Sentiment down in short term as Malaysians prioritise bread-and-butter issues, says PropertyGuru.
As the nation endures its third week under the extended Movement Control Order (MCO), Malaysians from every walk of life face increasing uncertainty in the face of unprecedented sociopolitical and economic change.
The impact of the MCO amid the ongoing Covid-19 outbreak on the Malaysian economy has yet to be fully realised. Conservative estimates forecast Gross Domestic Product (GDP) growth of 2.0% to 2.5% for 2020, while other analysts foresee domestic and global recession.
However, PropertyGuru Malaysia, in line with its commitment to being the nation’s property advisor, anticipates corresponding effects on home seeker sentiment to be short-lived,with prospects for recovery in the near term.
Bread-and-butter issues take centre stage
“Income and employment have been adversely affected by the closure of non-essential businesses during the MCO, and many Malaysians are prioritising bread-and-butter issues,” says Sheldon Fernandez, Country Manager, PropertyGuru Malaysia.
“This dampened sentiment is likely to persist through to H2 2020, though measures such as the government’s Economic Stimulus Package (ESP) announcements and Bank Negara Malaysia’s (BNM’S) six-month moratorium on financing payments are laying the foundation for the market to bounce back.”
Sentiment among home seekers was already in decline at the start of the year, with the PropertyGuru Malaysia Consumer Sentiment Study H1 2020 reporting a drop in the Property Sentiment Index to 42 points, down from 44 points in the corresponding period last year.
This will likely see a fall in home loan applications, despite catalysts such as BNM’s recent revision of its Overnight Policy Rate (OPR) to 2.50%. Other markets experiencing Covid-19 outbreaks have seen mortgage applications drop by as much as 30%.
Beyond these short-term impacts, research by property data analytics and solutions provider MyProperty Data Sdn Bhd underscores the property market’s resilience in the face of prior economic downturns and viral outbreaks, notably the severe acute respiratory syndrome (SARS) epidemic of 2002.
The resilience of property
While recent events have brought industries such as tourism and hospitality to a standstill, property transaction volumes and values have remained strong throughout periods of uncertainty (see Chart A).
“The 1998 recession, in conjunction with the outbreak of the Nipah virus, saw volumes and values declining by 32.3% and 47.6% respectively, the largest downturn in recent decades,” says Fernandez.
“However, the industry still moved forward, with 186,000 transactions worth RM27.9 bil. In addition, house prices as a whole have only continued to grow over the past few decades, highlighting the merits of property as an asset class.”
According to the National Property Information Centre (NAPIC), the national house price index has not exhibited an overall decline since 1999, though its growth moderated to a low of 1.1% in 2001.
In terms of property types, high rises exhibited the most volatility in prices from 1999-2009, from a high of 15.1% growth in 2003 to a low of –5.9% the previous year (see Chart B).
From 2009 to 2018, this volatility spread to other property classes such as detached and semi-detached homes. Since 1999, terrace homes have shown the most stability and consistent price growth among property types, with prices in the segment growing by 6.5% in 2018 (see Chart C).
As such, terrace homes will likely be a key focus for property seekers moving forward. This is supported by the PropertyGuru Malaysia Consumer Sentiment Study H1 2020 report, which found that terrace homes are the residence of choice (39%) among Malaysians.
Locational variations in demand
The aforementioned price trends were seen in the market as a whole, with variations in demand by area. For instance, MyProperty Data research shows that terrace homes emerged as the clear favourite in Greater Klang Valley from 1999 to 2004, in terms of transaction volumes.
However, Kuala Lumpur saw high demand in luxury condominiums and service apartments throughout these crisis years. High-rise properties were also popular in Penang, particularly lower-end apartments and flats.
“For Selangor, it was the city fringe, with terrace houses in Subang Jaya, USJ and Putra Heights as the hottest market. Median prices went from about RM220,000 in 1999 to up to RM400,000 by 2004. Around which time, demand similarly progressed to Setia Alam, Klang and other outlying areas towards 2012,” says Joe Hock Thor, CEO, MyProperty Data.
“Developers such as Sime Darby, SP Setia, Gamuda Land and IOI caught the wave perfectly, building larger homes within master planned townships at prices found closer to the city. High-rise popularity in Kuala Lumpur over this period picked up post-2003; this may have been due to cashed-up investors taking the opportunity to pick up glossy headline properties at discount prices.”
This resulted in substantial price appreciation, with median high-rise prices rising from RM350,000 in 4Q 2003 to RM765,000 in 4Q 2009.
Inflection point and recovery
Whether in terms of price, transaction volume or value, the property market has repeatedly showcased a tendency to bounce back immediately following a downturn.
This is seen in surging transaction volumes and values in the years following 1998 (the Asian financial crisis and Nipah virus outbreak), 2002 (the SARS outbreak) and 2008 (the global financial crisis and H1N1 outbreak).
Similar recoveries are seen in national house price growth in the years following 2001, 2006 and 2009. “Price growth, as well as transaction volumes and values, have slowed down in recent years, with measures in place to address the residential overhang. This may cushion potential impacts on the market as it rolls with the blow,” says Fernandez.
“Moving forward, investors tend to restructure their portfolios in uncertain times to manage risk, with property as a potentially lucrative venture. This, along with natural corrective forces as the market regains equilibrium, may account for the sharp recoveries seen in domestic property following crisis years.”
These patterns are set to repeat themselves following the MCO and Covid-19 outbreak, with various initiatives contributing towards significant domestic liquidity moving forward.
These include BNM’s reduction of the Statutory Reserve Requirement Ratio to 3.00%, moratorium on financing payments, OPR revision as well as revised voluntary EPF contribution guidelines in the government’s earlier ESP announcement.
“For those struggling to make ends meet, these measures help address costs of living while presenting an opportunity to rebuild savings. For those with leverage, it may be a good time to invest,” says Fernandez.
“There have already been calls from some quarters for revised loan-to-value ratio caps for third home purchases. This would accommodate demand from property seekers with leverage, driven by developer initiatives to add value for purchasers amid the changing property landscape.”
GuruCares reaches out to property agents
The Covid-19 outbreak and MCO have highlighted existing structural weaknesses in domestic businesses when it comes to technology-driven remote operations. However, while property players are tapping further into online platforms to drive sales, the underlying business model is likely to remain.
“Developers have already invested in virtual show units and the online paradigm, and these can be useful for informational purposes. Due to the large emotional and financial investment required for property purchases, though, there will always be a need for the human touch, as well as physical showrooms and site visits,” says Fernandez.
However, PropertyGuru acknowledges the potential impact of the MCO and other recent events on industry stakeholders, particularly property agents, who are often overlooked amid the larger national housing agenda.
In its role as Asia’s largest property technology company, PropertyGuru has announced the launch of a suite of GuruCares initiatives (http://bit.ly/PGMYstandbyyou), aimed at easing the burden on agent partners. These include:
- 100 free advertising credits, valid for a 12-month period to support listing activities
- Complimentary account upgrades for renewing agents
- 40% price reductions for any agent package, for first-time applicants, and
- Four months’ unlimited access to Property Transaction Reports.