Mining The Gold For Iskandar Subsale Market

Attractive Subsale Market Outlook

2014 has been a lacklustre year for the Malaysian real estate market due to the property cooling measures that was carried over from the previous year. The New Year has seen little changes and 2015 has turned out to be plagued by bad news since the start of the year.

Whether it is the falling crude oil price, the poor performance on Bursa, the weakening ringgit or the downward revision of the economic growth forecast, the market just cannot seem to catch a break. The biggest question on the minds of home buyers and investors is whether the property prices will follow the downward adjustment.

The short answer by many experts is; while there is a slowdown in price appreciation, there is no sign of falling prices in the market. After all, the GST has just kicked in and the ever-increasing construction cost underlines the fact that prices are unlikely to decline.

Falling Prices Unlikely

There is almost no escaping a short-term inflation with the implementation of the GST, and Bank Negara is expecting the consumer price index to increase by 2% to 3%.

With depreciating ringgit and rising price index, properties naturally become one of the most direct means of wealth preservation.

However, the market is driven by sentiments and the fear of potential slowdown in economic growth has caused many potential buyers to sit of the side-line while waiting for prices to dip before entering the market.

The biggest problem with waiting for price to fall is that it is unlikely to happen as the series of cooling measures since 2013 have effectively brought the prices close to their real value. In addition, most developers have chosen to slow down the pace of new launches and this will further reduce excess supply in light of the prevailing market sentiment.

Resilient Prices with Pockets of Opportunities

REHDA President Datuk Seri Fateh Iskandar believes that the reduction in supply will further exacerbate the imbalance between demand and supply. The shortage in supply will likely push price higher. Under the GST, new launches can be expected to cost some 6.2% higher and this will further weaken purchasing powers.

On the other hand, there might be some downward adjustments in certain property types on the subsale market and therefore one might be able to pick up some quality properties at a slightly lower price.

Industry experts stress that distinctions have to be made between the slowdown in the real estate transaction and price increase against falling prices. After all, what the market is experiencing is a fall in price appreciation instead of a fall in actual prices.

What we are seeing is a mismatched of supply rather than an oversupply as some quarters are worried about. The fact remains that Malaysia’s young demographics mean that there is still a large pool of potential home buyers, and the apparent supply issue we are observing now is simply a case of a market with large number of high-end properties where the appetite lies with affordable housing.

Rental Yield Underperforming

It is also interesting to note that while prices of properties in the Iskandar Johor Bahru have remained very resilient, there is intense competition on the rental market and rental of high-rise residential properties have remained stagnant for years now.

In fact, the average rental yield has fallen to 3.5%, which is about the same for fixed deposits. The — issues will further intensify in 2015 as many of the newly completed properties enter the market.

Rental return is an important consideration when purchasing a property as it can be used to offset some of the monthly repayment. However, the low rental yield meant that the holding power is truly tested and becomes the difference between waiting out the stagnant period and cashing out early.

Financing Issues Require Relook at Strategy

The tightening lending requirements over the past few years have also contributed to the slowdown in the market. Except for a very small number of buyers, most home buyers need to take a mortgage and the high rejection rate is causing some of the poor figures we are seeing.

Properties above the RM 500,000 threshold will most likely suffer from downward pressure while those under RM 500,000 are expected to push strong as the demand for properties in this price segment is very high.

Experts are advising home buyers, particularly the younger buyers, to consider buying an affordable housing that they can comfortably manage even if the location is slightly further away from their ideal location, and only upgrade when they have the means. It is important to lock in on a value generating asset rather than forcibly buy their “dream property” that they can ill afford now.

Secondary Market a Good Hunting Ground

The GST also makes sub-sale properties an attractive option as the authorities have made the distinction between those who sell 3 or more units of properties within a period of 12 months and those who sell less than 2 units or less.

The former would be required to register for GST while the latter will not need to levy GST on the buyer. This means that there is potential saving for buyers of subsale properties if one takes time to shop.

As in any market, there will definitely be properties that are priced below the market price and diligent investors who know where to look can definitely pick up a bargain. However, one needs to keep the fundamentals in sight and not be lured by properties that are selling at too attractive prices. Ultimately, location remains a key determinant of the capital appreciation of a property.