(Focus Malaysia - 2 April 2020)
PROPERTYGURU International (M) Sdn Bhd said sentiments on the property market continue to be dampened in the short term as Malaysians focus on bread-and-butter issues.
Income and employment have been adversely affected by the closure of non-essential businesses during the movement control order (MCO) period, said PropertyGuru Malaysia country manager Sheldon Fernandez.
“This dampened sentiment is likely to persist through to the second half (2H) of 2020, though measures such as the government’s Economic Stimulus Package (ESP) and Bank Negara Malaysia’s (BNM) six-month moratorium on financing payments are laying the foundation for the market to bounce back,” he said in a statement.
Sentiments among home seekers were already in decline at the start of the year with the PropertyGuru Malaysia Consumer Sentiment Study 1H 2020 showing a drop to 42 points from 44 points a year ago.
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 2.5%. Other markets experiencing Covid-19 outbreaks have seen mortgage applications drop by as much as 30%.
The resilience of the property market
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.
“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,” said Fernandez.
However, the industry still moved forward, with 186,000 transactions worth RM27.9 bil, he noted. 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 experienced the most volatility in prices from 1999 to 2009, from a high of 15.1% growth in 2003 to a low of -5.9% in the previous year.
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 growing by 6.5% in 2018.
As such, terrace homes will likely be a key focus for property seekers moving forward. PropertyGuru found that terrace homes are the residence of choice (39%) among Malaysians.
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 (SARS outbreak) and 2008 (the global financial crisis and H1N1 outbreak).
Similar recoveries were 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 asset class. This, along with natural corrective forces as the market regains equilibrium, may account for the sharp recoveries seen in the domestic property market following crisis years.”
These patterns are set to repeat themselves following the Covid-19 outbreak and the MCO, with various initiatives contributing towards significant domestic liquidity moving forward.
These include BNM’s reduction of the Statutory Reserve Requirement Ratio to 3%, the moratorium on financing payments, OPR revision as well as revised voluntary Employees Provident Fund (EPF) contribution guidelines in the government’s earlier Emergency Subsidy Programme.
“For those struggling to make ends meet, these measures help address the costs of living while presenting an opportunity to rebuild savings. For those with leverage, it may be a good time to invest.
“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,” said Fernandez. — April 2, 2020