Share This

Showing posts with label Market. Show all posts
Showing posts with label Market. Show all posts

Sunday, August 4, 2024

Property market and affordability

 

Affordability goes hand in hand with income.

Affordability goes hand in hand with income.

THE older wisdom believes that a market cycle typically lasts about 10 years. While this is not set in stone and social media has somewhat disrupted this timeframe, one sector that seems to have moved in tandem with this timeline is the property sector.

The Malaysian property market has been on a downtrend for close to a decade. Take the KL Property Index (KLPRP). It has not revisited its peak in 2024. From a high of 1,524 on Aug 18, 2014, it fell to a low of 495 on March 23, 2020, during the Covid-19 lockdowns.

However, this past year, the KLPRP has performed extraordinarily, rebounding to 1,132 as at July 31, 2024, delivering a yearto-date return of 31%.

Is this the sign that our property market is truly on the path to recovery? It the worst over for the sector which has been in the doldrums for over a decade?

The peak of the property market was marked with the rollout of the popular “Developer Interest Bearing Scheme”.

This scheme essentially allows purchasers of property to pay only the initial deposit, with the developer absorbing the interest throughout the construction period until vacant possession.

This eased the entry for many first-time homebuyers who were previously deterred by deposit and interest repayment obligations.

However, as the market overheated, the government abolished the scheme. Nonetheless, various modified schemes continue to exist in the market.

We started witnessing many businesses diversified into property development.

Firefighting equipment manufacturers, confectionery makers and even textile companies entered the sector and became property developers overnight.

This led to a surge in the supply of properties. We must remember, in the past, properties were built sideways.

With advancements in technology and new regulations such as higher plot ratios, properties started being built upwards, unlocking a significant number of units and pushing up land costs.

There was also the mushrooming of “property gurus” who conducted seminars on property investment, which spurred speculations further.

The worst were those that propagate “compressed loans”, where buyers exploited a loophole in the banking system by submitting multiple loan applications at the same time to various banks for several properties.

This allowed them to borrow loans for several properties as the system then was not able to catch these simultaneous submissions.

All was well and good when the market was hot, as buyers could do a quick flip.

But when the market turned, many of these buyers could neither find buyers nor rent out the properties. Without the financial ability to service multiple loans at the same time, their properties were auctioned by the banks.

This led to a huge number of property units being put on the auction market. The situation was further exacerbated when the pandemic hit, causing many people to lose their income.

At one point, there were more than 200 listed companies on Bursa Malaysia involved in property development. As the supply of unsold units far outpaced demand, there was a compression in margins and write downs for many listed developers.

Sales were affected and many projects which were launched could barely achieve 50% of the sales threshold.

The situation was further complicated by delayed project completions, leading to liquidated ascertained damages (LAD) claims piling up.

The verdict of Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar [2020] 1 MLJ 281 led to many homebuyers filing suits against property developers, with the estimated claims reaching Rm48mil due to the extension of time (EOT) granted between 2016 and 2020.

The property market was indeed plagued with many challenges to a point where a veteran industry leader publicly commented that “the golden age of property sector is gone”.

As with all cycles, there is always a turning point. It seemed from the start of 2024, green shoots appeared for the property sector.

Firstly, the catalyst came when the government unveiled the potential of setting up a special economic zone for Singapore and Johor.

Secondly, the inflow of data centre investments drove up land transactions, with many property developers which had landbanks in Johor starting to cash out at significant premiums to their entry prices.

The average transaction price of agriculture land suited for the data centres was in the range of RM60 per sq ft.

Most of these land were less than RM30 per sq ft a year ago. This led to investors paying attention to the market down south.

Furthermore, banks’ appetite for end-financing picked up in the past two years, with an increase in both loan application submissions and approvals.

The latest Federal Court decision in Obata-ambak Holdings Sdn Bhd v Prema Bonanza Sdn Bhd and two other appeals, which discussed the Ang Ming Lee case, stated the ruling on the EOT shall only apply prospectively and not retrospectively.

This was the cherry on the icing, allowing many developers faced by mounting LAD claims to breathe a sigh of relief. It is quite clear that 2024 is an important year for property developers, with the sector seemingly to be firing on all cylinders.

Yet, the Khazanah Research Institute director in a webinar last week, highlighted that our housing market is consistently unaffordable and was against offering “affordable financing” with long tenures.

She proposed for the migration from the current sell-then-build model to the buildand-sell model like other developed countries.

In my view, this policy idea is regressive in nature and not suitable to the current economic structure of Malaysia.

It is too shallow as the crux of the problem of property ownership in our country is due to low wage growth rather than high property price.

Affordability goes hand in hand with income. If the people’s incomes do not increase, affordability will always be a problem, regardless of whether there is affordable financing or otherwise.

