Sluggish outlook for M’sian property

There is, therefore, the tendency for trends from the previous year to carry forward to the next. This being the second week of the new year, most of us would have read the writing on the wall. Although the government will be revising Budget 2016 – tabled just three months ago – Prime Minister Najib Tun Razak said "we are not in a crisis", just "taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control."

The slow economy is affecting all economic sectors and the property sector is no exception. Compared to the banking and oil and gas sectors, the property sector affects a greater part of the populace because there are more direct stakeholders. Also, over the last several years, a lot more (younger) people have entered the fray. So there is more skin in the game.

The property sector – residential, commercial and industrial – enjoyed robust and rapid expansion between 2009 and 2013 just after the 2008 global financial crisis and it was during this period that many young people entered property investments which they could ill afford. Growth slowed in 2014 and decelerated in 2015, which is expected to impact those with little holding power.

Several consultants say they "do not foresee a recovery this year given the current economic challenges both internally and externally. Concern should be drawn on market sentiments for 2016 as Malaysia’s biggest challenge lies in its net external debt."

Property consultants and valuers in general are weary about predicting price trends because price alone does not constitute the market. It is upholding the value and integrity of the market that is important because of the close relationship between the property and banking sector. And here is where correct valuation is so crucial.

Says Faizan Abdul Rahman, Board of Valuers, Appraisers and Estate Agents Malaysia president: "Valuations underpin the banking sector... valuations for loan securities depend on proper valuations, accompanied by periodic updates to ensure the maintenance of loan security values. "House prices are expected to self-correct in 2016," according to a VPC Alliance spokesman. Although 2015 saw a consolidation with flat sales and falling number of transactions, prices continued to escalate, although at a slower rate driven by rising costs and the implementation of a Goods and Services Tax.

Developers kept prices high by launching lesser units. While such strategies may remain work in the short-term, over the longer term, developers may review their offerings to meet affordability levels of local consumption and to offer acceptable level of returns for the buy-to-let market. Investors are learning the financially painful lesson that paying higher price for a property does not mean higher rental. Although the residential segment will continue to be the main driver of the property sector, it will not be at the momentum seen in previous years. Third quarter sales volume and value for 2015 drop 3.9% and 7.8% respectively compared with the previous quarter, according to the National Property Information Centre. Off-plan purchases and direct purchases from house owners will be impacted negatively.

New launches generally declined in Kuala Lumpur, Selangor and Johor, yet these are the three states with the highest launches last year. The number of launches for 2016 is expected to further reduce compared to 2015 (which dropped compared to 2014).