Why Malaysia’s market woes may soon be over

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Finally, some good news for the country’s real estate sector

The Petronas Towers dominate the skyline in Kuala Lumpur

It is not quite a riches-to-rags story, and it’s hardly likely to bring a tear to the eye of those who take a dim view of real estate agents, but a 2016 report from The Malay Mail Online on how real estate agents took up second jobs to pay their bills offered a stark insight into the sharp end of the Malaysian residential property market lately.

Michael, a 38-year-old realtor, had gone from earning “five figures almost each month” in 2012 to having to supplement his income by driving for ride-sharing service Grab in order to keep up the payments on his car and house.

“My property listings in Bangsar, Damansara and some parts of Johor and Ipoh were doing great,” said Michael with some nostalgia. “I used to sell about two to three high-end properties a month but now I hardly sell one and even if I do, the property would be a mid-range one.”

The official figures would corroborate Michael’s tale of woe. According to Malaysia’s National Property Information Centre (NAPIC), over the course of 2015, residential property transactions slid 4.6 percent in volume and 10.5 percent in value from 2014 levels. New launches also declined by 19.2 percent from to 70,270 units in the same period.

The most recent quarterly figures from NAPIC, meanwhile, show that the gloomy trajectory has steepened in the first three months of 2016. Transactions were down 16.6 percent from the same period in 2015 and down 15.7 percent from the last quarter of 2015.

With oil prices slumping worldwide  and the ringgit now Asia’s worst performing currency, the oil-exporting country’s economy is faltering. The GDP declined from USD10,737 per capita in 2014 to USD10,222 in 2015.

Prem Kumar, executive director of Jones Lang Wootton, suggests however that these grim economic conditions counter intuitively give some cause for comfort to those involved in the property market.

“What is important coming out of this is that we have been accustomed to all of this for the last two years at least,” he says. “If these macro issues over the last couple of years have all been factored in, surely if the market was going to have a major issue, it would have done so by now.”

Good, strong houses tend to have good, strong foundations. Kumar believes Malaysia has just that with a “strong, solid base of population” and fairly low unemployment rates. Historically, he believes, downturns or slowdowns in the Malaysian property market have been caused by external events such as the Asian financial crisis of 1997 or the American subprime crisis of 2008 rather than any internal dysfunction.

Areas such as Sabah, on Borneo, offer decent value and an excellent quality of life

More: What makes Malaysia one of the best places in the world to retire?

And, odd though it may at first seem, when it comes to supply and demand, the currently languid Malaysian property market also appears to be doing rather well. An H1 2016 study by PropertyGuru reported that 60 percent of respondents are keen on buying a new home within the next six months.

“It typically takes an average of about six or seven months for Malaysian investors to wake up to the idea of buying a property to actually making that purchase,” notes Sheldon Fernandez, Malaysia country manager of PropertyGuru. “The big part of their process is searching and viewing properties, especially in online platforms. According to our latest investor survey, Malaysian consumers today are looking into the market at large.”

Fernandez adds that consumer sentiment bottomed out in the last half of 2015 up to the first semester of 2016, but it has been moving towards a bit more positive sentiment by the end of the year, with majority of home-seekers looking to buy in the primary market.

Indeed, in PropertyGuru’s survey, the top considerations of Malaysian consumers are: price, location and size of property. Local banks are currently tightening loan rules – computing from a borrower’s net income instead of gross income – which can make it more difficult for prospective buyers to get their home loans approved. And despite residential prices having been stagnant in recent quarters, the report stated that consumers feel that property prices are increasing at much faster rate than affordability rates.

Fernandez also says that another huge consideration for consumers is assessing the suitability of locations, now that many developers are building properties in areas that aren’t known to the usual property buyers, like Rawang and Negiri Sembilan.

Meanwhile, Puchong, Klang Valley, Johor Bahru, Nusajaya and Skudai have become the favoured investment locations outside Kuala Lumpur, according to PropertyGuru data. Developers in these areas specialise in smaller houses in an effort to address the demand and reduce asking prices.

Other areas proving particularly attractive to wealthy locals and foreign investors alike are the UNESCO World Heritage recognised area of Penang where salubrious waterfront developments and high-rise condominiums have been springing up along the coast.

Meanwhile, the planned high-speed rail (HSR) line between Singapore and Kuala Lumpur, due for completion in 2026, won’t just benefit the capital as it whisks passengers between the two termini in just 90 minutes. With stops in Putrajaya, Negri Sembilan, Malacca and Johor, the MYR38.4 billion (USD9.4 billion) project is likely to help stoke the continuing development of the Iskandar Malaysia economic corridor.

Profound infrastructure improvements are also expected to have a major impact on the property market of Sabah, the Malaysian state on the north of the island of Borneo. The MYR12.86 billion (USD3.2 billion) first phase of the Sabah Pan Borneo Highway Project will see much of the existing road upgraded to dual carriageway along a 706-kilometre stretch, connecting the major cities in the state.

Since 2008 Georgetown in Penang, a city on the northwest coast of Peninsular Malaysia has been UNESCO listed as World Heritage Site because of the many original colonial shophouses.

More: Both good and bad news for Iskandar Malaysia

Despite all the challenges in the market, many within the industry remain optimistic, with the current situation being variously described as “knee-jerk” or “temporary.” Having spent more than three decades working in the Malaysian property market, Siva Shanker, CEO of property group PPC International and president of the Malaysian Institute of Estate Agents (MIEA), sees little cause for panic.

“Although things look bad now, I don’t think it will be like this forever, because everything is in a cycle, he says. “The year 2016-17 will see the market finding its level. The knee-jerk reaction will subside and 2018-19 will see the marking beginning to level out and start its upward trend,” Siva adds.

Perhaps the road ahead isn’t actually as bumpy as it looks right now, and Michael will soon be able to steer his career back towards real estate. As far as Jones Lang Wootton’s Kumar is concerned, however, it might be best for investors and estate agents like Michael to focus on the road that lays far in the distance rather than the bumps in the immediate future.

“Now if you are in the market, and you are a genuine investor and you want to buy a property, take it as long term. You do not want to be a speculator because speculators get kicked much quicker. So if you’re an investor, no time is wrong, every time is right, but if you are a speculator, there are only certain times which are right.”

Where to buy

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Tips for overseas investors

Malaysia has one of the most foreigner-friendly policies in the region, allowing foreigners to own an unlimited number leasehold and freehold property, subject to state consent. There are a few limitations, however. These are:

• Properties valued below RM500,000 (roughly USD 112,000). If buying in the state of Selangor, it’s RM2million

• Land or properties with “Malay Reserved” status

• Agriculture land (except if it’s above 5 acres and for commercial purpose)

• Properties restricted for Bumiputra (Malays and indigenous people)

Read next: The ultimate guide to SE Asian real estate in 2016

  • Joe James

    Or, the market has been in a protracted bubble. There has long been an issue with the mismatch of development with local (not foreign) demand. There is a huge surplus of medium and high end luxury accommodations, far outside what the average Malaysian can afford. What’s more, several large projects in this category are coming online in the next 2-3 years; development has been way behind the curve of market response.
    The market, however, got a couple extra puffs from the devaluing ringgit (making foreign investment easier) and the new lending by developers (essentially Malaysia’s version of subprime mortgages). Malaysia, particularly KL, is in the middle of a very spectacular boom and bust, and still their is broad-spectrum denial.