2018 Property Market Outlook – Part 1

How will property market perform in 2018? If you are following property news, I believe that you will found there are two different views on upcoming property market outlook.

One party hold that property market will crash and badly hit due to oversupply. According to a statement by Deputy Finance Minister Lee Chee Leong who said unsold completed residential units rose by 40% to 20,807 units in the first half of 2017 compared with the same period last year. Moreover there are more upcoming development will be completed and appear in market.

Hence, there are high possibilities that property price will drop from RM 500,000 to RM 300,000 due to home-owner unable to sell their investment properties which force them to give a huge discount to dispose their investment properties. (Read more)

On the other hand, another party claimed that above opinions are too pessimistic. These experts said that the “facts and figures” pointed to a less negative outlook. Based on latest economic data available, employment situation and outlook of business sector, these expect foresee that property market will remain stable and flat.

Besides, experts also believe that property price will unlikely to drop. According to Penang Real Estate and Housing Developers’ Association’s immediate chairman, Jerry Chan stated that developers couldn’t afford to bring prices down because their margins were low, and would be more likely to change their products to meet the market’s requirements rather than just drop prices. (Read more)

After reading all these articles and opinions shared by experts, I believe that you have your own answer on it. No matter which side you chose, I would like to share some additional information with you. Base on this information, I form my own answer on 2018 property market performance.

1. Residential Property Market still side on Buyer

Yes, we are still in buyer market.

According to the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) stated that Malaysia has unsold and unutilised properties with an estimated value of RM35.5bil and every effort must be made to absorb this. (Read more)

Since then, developers and home-sellers are offering good incentives either price discount or freebies to attract buyers. There are many easy home ownership schemes have been introduce. Some developers even offer loan to those who bought property from them. In fact, there are hidden gems among these unsold properties. If you are willing to spend time and effort, you could get some good deals.

Obviously it’s good news to home buyers but not for home sellers.

2. Challenging of Dispose Property due to Rising of Affordable Housing Schemes & Property Priced below RM 500,000

People want to buy property either for own stay or investment purpose. The problem is they may not have such purchasing power to buy property at today market price. Due to this circumstance, there are increasing numbers of affordable housing scheme have been launched by government and developers.

Affordable Housing Schemes included Project Rumah 1 Malaysia (Prima), My First Home Scheme, Program Perumahan Rakyat, Rumah Mesra 1 Malaysia (RMR1M), Rumah Idaman and last but not least Rumah Wilayah Persekutuan (RUMAHWIP).

PS: You may found more information about Affordable Housing Scheme at here.

At the same time, developers realized that the property demand and supply is mismatched. There are over supply on luxury or high-end property but limited supply on median price range property. Since then, most of the new launches are priced below RM 500,000 to close the gap. As developer’s margin is limited (as most developers claimed), these new launches shared common characteristics – small sizes and high density.

It’s also not a good sign to home sellers who wish to dispose their investment property or landlord who intend to rent out their property at higher rental rate. People can now easy own a property instead of purchase or rent from other people. Without a complete survey, I noticed that the number of new generations purchase property is increasing year to year. In other words, it will more challenge to dispose a property in secondary market especially high-end property.

3. Rental Market Is Remain Stable But Gross Rental Yield Is Fallen

Recent years, there is a game changer in rental market – AirBnB. It encourages short term rental for traveller or business stay. With a short notice of time, there are dramatically increased numbers of AirBnB hosting in our country. What make AirBnB so famous is it enables landlords and AirBnB hosting gain better return.

In fact, it becomes new business models for those who seek for leverage on other people assets. The most common found in market is home-owner appoint a professional AirBnB operators for running AirBnB hosting in their investment property.

PS: Click here for further details on how investors gain better return via Airbnb

However no all the residential property suitable to operate as AirBnb so there are many landlord still using traditional methods to rent out their investment property. According to latest survey by GlobalPropertyGuide.com, Malaysia property consider less attractive due to its falling rental yield. They had found the gross rental yields have fallen significantly:

  • Condominiums of 120 sq. m. have gross returns of 4.5%, but two years ago, their researchers found that rental yields averaged over 8% for this size.
  • Bungalows have really low gross rental yields at around 2.5%, and again, have fallen significantly.

Since then, it is not surprise that most landlords will not enjoy high gross rental in upcoming year. In fact, it will much challenge compare with previous year because there will be more projects to be complete in 2018. The additional supply will make market more competitive.

4. The Impact of Technology towards Demand of Shop Office & Office Space

 

According to the National Property Information Centre’s property market report for last year, Kuala Lumpur office building completions were around 320,643 sq m, but the take-up rate is only 24,646 sq m and this is an all-time low.

In 2017, the new supply for Kuala Lumpur city and fringe is 4.72 million sq ft, and then next year, there will be another six million sq ft, and so many mega projects — Tun Razak Exchange, the Bandar Malaysia and so on.

Shortly, all these data showed that the office property market especially in the Klang Valley has not been faring as well as in the past. The numbers do not look good considering the high supply and low absorption rate. And yet, office demand is shifting to matured suburbs in Selangor such as Bangsar, Petaling Jaya, Subang, Bandar Sunway and Puchong.

The good news is the rising of Co-Working Spaces concept offer another options to landlord in short run. Co-working spaces concepts could be simple refer to virtual office and share office. Their fees are flexible with packages varying according to your business needs. It saves costs as tenants do not need to renovate offices and would just pay for whatever they need.

Technology enables people to work anywhere and anytime. Although physical office is important to corporate business, it is foreseeable the demand on office spaces will be reduced from time to time. Smaller office spaces are sufficient to corporate for customer services and build their corporate image while their employees may choose to work at home. Team building and interact with other colleagues could be done not in office too.

For myself, I would try not to invest in office spaces or shop office as the impacts of technology towards demand of shop office and office space cannot under estimated.

5.  Digital Free Trade Zone (DFTZ) brighten up retails and shopping malls

There are people who worry on the future demand on retails and shopping malls due to the rapid grow of ecommerce. Well, I have a different view on it.

DFTZ Malaysia

During March 2017, Malaysia launched the world’s first Digital Free Trade Zone (DFTZ). It will provide physical and virtual zones to facilitate SMEs to capitalise on the convergence of exponential growth of the internet economy and cross-border ecommerce activities. And yet, DFTZ will act as a microcosm to support internet companies to trade goods, provide services, innovate and co-create solutions. In short, DFTZ encourage more Malaysians to become entrepreneurs and existing SMEs to expand their business via this platform.

SMEs and ecommerce owner needs a brick and mortal to serve their customers – after sales services, inventory, pick up centre and so on. Retails and shopping malls serve these purposes.

Meanwhile, even the number of people shop online is increasing from year to year but people still prefer to visit the sellers’ physical shop to touch, see and feel the product that they are plan to buy. Retails and shopping malls offer unique experiences that online shopping unable to delivery.

I not a big fans of retail investment but I believe there are opportunities in retail and shopping malls. If I would like to invest in retail, 2 important elements that must consider: human traffic and management team.

To be continue….