This article first appeared in the January 2015 edition of Property Hunter magazine.
Many are still buying. Even more are waiting by the side. Real estate agents are complaining that servicing a buying customer needs lots of patience these days. Even my lawyer friend said that the number of transactions have really slowed down for 2014 compared to previous years. She was still very busy but I think she wanted to say that she can be busier if need be. Yes, we are talking about the property market of Malaysia. On one hand, there are groups urging the government to help them buy their first property which the government is trying through incentives, PR1MA etc. However, in certain hotspots in KL / Selangor, the prices are very strong and there’s no sign of it declining even with the current slowdown. Of course for the newer property markets like Iskandar, it has shown a downtrend but my personal thinking is that if Singapore’s property market is on a downtrend, it’s hard for Iskandar to maintain its uptrend momentum. Country basis, Singapore is the largest investor within Iskandar today. Thus, not entirely due to just the demand and supply equation which is never applicable for newer areas. For new areas, it’s all about expectations. If the expectations are met, the prices and the demand go up as well as the other way around. The beginning was indeed tough for Iskandar and then it got easier and suddenly it got hotter with the entries of the China based developers and these days, it has the ‘oversupply’ cloud hanging above it.
Are gloomier days coming? Most of the time, the economic growth underpins the property market. Good growth means more income and this translates into higher property transactions. Well, Malaysian economy will still be growing but according to one latest analysis, this growth is on a downtrend. Projection is by UBS Investment Bank. It’s Senior ASEAN and India economist Edward Teather said that the causes include a slowing domestic and investment growth due to the current fiscal restraint, prudent monetary policy and a maturing credit cycle. For 2014, Malaysia would grow by 5.5 percent, dropping to just 5 percent in 2015 and a further drop to 4.7% in 2016. Not everything is negative though, fortunately, the fiscal deficit is expected to decline to just 3.5% of GDP in 2014 and by 2016, dropping to just 2.7%. This meant that the route towards a balanced budget is on track. Consumer Price Index would however grow to 4.2 per cent before dropping back to 2.5% in mid 2016. In fact the policy rates are expected to be maintained from now till 2016. With the current volatile economic environment, I think UBS may be right. Bank Negara may have to continue the current accommodative stance until the growth is quite certain.
Booming is not likely but I think consolidation has started. I hope you noticed the last few sentences above? Actually, the overall prediction by UBS points to a CONTINUOUS economic growth. For the property market to start moving again and the prices to be moderate instead of going down, the economic growth must be continuous. The economy must be resilient enough and the central bank must continue to play a very prominent role, especially as Malaysia is a small country. Any bad news around the world would affect us easily. I seriously think the days of sudden property prices growth of the past few years have stopped and I hope it will be maintained from now onwards. It has always been said that comparatively, Malaysian property prices are cheap versus neighbouring countries and I do agree but within our own country, I have not seen sufficient evidence that our overall incomes are growing in tandem. In other words, should the prices be growing indiscriminately due to a minority of greedy speculators, we are looking at a bursting property bubble soon. Affordability is on a severe loading test today. Fortunately, these days, many huge developer names are saying that their focus is now on affordability. Remember the days when over 500 units of high-rise project are considered high density? Today, over one thousand unit per project is not considered that abnormal anymore. With huge number of units being offered, prices should moderate moving forward and the rises should be capped.
Since the Malaysian property market is now focusing on affordability instead of luxury or for the greedy, would it be safe then? This depends on what would the effects be when the ‘Doom’ predictions come true from outside of Malaysia. IMD Business School’s Professor, Arturo Bris has predicted a crisis by April 2015. He gave many reasons for his predictions. The Jerome Levy Forecasting Center said that its half dozen analysts have attached a 65% possibility of a worldwide recession by end of 2015. David Cameron, Prime Minister of the 6th largest economy in the world tells the world that the next crisis will be coming soon. The ‘soon’ would be 2015. Meanwhile, using the stock market as a benchmark, Jeremy Grantham, chief investment strategist at Boston-based money-management firm GMO said that the stock bubble will burst when the S&P 500-stock index reaches 2250. Please google for the latest number. As of 15 Dec, it’s only slightly above 2,000 points. This meant that bubble is safe unless the index rises another 10% or more. All these predictions are from prominent personalities who have access to far more data than many of us would. Thus, their research and analysis would definitely carry much more weight than majority of what your friend is saying. Does it mean that ‘doom’ is indeed the flavour of the day in 2015?
Tell me, if these predictions all become true, what would happen to the property market? I cannot answer what you should do but this is what I am doing. Fixed deposits. I did not increase my fixed deposits. I think I have enough there already. Please do note that it is a must to have sufficient fixed deposits to last you 6 – 12 months. Properties? For 2014, I have decided that unless the new property is way too attractively priced, I would only be buying secondary properties and the focus is on easy to rent out type of properties. At least even if rentals fall, I should still be able to afford the mortgage for some time. I have also sold two of my properties which have given me gains and both have passed the RPGT periods. I am not a speculator you can see. Stock market? I have bought more units of a few defensive stocks. No idea if these would be affected but I prefer to be cautiously optimistic. Unit Trusts? No changes. I am still buying on a monthly basis. Bad times do not last forever and it is what you do during bad times that you determine if your good times are coming after the bad times. Whether it’s gloom, boom or doom, make the best of it. The worst action one can ever do would be, ‘oh dear, the bad times are coming, I think I better not do anything now’. Happy preparing!
written on 10th December 2014
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