Malaysia’s 14th General Election (GE14) is just around the corner and everyone is asking the same question, what is going to happen? It doesn’t matter which vertical you are looking at, every market type, including the property market, will be affected by GE14 in one way or the other. No one knows for sure how things will progress.
However, when it comes to property investment, the first thing that you must be very clear of is the fundamentals of property investment. This is shared by the seasoned property investor and real estate consultant, Sean Teo, from Petaling Jaya, Selangor.
The Top Five Fundamentals of Property Investment are as follows:
1. Supply vs demand, including future rezoning and development
In the property market, the one thing that takes precedence over most others is supply and demand, or more importantly supply versus demand. Whenever a demand is greater than supply, the prices of real estate will go up. Nevertheless, if a certain population does not increase in a specific location, or offices and industry are down, then the price will be reduced or remain stagnant.
2. Population growth over the long term
Over the past few years, the trend in new housing supply has been towards the higher-end housing market. Now, the Malaysian property market is characterised by an oversupply of non-affordable housing due to the failure of the market to produce enough of affordable housing for the masses.
Since the population of the middle classes is more or less the same, the demand may stay stagnant during or after GE14; and then the property value will go down or stay the same. We will need to wait and see how demand changes before GE14. One must note that the property market also moves with GDP (gross domestic product) growth, and the growth is currently very solid and on the upsurge.
3. Income vs debt ratios
The debt-to-income ratio is a method for lenders, including mortgage lenders to measure an individual's ability to manage their monthly payment and repay debts.
Yet some investors also adopt a wait and see attitude and there are also those who see the property market of Malaysia as being soft and think that there will be uncertainties in the time period leading up to GE14. These feelings may also affect the market sentiments. They want to wait until the election settles down, so the path that the market will take becomes clearer.
4. Ensuring the property purchase is viable irrespective of tax breaks and depreciation
Investors are also looking at GE14 from various different angles. Some want the incumbent to win as they have already attained political and economic stability. Others are looking for a change because they want new alternatives and are tired of the way things are now. There are also those who are looking at the bigger picture i.e. they are looking at it from a global perspective. They are analysing the situation and seeing what will happen if the incumbent wins or if the opposition wins.
As such, they are all keeping their money on hold and waiting for the results to come out before they start spending and taking risks. Some investors have already made up their minds and are already planning for their future investments even now.
5. Buying at the right point and focusing on the long term
If after GE14 is over, more mega developments are initiated, consisting of infrastructures that will ultimately increase the connectivity of the cities in our country and provide better living experiences, then the economic value of real estate will surely go up. Once the economic activities start moving forward, property values will also increase.
For example, there was a lot of buzz behind MRT line 1 when it was in development, with the media talking about how it will reduce congestion on the roads and benefit all Malaysians who lived and/or worked along the line. It also talked about the economic benefits the line would bring as well as the health and environmental benefits of better connectivity. After the MRT line 1 was up and running, even sellers from Kajang Satay benefited from it.
Of note, with better connectivity and a limited supply of industrial properties in Kuala Lumpur, the demand for office spaces and industrial developments may shift outside the city.
Conclusion
In short, 2018 is the year of a corrective cycle in terms of property value. The market sentiment in the first half will generally be slow or remain stagnant in view of the elections; however, it will most likely improve positively once the election is over and there is a clear direction in political view.
Also, despite the short-term implications, the elections will not change the market or the economy in the long run. Investors will continue to put their money in relevant properties even after the election is over and Malaysia’s economy will continue to grow as time goes by.
As what Teo said, “At times like this, it is more pertinent to look at the bigger picture rather than focus on the here and now.”
(Written by: Felicia Soon, 11th April 2018)
