The year 2015 has ended and 2016 brings… the dawn of a new era?? Property ‘gurus’ are once again offering their ‘expert’ predictions based on surveys and a study of property history resulting in many conflicting and not so conflicting conclusions. After toiling through many property reports and news, a short, sweet and somewhat summarised version of the 2016 property outlook is as follows.
But first, a flashback on the year 2015 and its property concerns.....
2015 Property Flashback
- GST implemented on property purchase on 1st April 2015 resulting in landfall property sales pre-GST and a wait-and-see attitude post-GST
- Tighter loan requirements resulting in high loan rejections, mostly affecting loan applications for medium cost developments
- Slowdown of sales for mid range developments
- Postponement of launch for many new projects as developers wait for market to improve
- Affordability issues from genuine home buyers
- Inflated property prices
- The 153,000 affordable PR1MA homes are definitely insufficient with a total of 1,016,000 applications as of July 2015
Conclusion of 2015
- A slow, soft and sluggish property market
A New Beginning of 2016
And so the curtains drew to a quiet close on the property market in the year 2015 to celebrate the coming of 2016. As per property discussions and opinions, there are a number of conflicting predictions and many more that concur. But the one factor that all the analysts agree on is that 2016 will be a continuation of the market slowdown.
On Opposing Sides - The Pessimist
2016 estimated to be another flat line year for properties
The Ringgit continues to depreciate and the uncertain economical climate continues to play havoc on buyer and investor sentiments. This may just result in better property deals in 2016 with sweeter packages for first time home buyers. Read that as even more freebies with free air-conditioners, branded kitchens and awesome bathrooms, rebates, discounts, free legal fees and free MOT fees in form of “moving in bonus”, perks you won’t get when the property market is thriving! Some developers are even offering a choice of furnishings now, whether the buyer wishes for a “lighter scheme”, “darker scheme” and even their own choice of wardrobe from the developer’s catalogue! Utter bliss…
An oversupply of homes in lieu of weak investor sentiments
Only 54% of total properties purchased are from genuine home buyers; which leaves the other 46% for investors. With the soft market sentiments and slow sales movement with a purported oversupply in the mid-range and high end developments, developers may just start coming up with even more attractive packages to ensure all their goods are sold. A major plus point for genuine home buyers.
A better rental market; depending on which side you’re standing on
As the market gets desperate and property speculators who lack holding power struggle to make ends meet, rental prices of properties are speculated to drop as owners compete to rent their units out for the extra income that will help pay down their property loans. Add on an oversupply of units for rent, rental prices are expected to take a dive. Want to rent a newer, bigger and better home? 2016 may just be the year for you.
Source: Savills Research
Property sales still expected to be slow
The year 2012 saw a drop of 6% in property transactions in the market and 2013 saw a drop of 7%. 2014 continued to slum with sales volume dropping by 8%. The numbers for 2015 are unconfirmed yet, but the total transaction volume was said to have further dropped in 2015 as reported in a press conference in November 2015. Despite the volume of property transactions reducing, it was reported in Q4 2015 that the value of the transactions have increased. Read that as the middle income bracket cannot afford the price of properties anymore, but the high income bracket have continued with their purchases of high end properties anyway.
2016 is expected to see a further decline in property transactions. Because of this, everyone is harping on how the market “glut” and slow property market is a bad thing. But is it really a problem, or are these sentiments coming from only a select market of buyers? Read on to find out…
Property prices still inflated but inflation rate is slowing down
As per NAPIC’s report:
- 2015 Q1: The Malaysian House Price Index increased by 4.1% in Q1 2015P relative to Q1 2014.
- 2015 Q2: The Malaysian House Price Index increased by 5.9% in Q2 2015P relative to Q2 2014
- 2015 Q3: The Malaysian House Price Index increased by 5.4% in Q3 2015P relative to Q3 2014.
As per Global Property Guide’s report:
Subsale properties make for a good buy
The subsale market for properties has long been unexplored grounds because of the harder entry requirements - read that as insufficient funds for lawyer fees, downpayment, assessment fees, etc. Well, good news for those who have the funds and want to get their dream homes second hand. The subsale section of properties have fallen in price by up to 15% in 2015 due to the softer market demands. Bad for flippers, good for keepers!
Misery of miseries, the property market in 2016 is just as gloomy and overcast as the previous years. But every cloud has a silver lining, so let’s take a look at the silver linings of the 2016 property market.
