/uk-property-outlook-2018/
  • http://www.dailymail.co.uk/news/article-5749817/Study-reveals-500-000-buy-Australias-cities.html
  • https://baghunter.com/blogs/insights/why-are-birkin-bags-so-expensive
  • http://www.freemalaysiatoday.com/category/nation/2018/05/18/forget-gold-stocks-buy-birkin-handbags/
  • http://www.savills.com/_news/article/3359/224244-0/11/2017/uncertainty-and-lending-constraints-to-slow-5-year-house-price-growth-and-limit-house-buying-activity.-rents-to-keep-pace-with-wages–but-landlords-feel-the-squeeze
  • https://www.businessinsider.my/uk-house-prices-will-they-rise-or-fall-in-2019-2017-9/?r=UK&IR=T
  • https://www.businessinsider.com.au/a-home-in-sydney-now-costs-more-than-14-times-average-earnings-2017-4
  • www.csiprop.com/care-homes-investment-stand-asset-class/
  • https://www.thestar.com.my/news/nation/2018/05/19/hermes-birkin-pinnacle-of-bag-perfection/
  • Image credit: Reuters

 

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#GE14: Investors and the Battle for Malaysia

In just a matter of hours, Malaysia will enter what could be the biggest tussle for leadership yet — the 14th General Election. Image credit: Asian Business Software Solutions

In just a matter of hours, Malaysia will enter what could be the biggest tussle for leadership yet: the 14th General Election (#GE14).

Once again, the incumbent government faces a serious onslaught (its most critical since Independence, perhaps) as factions from the Opposition unite to mount a formidable challenge for rulership of the land. As the latter’s weapon of warfare looms in the shape of 92-year-old former Prime Minister, Tun Dr Mahathir Mohamad; the former continues to push its promises of cash and stability-in-the-status-quo to the masses.

The rising costs of living hogs the spotlight this #GE14, but yet another issue coming to a head as voters go to the polls tomorrow, is the lack of affordable housing, especially for middle class urbanites known as the M40 (ostensibly because they form part of the middle 40 percentile). This is an issue most pronounced in the bustling urban constituencies of Kuala Lumpur, Selangor and Johor Bahru. 

Bank Negara in its quarterly bulletin in Feb 2018, noted that homes had become “seriously unaffordable” in 2016 by international standards. The local media has also reported extensively on the lacklustre performance of the Malaysian property market and now, with the spectre of the general election looming ahead, contesting parties have pledged to tackle housing affordability as part of their election manifestos.

Not only is the M40 watching for the change(s) that could come with the #GE14; investors are paying close attention, too.

Currently, investors are adopting a wait-and-see approach. Wealthy Malaysian investors are diversifying their money into real estate opportunities across residential and commercial properties both at home and overseas, as well as assets such as bonds and gold in light of a more cautious market and the upcoming general election. The general sentiment is that investments into local property could pick up after the election once the dust settles and new policies are put into place.

Be that as it may, Knight Frank’s latest Wealth Report Attitudes Survey 2018 reveals that 43% of its Malaysian clients have plans to invest in properties overseas, going forward, with the top five overseas destinations being Australia, United Kingdom, Singapore, New Zealand and the United States. Interestingly, Malaysia tops the survey, followed by Hong Kong (40%), China (37%) and Singapore (30%).

The rising interest in overseas properties investment is not surprising, given the favourable returns that investors get (our portfolio of property investments can offer up to 10% nett returns for 10 years!).

“With the current property glut and wait-and-see approach adopted by investors, it is certainly a driver to continue investing abroad,” says Knight Frank Asia Pacific head of research, Nicholas Holt.

In a recent article in The Malaysian Reserve, Henry Butcher Real Estate Sdn Bhd COO Tang Chee Meng said that speculators and investors have been deterred by a host of issues including oversupply in certain locations, cooling measures by the government and cap on loan margins. The reduced interest from developers, he added, had resulted in more sluggish take-up rates for developers, thus contributing to the increase in the overhang statistics.

Stagnating rental growth rates have also clouded the local property market. And, with new developments moving at such a rapid rate, the rental market is hard pressed to keep up.

After tomorrow, the next few months will be crucial. The nation will be watching to see if promises are kept and if manifestos on bread-and-butter and housing issues will take effect in reality.

