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Why is the property market subdued currently?

The reasons always stated for the current market condition has always been the government’s cooling measures, the implementation of Goods and Services Tax (GST), the falling ringgit versus US$ and SGD, the political situation and even oversupply. When we add up all these, one newspaper article likened it to a ‘perfect storm.’ In other words, whatever bad things that may happen are all happening at once, which is often a rare scenario. Due to all these reasons, it has caused potential buyers to hold back because they are now worried about their purchase especially those buying for the first time and thus usually more fearful than repeat purchasers.
I must add however that all these are also caused by the fact that most decisions are also based on the “herd mentality.” When everyone talks about negative things, of course it is all bad, gloom and doom, right? Have we forgotten however that there are many analysts which are still giving tips on some undervalued stocks to buy? What about the fact that property is always a need and not necessarily a desire? Surely we realise that we continue to pay rental every month as long as we do not own our own roof over our head? Of course, some would now say but rental is lower than the potential mortgage! Yes, but over time, our rental amounts to zero while our home continues to appreciate as long as we are not buying in the middle of the desert or happen to be that few unlucky ones who somehow bought with our eyes closed.
In an article in The Star recently, PPC International CEO (Agency) Siva Shanker, the prices for the high-rises especially the luxury condominium segment are weakening because of oversupply. He said, “The high-end condo segment has lost a lot of value since the 2008 global financial crisis. Many expatriates left the country and rents never quite recovered, with some sectors seeing as much as a 30% drop in rents.” Siva predicted that rents of these high-end condos could drop a further 20 percent to 30 percent within the next 12 months. Indeed a negative assessment for the owners of these luxury units.
I personally think the real reason was because many buyers thought good times would last forever and everyone kept buying at higher prices. Due to this crazy demand, developers kept launching and continued building. In other words, supply was increasing way faster than real demand. Prices move up, rental would come down. When there are less demand, naturally rentals go down because of competition from newer or more attractive units and when it does, some buyers who were holding way too many units would be forced to sell at a lower price. This is the spiral downwards. Remember the Developer Interest Bearing Schemes (DIBS)? It costs nearly nothing to buy.
Finally, we should note that GST has happened will not be rolled back. There is no way the market would continue to be affected by this one for a long time. Falling ringgit and buying of first home are two different things because I seriously do not think prices are going to go up currently. It’s best to buy when times are not at its best. The export and import numbers for the past 4 months would have shown the resilience of the manufacturing sector which is continuously adjusting even with Ringgit having fallen so much. I personally do not see political situation in Malaysia to be game changer. I hope I am right. Else, perhaps that’s the end of property market vibrancy for quite some time yet.
For those reading kopiandproperty.com since beginning, do note that I always think that prices have risen way too high for many hotspots. With the new MRT stations, more areas with less demand would see better demand. It does not necessary have to be that same few areas anymore. Always remind ourselves. Just a  few years back, there were just no substitutes for these hotspots. Today, think of What we want, what we need, be real and suddenly many choices would appear. Malls? Schools? MRTs? Expressways? Integrated developments where a big plot of land is slowly transformed into an attractive area for long term stay? There are many upcoming newer ones, really. Look further, decide better and save more. Do not pay premiums on top of premiums again, at least till the next property boom which no one knows when. Happy deciding.
written on 13 Oct 2015
Next suggested article: Waiting for the lowest price before buying the perfect property
 
 

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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