Property market down cycle may be longer than usual

Another not so good news about property market Malaysia. Reported in theedgeproperty, Kenanga Investment Bank Bhd head of equity research Sarah Lim said, “The property market is going through a structural change as key property market drivers are also experiencing structural changes.” In brief, she mentioned that the property market down cycle may be longer than usual. Explaining further, she said that one major market driver; the number of first-time home buyers has peaked and is likely to decline. The other one is the banking sector which is not as supportive to the property market plus the mismatch of supply and demand due to affordability issues.

She further shared that she is expecting a more flattish U-shaped down cycle. This was due to the tightening property measures which has already ‘cooled’ the market. In fact she said the issue is not on the interest rate but lending liquidity. For this to be better, Bank Negara Malaysia would have to address lending practices such as loan assessment methods, loan-to-ratio caps, and valuation of properties. Besides, the lack of affordable projects in urban areas also meant that many did not buy since the projects being offered are not under the RM250,000 to RM500,000 in urban areas where demand is highest. (I think these days, most launches are below RM500,000 but perhaps the size is a stumbling block since these days, the sizes being offered is normally below 1,000 sq ft. Yes, I do agree with her that these day, the launches may not necessarily be in areas loved by many.)

Anyway, I think she has her points based on a lot of research. Allow me to share my findings from many conversations with people who has yet to buy a home today. The number of first-time prospective home buyers, just within my colleagues remain huge. Most of the Gen-Yers have not purchased their first-home yet. However, for now, they are worried that if they buy now, prices may start dropping. Sentiment is also pretty negative. They have heard about home loans being rejected. Last but not least however, most harbour hopes buying in areas which they could barely afford. In other words, if they do push away all the negative sentiments, somehow got their bank loans approved, they would still be stretching their repayment number near to the maximum.

One thing is certain. It does seem that the negative sentiment which I felt should subside before the end of 2016 is still here. With the worsening world economy, I do not think it’s all rosy only in Malaysia. If she is right, then this slow period will be here not just in 2016 but in 2017 too. Start monitoring the profits from local banks in order to get a good gauge. When profits start falling, we know pressure has started building. As of today however, Public Bank just declared an even better dividend than last year in 2015. Happy following.

written on 28 July 2016

next suggested article:   Property market 2018: Crisis or recovery?

 

 

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