To all Malaysians traveling to cast their votes this #GE14, CSI Prop wishes you a safe journey. Selamat Mengundi.

By Vivienne Pal

Sources:


CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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The General Election 2018 & the Malaysian Property Market

As the country gears up for the general election, questions abound on its impact on the housing market.

What’s the post-election outlook for the Malaysian property market? 

With Malaysia’s General Election 2018 (GE14) looming just around the corner, house-buyers and investors will undoubtedly ask the question: “What is the post-election outlook for the Malaysian property market?

Bank Negara had announced in November 2017 that the property glut in Malaysia reached its highest level recorded in the past 10 years. At the same time, Deputy Finance Minister Lee Chee Leong announced that the amount of unsold residential units had risen by 40% during the first half of 2017.

During Q1 2017, unsold residential units climbed to 130,690, the highest in the decade.

Over the past few years, the trend in new housing supply has been skewed towards the higher-end property segment. Developers favour the higher-end property segment due to the higher margins it is able to generate, and tend to neglect affordable housing, with it not being as profitable.

Thus, right now, the Malaysian property market is characterised by an oversupply of non-affordable housing. Houses remain out of reach for many households due to the failure of the market to produce a sufficient quantity of affordable housing for the masses.

The maximum affordable house price in Malaysia is estimated by Bank Negara to be RM282,000. However, in 2016 the actual median house price was RM313,000, beyond the means of many households. From 2007 to 2016, house prices grew by 9.8%, while household income only increased by 8.3%.

Housing affordability by income levels in Malaysia, in 2016

Bank Negara reports that out of the almost 150,000 unsold properties (146,497) nationwide in 2017, 83% were priced above RM250,000. 61% of the total unsold units were high-rise properties, 89% of which were priced above RM250,000.

By state, Johor had the largest share of unsold residential units, having more than a quarter of the total units (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%).

83% of unsold units in Malaysia in 2017 were above RM 250,000.

Bank Negara governor Tan Sri Muhammad Ibrahim said the government’s efforts in affordable housing are very much needed, and cites the failure of the property market to provide supply in the affordable range.

“If you look at the numbers in 2014 and 2015, the numbers of affordable houses were quite good, accounting for 75% of the supply of residential properties. But in 2016 and 2017, the numbers were reversed, as only 25% of residential properties were in the affordable range.

“Obviously, there was a market failure. If the government did not come in and provide the additional supply of affordable houses, the problem would have been acute,” he said after releasing Bank Negara Malaysia’s 2017 annual report and the Financial Stability and Payment Systems Report 2017.

The Government had, in November, frozen approvals of luxury property developments indefinitely and temporarily halted the development of shopping malls, commercial complexes and condominiums priced above RM1mil to address the oversupply; it is quite clear that the market is on a decline. Works Minister Datuk Fadillah Yusof has since clarified that this freeze would be applied on a case-by-case basis.

Malaysian property market in 2018 and the impact of GE14

There has been much concern that the Malaysian property market is in a bubble. Fears are that the current glut together with the increasing supply pipeline of properties still in construction, will lead to a market crash soon.

Real estate expert Ernest Cheong warned that developers were aggressively marketing their properties because they were in danger of losing their bridging finance from banks. The bridging finance is used by developers to support their construction.

“This is where the danger starts. I predict if this continues, markets will crash within 24 to 30 months because consumers do not have the financial capacity to buy properties any more. Furthermore, developers who started building two years ago are expected to flood the market further with their units.” he said.

Institute for Democracy and Economic Affairs’ (IDEAS) senior fellow Carmelo Ferlito stated, “Malaysia is undoubtedly experiencing a housing bubble and the unsold properties are a natural consequence of this bubble.”

Ferlito said it would be crucial for Bank Negara to refrain from supporting the property industry by lowering interest rates or the government bailing out developers. “Intervention will only result in a longer and more painful crisis with prices kept artificially high by the central bank when the market is demanding for lower prices.”

IQI Global chief economist, Shan Saeed opined that the property market in the country is merely undergoing some ‘sector changes’, and that there was no danger of a bubble.