Similarly, the migration to build-and-sell will not help the property market pricing in any way apart from reducing abandoned housing or “Project Sakit”.

The repercussion of a migration in model is far-reaching.

While I do agree that this would weed out many incompetent property developers and offer better protection to homebuyers, the downside would be the impact on the supply of property to the market and risk of financially strong property developers cornering the market, leading to oligopolistic or cartel behaviour.

This would eventually drive asset prices up further due to supply scarcity.

At the end of the day, I believe the rationale for property ownership differs from one person to another.

Some believe that real estate is among the safest and most reliable asset classes for investment purposes and hedging against inflation.

Others believe that real estate has limited upside, hence renting is more practical without the long-term loan commitments affecting their lifestyle preferences. This is especially prevalent among the youth today.

My personal view is that the property sector, like any other sector, has its own cycles, and depending on which point one enters the market, there will be different outcomes.

This will shape individual perspective when it comes to property ownership.

Whether the sector remains positive in the long term depends heavily on two key factors – population growth and a burgeoning middle-income society.

By Ng zhu hann Ng zhu hann is the chief executive officer of tradeview Capital. he is also a lawyer and the author of Once upon a time in Bursa. the views expressed here are the writer’s own.

https://www.thestar.com.my/business/insight/2024/08/03/property-market-and-affordability

Related posts:

Housing affordability is an income issue, what's with the fuss?

Penang property market on the recovery path 

RCEP to boost our property market



Better to buy a car or a house first?

Young buyers flock to property market


Thursday, May 18, 2023

Money in housing, cautious optimism in industry

CLICK TO ENLARGE

 

PETALING JAYA: The property market is expected to remain cautiously optimistic in 2023, with the gradual increase in the Overnight Policy Rate (OPR) since last year likely to affect market activity, particularly on residential demand, says the Valuation and Property Services Department.

The outlook of the workforce in the construction sector and the increase in the price of building materials will also affect supply.

Department director-general Abdul Razak Yusak said internal and external factors, such as economic and financial developments both globally and in the country, would also have an impact on the real estate sector and the sentiment of industry players.

“Looking at the national economy which is projected to grow by 4% to 5% in 2023, supported by continued resilient domestic growth prospects, the property market is expected to remain cautiously optimistic in 2023,” he said.The first quarter of this year alone saw over 89,000 transactions worth RM42.31bil, which was higher than those recorded in pre-pandemic years, he said.

“The seasonal factor in house purchases, which is usually low at the beginning of the year, the increase in OPR and the decline in Consumer Sentiment Index (CSI) are among the factors that contributed to a decline in residential market activity in particular,” he said.

New residential launches, said Abdul Razak, were also indicating a cautious sentiment among developers, with the number recorded at nearly 4,700 units, which was less than those in previous years, while sales performance was moderate at 25.7%.

The decrease in new launches was in line with the decrease in the number of developers’ licences and advertising and sales permits of new housing sales and renewals approved by the Local Government Development Ministry from 5,641 in January and February last year to 2,911 during the same period this year, he added.

Johor recorded the highest number of new launches at 2,077 units or about 45% of the nationwide total with a sales performance of 24.9% while Selangor had the second highest at 791 units or 17% share with a sales performance of 37%.

Abdul Razak said in line with the cautious sentiment among developers, construction activity had slowed down in the first quarter of 2023.

“This is seen as a positive development to balance the unsold supply in the market,” he said, adding that the residential and serviced apartment overhang status continued to be positive.

“The number of overhang units has decreased to 26,872 units worth RM18.31bil in the first quarter of 2023 as a result of market absorption in all states, except Selangor. The volume and value of residential overhang decreased by 3.2% and 0.5% respectively compared with the fourth quarter of 2022,” he said.

Selangor recorded the highest number and value of overhang units, with 4,995 units worth RM4.47bil, followed by Johor at 4,759 units worth RM3.94bil, Kuala Lumpur with 3,423 units worth RM3.13bil, and Penang with 3,138 units worth RM2.48bil.

The purpose-built office (private) and shopping complex segment in Kuala Lumpur and Selangor, said Abdul Razak, should be given attention as there was a surplus of space, which was also expected to be severely affected by the inflow of new supply this year.This is as Kuala Lumpur recorded the highest available private purpose-built office space at 2.53 million square metres involving 290 buildings, followed by Selangor with 1.40 million square metres involving 192 buildings.

For the shopping complex segment, Selangor recorded the highest available retail space nationwide at 0.79 million square metres with 146 buildings followed by Kuala Lumpur at 0.56 million square metres with 97 buildings.

“Developers need to be more thorough and cautious before planning any new development and local authorities need to evaluate in detail before approving each new project,” said Abdul Razak.

Source link