A Leaner Year Ahead for Property
Property owners and sellers are adjusting their asking prices downward amid mixed macroeconomic indicators as the national Home Ownership Campaign (HOC) draws to a close, as highlighted by the PropertyGuru Market Index (PMI) Q3 2019 report.
The overall PMI for the country declined 0.9% year-on-year (YoY) and 1.2% quarter-on-quarter (QoQ), underscoring bearish sentiment among industry stakeholders in both the short and long term. This follows on a brief 0.8% upswing in asking prices from Q1 to Q2 2019, on the back of numerous housing initiatives and incentives by the government.
Asking prices in most major Malaysian markets, including Kuala Lumpur, Selangor and Penang, saw similar QoQ decreases and long-term declines. Johor was an exception, with marginal YoY growth of 0.3% and sideways QoQ movement in Q3 2019. With the recent tabling of Budget 2020 and its lack of significant drivers for property, this sideways momentum is likely to continue into 2020.
Property prices: an ebbing tide
Penang saw the steepest QoQ decline in asking prices, with its price index down 1.5% from 94.8 to 93.4 in Q3 2019. The decrease follows on consistent growth since Q3 2018, with its PMI peaking in the first quarter this year at 94.8 points.
This growth over the past year is likely attributable to increased demand following Budget 2019’s stamp duty exemptions and other incentives, as well as increased sentiment concurrent with the HOC. However, the discounts and other promotional measures associated with the campaign may have had a downward impact on asking prices in the long term.
As with other markets in Malaysia, the long-term trendline for Penang exhibits a marked decline, pointing towards a buyer’s market moving forward. This is reflected in a YoY decrease in its PMI of 0.6% in the third quarter this year, with sellers adopting defensive positions in response.
“Continued increase in supply was seen in Q3 2019 at 22%, a positive turn compared to the previous quarters in 2018, demonstrating that sellers evidently want to let go of their properties, but are still adopting a wait-and-see approach,” says PropertyGuru Malaysia Country Manager Sheldon Fernandez.
The Kuala Lumpur market exhibited trends similar to Penang, though to a lesser degree. Asking prices fell 0.9% in the third quarter this year, following a brief spike in the second quarter. This comes amid a longer-term downward trend since Q1 2015, though this was less marked than Penang’s decline over the same period.
“There is still a large portion of mismatched Kuala Lumpur properties in the market, and properties in the affordable range are still widely in demand, especially with a highly desired address like KL. It remains to be seen how Budget 2020’s revised foreign ownership guidelines will impact these mismatched units,” said Fernandez.
As with Penang, the downturn in asking prices this quarter may be attributed to downward pressure on prices due to the HOC. The trend can also be seen as a longer-term adjustment as demand for affordable housing and developer preferences for higher-margin property tiers find equilibrium.
Similar to Penang and Kuala Lumpur, sellers in Selangor adjusted asking prices 0.8% downwards in Q3 2019, with its PMI falling from 91.9 to 91.1. Again, the decline comes amid a longer-term downtrend since Q2 2015.
At the same time, the state exhibited strong year-on-year trends, with Q3 2019 as the fourth consecutive quarter showing YoY increases. This means that despite the longer-term decline, sentiment this year has been consistently better than equivalent quarters last year.
“On housing loan approvals, the Real Estate and Housing Developers Association (REHDA) had received reports from developers under the association on the difficulties that homebuyers face in getting their loans approved. However, the loan rejections occur with regards to the lower-end properties, while the middle and higher-end segment do not face this issue,” said Fernandez.
To avoid loan rejections, PropertyGuru has introduced financial eligibility tools such as PropertyGuru Loan Pre-Approval, which allows home seekers to know for sure how much home loan financing they can get from the bank before purchasing any properties. By doing so, they can avoid the black marks associated with home loan rejections.
Silver linings and the bigger picture
Johor was the only state among the major markets to showcase positive trends in Q3 2019, with a long-term uptrend in asking prices since Q1 2016. Quarter on quarter, asking prices remained static in the third quarter; however, this was an improvement over the declines seen in other states.
It’s worth noting that with Johor realising investment worth RM172.2 bil in H1 2019, 39% of which comprised foreign direct investment, positive sentiment is likely to spill over into its property segment. As such, the state’s strong price and transaction momentum are likely to continue into the near future.
“Supply volumes, which stood at a 118% increase in Q2 2019, maintained an excellent trajectory this quarter with 119% growth, indicating that the state’s properties are experiencing good take-up rates thanks to the demand from both locals and foreigners, thus allowing prices to readjust,” said Fernandez.
Moving forward, mixed macroeconomic indicators, both internal and external, indicate a neutral outlook for property in the next few quarters. Dampening factors include ongoing US-China tensions, with slowdown effects for countries with high China exposure, such as Malaysia.
In addition, escalating tariffs have hurt global value chains (GVCs) worldwide, with far-reaching consequences for GVC-related economic growth. Internally, the country’s demand-supply mismatch for property in key markets continues, albeit at a slower rate, while Budget 2020’s property provisions have been targeted primarily at first-time purchasers and interim measures for the residential overhang.
“While the Ringgit has strengthened following positive undertones in recent US-China trade talks, and interest rate environments in general have improved following rate cuts by Bank Negara Malaysia and the US Federal Reserve, the conclusion of the Home Ownership Campaign, continued application of revised real property gains tax (RPGT) rates and absence of strong driving provisions for property in the recent Budget spell out a leaner year for property ahead,” concluded Fernandez.