On Opposing Sides - The Optimist
Looking for your 1st home? 2016 may just be the year for you
Property prices are somewhat stable and not likely to take a hike anytime soon (as also opined by some developers), and may also possibly stagnate in the near future. Choices are rarely as aplenty as it is now with the slow market sentiments, and developers are sweetening up their deals diabetic-ally to make their sales report look good; they need to keep their shareholders happy after all. So buying your first home? Keep your eyes peeled this year. Need help making your choice? Get help here
Long term property investment? Start now.
Are you young and savvy with a pocket full of money (or not) and want to make a long term investment in property? Now is the time to dig in. According to studies based on historical research, property prices follow a cycle. 2016 may be the dark of the ocean for the property market, but property prices are expected to start picking up in 2017 or 2018 and reach its peak again in 2019 or 2020. All new developments take between 3 and 5 years to complete, so getting a newly launched project this year is your best bet at making a quick buck four or five years down the line.
Stabilising property prices and ample choices
Really, really want a home but your cash is only coming in in a few months? Fortunately, developments are aplenty and prices of property are stabilizing so you won’t lose out too much if you buy a property in the beginning of 2016 or end of 2016. Prices of property may in fact continue to be stagnant until 2017.
So every cloud does indeed have a silver lining; and whether you can see the silver lining of the property market in 2016 or not depends very much on whether you are the buyer or seller; especially if you are a seller losing your holding power. But every dog has its day, so if you are facing too much difficulties, try refinancing your home or letting it out at a lower price to partially cover your loans and the day will come when your efforts pay off. Need help refinancing? Read this article about The Ultimate Guide of Refinancing
Sharks will appear where there is blood, and in lieu of our weakening ringgit the Malaysian property market holds much appeal for international high risk appetite investors. So let’s see what they see in us.
Influx of High Risk Appetite Foreign Investors in lieu of Weak Ringgit?
Weak Ringgit advantageous for foreign investors
The Malaysian Ringgit has always been one of the weaker currencies in Asia, especially when compared to countries such as Hong Kong, Singapore and Japan. This is especially true in the current uncertain political climate which has further weakened the Ringgit, making it even easier for foreign investors to enter the market.
Malaysian properties considered ‘cheap’
Due to the epic lack of land in countries such as Hong Kong, Singapore and Japan, prices of properties in those countries have always been astronomical with an average 500 sf studio apartment in Hong Kong selling for approximately HKD10 million. Add on their very much stronger currency as compared to the Ringgit, it is with little wonder why they view property investment in Malaysia as child’s play.
Malaysia Top 3 Favourite Retirement Country
Weak Ringgit, comparatively lower cost of living, nice tropical weather. Malaysia happens to be a favourite retirement destination for retirees from colder countries, and developers are beginning to recognise the potential market and have answered with corresponding developments. Awesome retirement homes anyone? Get your fill here!
Government control on foreign buyers
Thanks to the Malaysian government’s restrictions, locals will not be ousted by foreign buyers due to the restrictions the government has placed on foreign buyers. Some of the rulings include a veto on foreigners purchasing Bumiputera units, and a prohibition on developers that stops them from selling more than 10% of their non-Bumiputera units to foreigners.
There are also price restrictions where the minimum price cap differs from state-to-state and even areas. However, the general consensus is that foreigners are only allowed to buy properties with a minimum price tag of RM1 million. For commercial and industrial properties, the minimum price cap is RM3 million.
With government consent selected areas may have differing terms for foreign buyers, where the mixed development of D’Pristine @ Medini Iskandar is not subjected to the price cap at all. In Penang the price cap for residential properties stand at RM1 million on the mainland and RM2 million on the island, with an added 3% levy fee on all properties in addition to the existing RM10,000 application fee for individuals and RM20,000 for corporations.
All the reports and analyses for the 2016 property outlook boils down to a few points:
- The market will remain soft
- Sales will remain slow
- Inflation rate for properties is slowing down (excellent!)
- This is a bad year for flipping properties…
- … but is a good year for buying your first home or a long term investment
- Subsale properties are a good buy this year
- Rental rates are going to drop this year
- Property sales packages are likely to become more attractive this year
- The slow market will only affect those with no holding power
- Loaded money-happy investors are unaffected and will probably buy even more properties this year in lieu of all the fantastic deals
(Written by: Diane Foo Eu Lynn, 15th January 2016)