Property sales slip on economy worries, polls talk

From the Malaysian Insider

By Lee Wei Lian

October 24, 2011

KUALA LUMPUR, Oct 24 — Property sales have fallen off their 2010 peak while investors and home buyers move to the sidelines as worries of a global economic slowdown, government cooling measures and uncertainty due to the upcoming general election start to bite.

The consensus among analysts and industry veterans appears to be that sales have slowed as the market enters a cooling phase and will continue to slow as buyers take a “wait-and-see” approach, although a hard crash landing of the property market is not expected unless the economy plunges first.

File picture of high-end houses in Kuala Lumpur. The housing slowdown is most severe in the luxury high-end segment.

The slowdown is most severe in the luxury high-end segment which has seen prices drop by as much as 25 per cent due to oversupply and unattractive rental yields, prompting more developers to start paying attention to the more affordable mid-market segment which is expected to be less affected by a softening of demand.

Real estate agents SavillsRahim & Co’s James Goh, who is handling a tender of 61 luxury homes here, said however that he does not foresee prices in the high-end segment to go lower after falling by as much as 20-25 per cent since 2008.

“Interest in the tender has been quite strong with a mix of locals and foreigners even, though the luxury apartment segment has been quite slow at the moment,” he told The Malaysian Insider.

OSK Research said in a report last week that Sunway, one of the nation’s biggest developers, expects the property market to soften over the next six months while Paramount Property Development managing director Datuk Ricque Liew told The Malaysian Insider that there has been a “marked change” in terms of sales from last year to this year especially in the high-end segment.

Property analysts contacted by The Malaysian Insider meanwhile expect sales to slow from a high of 21 per cent growth last year to between zero and five per cent growth next year or even contract if the economy takes a turn for the worse.

‘We’re entering a cooling phase but no hard landing is expected,” said RAM Ratings chief economist Yeah Kim Leng. “The housing correction will not be that sharp unless here is a downturn with a lot of layoffs and business failures.”

The Malaysian economy is not expected to enter a recession however with most research houses predicting a growth of between 3-5 per cent for 2012.

Patrick Chay, founder of PropertyTalk & Lifestyle Malaysia, a social media platform for property investors with 448 members, said the mood among members has turned conservative with gloomy economic news and the looming general election, which must be held by the first half of 2013, weighing on decisions on whether to buy.

“There is uncertainty over the next general election as if there is a change of government, there could be new property investment regulations to deal with,” he noted.

Paramount’s Liew said developments in the high-end segment in areas like KLCC and Mont Kiara were the most affected by rulings such as the 70 per cent cap on loan-to-value mortgages for third properties and the inability to attract tenants for rental yield as some properties sit empty for as long as 15 months or more.

“The 70 per cent loan-to-value ratio for third houses has hit the high-end market as people who buy those units tend to have more than two properties already,” he said.

Liew added that a slowdown would potentially be good for the market as it would stabilise land prices.

“For those who do not build speculative properties, we’re not worried,” he said. “We build based on real selling prices not inflated prices.”

Property consultant and valuer Elvin Fernandez of the Khong & Jaafar group of companies said properties had historically been priced at 4-5 times household income but had shot up to as much as 10 times income, while rental yields for the benchmark double-storey terrace houses, especially at hot spots, had slumped below the three per cent threshold.

“The mood and sentiment has changed,” he said. “A lot of sales have slowed down and developers are not selling as briskly as before.”

He noted however that while property prices should return to their normal value of 4-5 times household income over the long term, they seldom drop drastically during a correction but instead stay flat.

The Valuation and Property Services Department (JPPH) of the Ministry of Finance, in its first half report for 2011, said that against the first half of last year, the volume and value of transactions recorded double-digit growth of 18.1 per cent and 29.7 per cent respectively but grew at a lower rate of 10.2 per cent and 12.6 per cent respectively when compared against the second half of last year.

Former JPPH deputy director-general Datuk Mani Usilappan said however that there is generally a lag in terms of data collected in the first-half report which is more reflective of transactions done toward the end of last year.

“I am not confident that there will be a correction,” he said. “What will probably happen is a slowing down of the take-up rate.”

Mani, who is now a real estate consultant, added that if the government wants to curb inflation, it should have raised the real property gains tax (RPGT) to at least 15-20 per cent instead of the 10 per cent as announced in the recent budget.