A very interesting finding even if the numbers are a little outdated. For Q1 of 2014, all the major markets showed drops. Double digits drop for Kuala Lumpur at 13.4%, Selangor at 10%. Single digit drop for Johor, at 4.5% down compared to Q4 2013. Penang is quite resilient though, dropping just a marginal 0.3%. However, majority of all my Penangite friends said that buyers for units have gone down tremendously and there were no longer queues of yesterday if you remember. People queued up few days before the official launching! Those were the days. All numbers are from National Property Information Centre (NAPIC) as per reported in The Star on 16 August 2014.
The drops are not confined to just residential but it covers all the different sub-segments as well, including commercial, industrial, agricultural, development land and others. This meant that the market has really slowed down. Residential transactions are 75% of the overall transactions. Besides that it was also reported that the number of properties below RM300,000 is becoming increasingly limited, explaining why the drop may also be due to the affordability issue. The NAPIC research also showed that the greatest number of transactions are for properties between RM500,000 to RM1,000,000.
Just yesterday my neighbour in Penang called me and said that her brother is looking for a new condo unit for his family and would like to view my unit. Three weeks ago, someone offered RM620K for my 1,100sf condo which I feel is way too low compared to the market and thus I rejected it. You can see that actually, there are still buyers looking and offering. Just that perhaps the transaction did not continue as both sides could not come to an agreements. I think the trend moving forward is that the over RM1,000,000 condos will not be moving much and whether price falls or not depends on how strong the current owners are.
As for new launches, most of the developers are looking to launch units which are smaller, below RM500,000. This will enable them to continue to build and continue to gain good profits while waiting for the market to move up again before they start to launch the more expensive units. Even in Penang, where the transactions dropped marginally, go to any new launchings where the units are priced close to RM700,000 and you will get what I mean. Even if there are still small crowd but the buyers are now becoming more wary and some feel uncertain with the potential GST change next year, thus are willing to hold back even if prices may increase slightly due to GST. To them this risk is still worth it.
From friends in the industry, even for Q2, it is not likely to show any rebound and the same situation is likely to persist. If you are buying for your first home as long as it meets your expectations and budget, better buy. If I am buying for investment, which I am still scouting, I will not look at just the price per sf. I will use the rental yield instead. As long as it break-even, I would proceed. Due to the price increase, rental yield is lagging and will no longer give you 4-6% like previously. Buy and rent it out, I think even using a conservative 2% increase in price per year, you should see a healthy ‘margin’ in a few years’ time.
written on 16 Aug 2014
Next suggested article: With GST, demand may slow down next year. True?