Interest rate to affect property demand in Penang

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I have moved out of Penang for the past 5 years. My son was even born in KL. However, I like Penang property market because the island side remains just an island while the mainland side has the second bridge as a new connection to the Bayan Lepas industrial parks. It meant that it is now possible to stay in Batu Kawan and travel to and fro if Penangites wanted to. At the moment, the bridge toll is what they kept thinking about even though they actually save a few hundred thousand ringgit for similar type of properties in mainland versus island. There’s nothing wrong to use the first bridge but do ask the Penangites who use it in the morning rush hour and you will get some great stories. Perhaps we listen to expert’s opinion about the Penang property market? A good friend was quoted in TheStar recently.

Rain& Horne Malaysia senior partner Michael Geh says that the Penang property market will be affected by the 25 basis point rise in overnight policy rate (OPR). He said, “You can argue that it is not a lot. If wages increase correspondingly and the cost of doing business remains the same, there won’t be much impact.” He added, “The median household income in the country is currently RM5,228 compared to RM4,585. But (even at that level) of the income, it would be very hard for them to get a bank loan.” This would mean that the, “The absorption of the excess supply would slow down.” Full article in The Star here. Michael also shared that it may take three to four years for the incoming supply of residential properties in Penang to be fully absorbed.

Then he mentioned something that every Penangite I know would always be telling me. They do not like to buy properties near hill slopes and flood-prone areas. They (Penangite friends) would then usually show me some of the photos about the landslide or even the flood situation. Due to this preference for Penangites, Michael shared, “The pricing of properties near hill slopes and in flood-prone areas could drop below market price.”  He also shared that in the sub-sale market, the price of high-rise properties on the island has either stayed stagnant or contracted slightly since 2014. At present, the selling prices for a detached landed property is from RM2mil to RM2.7mil, depending on the size and location. The number of sub-sale transactions for Penang is dropping slightly from 5,200 to 5,000 while the value stays flat at RM2.13 billion. (This meant that prices wise, it’s going up. Let’s wait for the actual results to confirm later on)

Michael said that with prices remaining flat, the rental yield would be the same too. In fact the returns should stay above 5% in order for residential properties to be attractive. He shared that the rental yield for condominiums on the island is still around 3.3% to 4.2% per annum for North-East district, while for South-West district, the yield is between 3.2% and 4.6%. He also shared, “With the high pricing of residential properties on the island, we can expect more young people to rent rather than buy. This is why we are seeing serviced condominiums being developed nowadays.” Here’s that full article with all Michael’s views in TheStar. 

Actually the rental yields in Penang has never been attractive if we are to base it on 5 percent. Even when the property is RM600,000 the typical rental would not be higher than RM2,000. Of course, the owner could have bought the condo earlier for RM400,000 and that would help in the rental yield. Moving forward, I think we will see a lot of the 800-850 sq ft affordable apartments coming into the market now and many more years into the future. Developers are building them feverishly and pricing them within the more comfortable level of the middle income buyers. For all potential buyers, it’s better to buy for own stay and not trying to buy and rent out. The rental yield cannot be attractive when there are thousands of other similar units all around our unit. Happy investing.

written on 20 March 2018

Next suggested article:  Penang Property Outlook 2018 – What’s brewing?

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