“In some areas, property prices are going up, but there are also areas where the price is going down. The property market moves with GDP (gross domestic product) growth, and the growth is currently very solid and on the upsurge. Customers are still buying (property) because income levels are rising. So I believe these concerns concerning the property market are unfounded,” he said.

Real estate firm Rahim & Co stated that Malaysia is unlikely to face a property bubble with the several pre-emptive measures Bank Negara has already put in to stabilise the market, some of which include abolishing the Developers Benefits Under Liquidity Scheme (DIBS), and tightening of the conditions for financing.

CBRE WTW managing director Foo Gee Jen cites the country’s strong fundamentals and measures by Bank Negara as having moderated the impact from price growth in the last market boom.

“While housing prices in Malaysia have been on the rise, they have not reached an unjustifiable level where the price unreasonably exceeds its economic returns” he says.

Credit rating agency Moody’s expects a decline in property prices due to the supply overhang. “In our view, the increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks’ asset quality,” it said.

Savills Malaysia managing director, Datuk Paul Khong said that house buyers are currently adopting a wait-and-see attitude against subdued and lacklustre transaction activities in the property market.

“It is no surprise to the sector that 2018 is an election year, of which market sentiment is quite mixed. We, therefore, foresee the property market to be rather flattish this year with nominal excitement,”

“We do, however, expect some market movements in the later second half of 2018 (2H18) — especially if the GE14 goes well and the confidence factor returns,” he said.

Savills executive chairman Datuk Christopher Boyd adds that, regardless of increase in demand, “it will not cause a price explosion because it will be tempered by quite a considerable backlog that some developers need to clear as well as the increasing supply.”

Virata Thaivasigamony of property consultancy CSI Prop states that the upcoming General Elections is expected to give a boosting momentum and direction for the country’s property sector.

“We expect GE14 to set the pace for the future, and go some way towards restoring the current lack of confidence in the local property market,”

“Currently the local property market is on a downward trend due to supply not meeting the demand for affordable housing, and demand not meeting the oversupply of higher-end properties. It will take some time till developers rebalance the available supply, and the market regains its footing,”

“The ringgit has strengthened so now would be a ideal time to invest in foreign property, in markets like the UK and Australia, with a potential for great returns,” he added, highlighting recent news reports that the ringgit had strengthened to a 2-year high this month.

Uncertainty still clouds the local market going into 2018, and the current glut of property, with more still in the pipeline, does not bode well for investment prospects in Malaysia at this time. With the ringgit currently at a 2-year high, property in overseas markets like the UK and Australia are more attractive than ever, offering investors an opportunity to take advantage of the currency rate and get on to the overseas investment bandwagon.

Article by Ian Choong

Sources:

  • http://www.freemalaysiatoday.com/category/nation/2017/11/18/bank-negara-property-glut-highest-level-in-a-decade/
  • http://www.freemalaysiatoday.com/category/nation/2017/11/13/unsold-residential-units-rise-40-in-first-6-months/
  • http://www.theedgemarkets.com/article/cover-story-higher-inventories-and-lower-margins-seen-among-developers
  • http://www.theedgemarkets.com/article/govts-housing-schemes-do-not-distort-market
  • http://www.freemalaysiatoday.com/category/nation/2017/11/14/property-market-will-be-badly-hit-in-2018-says-expert/
  • http://www.freemalaysiatoday.com/category/nation/2017/08/20/property-market-bubble-set-to-burst-says-think-tank/
  • http://english.astroawani.com/business-news/there-no-property-bubble-malaysia-160551
  • https://www.nst.com.my/business/2018/02/334879/malaysia-unlikely-face-property-bubble
  • https://dbv47yu57n5vf.cloudfront.net/s3fs-public/pullout/20180323_ep_2616_locked.pdf
  • https://www.thestar.com.my/business/business-news/2017/11/27/moodys-expects-decline-in-property-prices-due-to-supply-overhang/#zI4BuSEAHm0lxl7s.99
  • http://www.theedgemarkets.com/article/ringgit-strengthens-more-2-year-high
  • Charts from BNM Quarterly Bulletin, Third Quarter 2017
  • Featured Image from hazuism.blogspot.com
  • https://csiprop.com/malaysian-property-market-decline-2018/
  • https://themalaysianreserve.com/2018/04/02/property-market-on-wait-and-see-attitude-pre-ge14/

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