Is real estate still a safe investment?

KUALA LUMPUR: Signs of financial distress in the country are getting more prevalent and clearer as the Covid-19 impact bites deeper into Malaysia’s economy, resulting in rising unemployment and shrinking incomes.

The Statistics Department’s May 2021 data showed that the jobless rate was at 4.5%, involving over 728,000 workers, although it dropped marginally from 4.6% in April 2021.

The economic impact has not been isolated, rather the damage is spreading to other sectors, including property despite the various relief measures and loan moratoriums.

The Household Income Estimates and Incidence of Poverty Report 2020 revealed that 20% of the middle 40 (M40) income group – those earning between RM4,850 and RM10,959 – has shifted down to the bottom 40 group due to the pandemic, while among those from the top 20 category, 12.8% has shifted down to the M40 group.

This means some property owners may have to offload properties to stay afloat.

While the vaccination rate which is on track to achieve herd immunity by October 2021, the future remains unclear as to how fast the economy can recover from the damage.As of Aug 8, 2021, over 24 million doses of Covid-19 vaccines have been administered in Malaysia under the National Covid-19 Immunisation Programme or PICK.

By percentage, this means that 48.3% of the country’s population have received the first dose of the vaccine while 26.9% have completed the full two doses.

Christopher Tan, 47, is one of many property owners who have had to let go of their properties during the pandemic.

As global travel came to a halt, Tan, who resides in Singapore, lost his job as a pilot in June last year.

To sustain his livelihood with his wife and two children, he had to offload his apartment in Cyberjaya last August.

“It was a difficult decision to make but that was the fastest way to get some cash although it was at a loss. I bought that apartment for RM826,000, but sold it at only RM450,000,” he said.

At the end of 2020, the home loan rejection rate in Malaysia stood at 28%, according to data by Bank Negara.

Among the reasons was that borrowers were already highly indebted, and have a poor credit history with little residual income after taking into account monthly living expenditures and existing financial obligations.

According to the National Property Information Centre (Napic), in 2020, the overall property sector recorded 295,968 transactions worth RM119.08bil, which was a 9.9% year-on-year (y-o-y) decline in volume and a 15.8% drop in value compared with 2019.

Meanwhile, a total of RM117bil is expected to be withdrawn from the Employees Provident Fund this year, largely through the i-Sinar and i-Citra programmes.

The fact is, even before the pandemic, the property sector was already facing the issues of oversupply and overhang and for the longest time, Malaysia has been known for its house prices being unaffordable compared with the average income level – a combination of factors that has knocked prices off a little.

PropertyGuru Malaysia noted that in the first quarter (Q1) of 2021, the overall property asking prices inched down by 0.84% quarter-on-quarter (q-o-q) and 1.79% y-o-y to 87.86 index points due to buyers’ apprehension.

Napic has also revealed that the number of newly launched residential units dropped significantly to 5,919 units in Q1 compared with 14,865 units in Q4 of 2020.

PropertyGuru’s latest Malaysia Property Market Index (MPMI) report said the overall property supply in the market spiked by 34.53% y-o-y and 11.94% q-o-q in Q2 this year.

The surge in property supply in the country in Q2 was likely driven by an increase in homes being put up for sale in the secondary market under the current economic climate, according to the property technology company.

The upward trend in property supply was observed across four key economic states covered by the MPMI, namely Kuala Lumpur, Selangor, Penang, and Johor, which saw a y-o-y increase of 16.91%, 48.95%, 40.32% and 17.47% respectively.

AmInvestment Bank Bhd, in a recent research note, has maintained a “neutral” stance on the country’s property sector for the second half of 2021, with a cautious outlook.

The investment bank said the various movement and economic restrictions could lead to a slower-than-expected recovery in the sector.

It noted that the property sector has been languishing over the last five to six years after an upswing in mid-2013 when the house price index saw double-digit growth.

The investment bank is less optimistic in terms of sales in the second half of the year as momentum could have slowed since mid-May with the imposition of the movement control order (MCO) 3.0.

“Last year, when the first MCO lasted 1.5 months (from March 18 to May 3, 2020), house sales fell 11% q-o-q in Q2 of 2020 and thereafter rebounded by 121% q-o-q in Q3 of 2020. However, we do not expect the same pace of recovery in second half of this year as economic activities are only allowed to resume in phase three which is targeted to be in September under the National Recovery Plan.“Hence, we do not anticipate positive earnings surprises over the next six to 12 months,” it said.

Real estate sales and media company Juwai IQI reckons it is not all gloom and doom for the property sector, especially when a recovery is expected to unleash pent-up demand in Malaysia.

Real estate sales and media company Juwai IQI’s co-founder and chief executive officer Kashif Ansari said Bank Negara’s stance in keeping check on both the ringgit’s structural stability and price inflation would keep the economic momentum going amid the Covid-19 impact.

The group’s co-founder and chief executive officer Kashif Ansari said Bank Negara’s stance in keeping check on both the ringgit’s structural stability and price inflation would keep the economic momentum going amid the Covid-19 impact.

“We believe the real estate sector will remain resilient and property prices will appreciate by 3% to 5% next year due to strong demand, reopening of the economy and accommodative monetary policy.”

He said real estate remains a safe asset for sophisticated and smart investors. — Bernama

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