Strict bank lending rules and weak consumer sentiment have caused a downturn in the Malaysian property market but some developers have introduced favourable financing plans and competitive pricing to attract buyers looking for investment opportunities and the outcome has been positive.
“Developers who have done well are those who have been inventive about financing terms and those who have launched well-planned townships at prices within the reach of the masses,” says Veena Loh, Head of Research for JLL in Malaysia.
Sunway Group launched a campaign that included deferred payments and financing of up to 88 percent (eight is an auspicious number in Chinese culture) of the property. By providing favourable financing terms to buyers, Sunway’s Mont Residences, a condominium development in Kuala Lumpur, sold 80 percent of its units within a week.
The first phase development of Sime Darby’s City of Elmina, which had 341 landed units, was 95 percent sold out in 24 hours when the completed project was launched in February 2016. Its second phase of 309 units launched in April 2016 priced from RM600,000 (US$148,000) onwards was 94 percent sold in four days. “At RM600,000 it was considered affordable and this combined with the fact that Sime Darby is a good developer has resulted in brisk sales.”
Broadly speaking, the current weakness in the residential market is likely to persist in the second half of the year because of an overhang in supply, says Loh. “This may provide cash-rich investors an opportunity to enter the market.”
At the state level, Penang in the north of Malaysia, Johor in the south, Selangor on the west coast and Kuala Lumpur have all shown declines in average transacted values in 2015 due to excess supply. Prices have continued to fall this year. According to the National Property Information Centre, the average transacted prices in these states have dropped by 6 percent to 8 percent so far this year. However, their declines were relatively small, compared with Penang’s 20 percent and Johor’s 34 percent.
“We are more optimistic for an earlier recovery in Kuala Lumpur and Selangor as the overhang units continue to diminish,” says Loh. “Many developers have learnt their lessons from past periods of economic hardship and are holding back their launches during periods of economic slowdown to reduce their risk exposure.”
The falls in prices have been in some way cushioned by positive capital flows from a still expanding economy.
“As the economy is still growing at between 4 percent and 4.5 percent and is likely to trend higher in 2017, we do not think that the drop in prices will be as severe as that experienced during the Asian Financial Crisis (AFC) when values dropped by 47.6 percent in 1998. However, unlike the global financial crisis, the recovery this time may be slower due to excess inventories.”
In the longer term there are still reasons to invest in Malaysian properties, notably in Greater Kuala Lumpur. The region’s youthful working population, higher income per capita and the continuing migration of people from rural areas to the city will bode well for market fundamentals.
Supporting this positive outlook is the country’s resilient economy. Despite plummeting commodity prices, Malaysia’s economy grew at five percent in 2015. With 80 percent of its exports from manufacturing and the rest from commodities and agriculture, Malaysia’s dependence on oil has been reduced. Excluding LNG, Malaysia has been a net oil importer since 2014.
Last year, the Malaysian ringgit fell to lows not seen since 1998, leading to concerns that the country’s economy may face a crisis similar in proportion to that of the Asian Financial Crisis in 1997/98. This year, the tide has reversed and the Malaysian ringgit was one of the fastest to recover, strengthening by five percent since the beginning of 2016.
“With the diversification away from oil, the Malaysian economy should still grow at 4 to 4.5 percent this year – a commendable rate in light of current global weakness. And while the property market continue to be bearish, we are expecting a slow recovery next year,” says Loh.
Head of Research for JLL in Malaysia