But prices of residentials likely to be resilient
The property market is expected to continue to be weak for the next six months, with some activities expected after the Hari Raya period, according to a real estate personnel.
Despite the continuing weak market, prices of residentials are expected to remain resilient, says Elvin Fernandez, managing director of property consultancy Khong & Jaafar group of companies.
Over the last six months, one of the most frequently asked question centres around prices. Because of the slew of press reports about the sector experiencing a slowdown, the assumption was that there would be a noticeable drop in property prices. “The property market does not behave like the stock market,” he says.
Even when the conditions are weak – as in the current market – the residential market is resilient because of the large pool of owners. Rentals too are holding up well.
However, this does not mean prices in the various sub-segments will drop.
It will only drop if there is a “cataclysmic event, like the Asian financial crisis” of 1997/98 when prices dived 30% in some areas, says Fernandez.
His company has seen a 20% reduction in requests for valuations. Mortgages are also down by one-fifth.
“There is less buying on the secondary market where people buy directly from house owners,” he says. This are just the effects of a slow market, as a result of various factors. The goods and services tax being one of them.
Fernandez says this “slightly subdue sentiment” is expected to continue until the end of the year. He says that comparing 2010 and 2015, this year is expected to be slower.
He outlined several weakness in the market.
> Those who bought multiple units on developers interest bearing schemes
> The office market is clearly in over supply condition in the Klang Valley
> A general weakness in the shopping mall market
> The high number of small units of about 500 sq ft in the Klang Valley
Fernandez said these weaknesses are dormant but will surface in any major downturn. Those who bought multiple units may be experiencing some pain in selling and renting. In the mall segment, people are generally not spending.
People, he says, tend to look for “observeable” drop in prices but this “drop in prices” is a result of weaknesses in the market which remain dormant. These weaknesses surface when a major cataclysmic event takes place.
“When you study the market, it is equally important to look for areas of weaknesses other than looking for a statistical drop in prices,” he says.
He says shophouses that are located within a good catchment may be safe, but the issue is shop offices. These sub-segment has shops on the ground floor and offices above. Leasing the offices upstairs may be a challenge.
PA International head of research Evelyn SL Khoo says there are two prevailing psyche today - those who have the money but willing to wait for a good buy, and those who are sceptical of the market. The second half will be softer than the previous six months.
She says owners are trying to sell but there are neither takers or tenants. Unemployment is another issue creeping in.
Late last month, Maybank Investment Bank Research said it expected Malaysia’s unemployment rate to average higher at 3.1% for this year, from the 2.9% in 2014. The total number of retrenched workers, although small, had been rising since the third quarter of 2014. Affected industries include oil and gas, finance, insurance, real and business services and transport, storage and communications.
There is a domino effect when businesses contracts, she says.
To weather the current slow period, she says developers have been are doing three things.
> delaying launches
> relooking their offerings to make them attractive and affordable
> providing innovative packages in order to lower entry
Stable first half
Reapfield Academy CEO Gerard Kho says the market during the five-month period between January and May saw a drop in the number of transactions of less than 10% compared with the same period last year. In terms of ringgit value, the drop is less than 5%.
“This means that prices are stable,” Kho says.
In the secondary market where people buy directly from house owners, the number of transactions has dropped by about a-fifth compared with a year ago. Purchases in this market involve a bigger outlay as the properties are already existing, as opposed to buying directly off-the-plan from developers.
Developers, say Kho, are also giving 10% to 15% rebate. After deducting the various fees from the rebate given, buyers may still have some money to pocket. They do not get any “help” when buying directly from owners and they view the three- to four-year wait as an opportunity to save for their purchase. Interest has returned to launches because some of them are “fairly priced”, says Kho.
There are essentially two groups of buyers today – the first time buyers, or those who just want to hedge, and the investors who buy to rent.
Those who buy to flip have left the market as it is simply not worth the while. The question today, says Kho, is how sustainable is this developers rebate of 10%-15% moving forward.
He says the demand in the July-September quarter will indicate if giving rebates is sustainable. Developers may instead defer launches until next year in the hope of getting higher prices, say Kho.
To spur interest, banks are also expected to offer attractive financing packages towards the later part of the year. However, this hinges on what the absorption rate will be in the July-September quarter. He says there is liquidity but people rather “conserve” cash.
Since last year, developers have outsourced the sales and marketing of their projects to agencies as some of them have cut staff in this department, or because they find it challenging to sell.
Commission for agents is higher in project sales - as high as 5% - compared with the 3% ceiling in the secondary market. Therefore, it is more worth their while to go to a fixed place and have buyers come to them rather than they going after buyers.
From the property business point of view, there is a need to study buying trends among consumers today. The first is that investors will buy only when the price is right, because of the various measures in place. That is, only if they can afford it, unlike before.
Secondly, there is nothing dramatic happening. Interest rates have not jumped. People have jobs but are not spending. “Unless something major happens, we don’t see too many changes,” Kho says, adding that the global financial crisis of 2008 had little impact on the market.
Prices today are “not inflated,” he says.
PPC International CEO (Agency) Siva Shanker says he expects interest to return in 2016 but pricing and transaction volume will be “flat” until the year end.
The situation will improve “gradually” after that.
Siva says the biggest issue in the secondary market is “the big gap” between asking and transaction price. Until house owners realise they are asking too much, their property will remain unsold.
He says what they are asking is not reflective of the market value.
“There is some perception that prices are falling but this just a perception. What is falling is asking prices (as owners decide to drop prices when they see no interest),” he says. - By The Star