There are four reasons behind the cooling property sector in Malaysia:
1. Oversupply in the market
According to Malaysia’s Valuation and Property Services Department, land prices and launch price of residential properties have doubled from 2011 to 2013. With so many projects launched during this period, there will be a huge supply of completed residential units flooding the property market in the next two to four years.
From 2011, developers jumping on the bandwagon loaded Johor, Selangor and Penang with countless upscale residential projects. Even overseas developers, including China developers, rushed to the country to diversify their investment. There were frantic moves such as building a man-made island without proper planning. And there is no authority to keep overbuilding in check.
Any industry can prosper with healthy organic growth. On the contrary, heavy dosage of growth hormones that promotes unnatural growth can result in many negative side-effects that ends up with premature mortality.
2. Disconnect between price and budget
2. Disconnect between price and budget
There is huge injection of investment funds and impressive development plans in Iskandar. They contribute positively to the long-term economic growth in the area.
However, it takes time to reap what you sow. Earning power of the common people takes time to catch up. The 70 percent loan-to-value ratio is now beyond the capability of many home buyers. In fact, there appears to be a widening gap between the escalating property prices and the affordability of the home buyers.
3. Concerns of foreign buyers
3. Concerns of foreign buyers
Of course the high-end residential projects built by foreign developers are not relying on take-ups by the locals. But foreign buyers are deterred by the property cooling measures of Budget 2014, including 1) doubling of the price threshold to RM1 million; and 2) higher Real Property Gains Tax of 30 percent for properties bought by foreigners sold within five years of purchase and 5 percent hereafter.
For Singapore investors, they also find themselves at the mercy of the volatile relationship between the two countries on disputes over different issues like tolls, border or water.
The weaker Malaysian currency is a double-edged sword. The current exchange rate makes it look very attractive to own a property in Malaysia. But no one can guarantee that the ringgit won’t continue to weaken and will work against you when you want to exit the market one day.
4. Where is the resale market?
4. Where is the resale market?
According to Malaysia’s Ministry of Finance, in the first half of 2013, only 1.5 percent of property transactions was above RM1 million in the Johor state. Those bought before 2014 with prices lower than RM1 million will have to wait for their properties to rise above that magic value of RM1 million until they can sell to foreign buyers.
Unlike Singapore, Iskandar is a testbed but not a tested market. Until recently, we have seen active buying but not active selling.
If one day properties with prices over RM1 million drop below the magic number of RM1 million, with all foreigners ineligible to buy, even if the locals are interested to take over, how many of them can afford the high quantum of these properties?
When everybody is talking about a hot market, it’s not the time to buy. It’s time to sell.
When everybody is talking about a hot market, it’s not the time to buy. It’s time to sell.
Properties in any country is a good investment. The key is the time and the price you enter the market. That is exactly the homework property investors need to do before they buy anything in any market.
