Sarkunan: ‘Today those who have five years or more experience in a managerial role can be a member.’
Consultants: Conditions are improving but issue of affordability must be addressed
ALTHOUGH property sales are not soaring, consultants are fairly upbeat on the current state of the market.
They are not overly exuberant about it and neither do they want to come across as such, but they do see some redeeming factors in the current market conditions which they have not seen over the past two years.
Although it is still early days yet, property consultants and developers have come to a sort of agreement on certain views regarding the market. In a typical report card on the sector, they are agreeable on certain pointers.
They share several key views:
> The property market is more healthy than it was a few years ago;
> Sales may be flat going forward but this is better than a downward trend;
> Buyers are “more genuine” today;
> Landed housing costing RM500,000 to RM750,000 will help support the market;
> Capital gains will be marginal going forward unlike before, rental growth will also be slow but both will be more sustainable unlike the sizzle seen several years ago; and
> The issue of affordability must continue to be addressed.
Tangga: ‘There will not be much appreciation in the next couple of years.’
A healthier market
Both developers and consultants are on the same page when it comes to the state of health of the sector: that it is more healthy today than the past several years.
At this point, it is necessary to split the market into the actual physical property market and the stock market. Their comments refer largely to the physical housing market and not property stocks, although they do agree that prices of some property stocks have moved up and are running ahead of fundamentals, the views they share pertain largely to the physical market.
Says Paramount Corp Bhd special adviser Datuk Ricque Liew Yin Chew two weeks ago at the Star Property Awards event: “Today, the property market is very healthy. Some may not think so, but it is very healthy.”
Speculation, a major factor in any property market, has been removed, says Liew. Speculative elements distort the market, be it the property sector, stocks, bonds or commodities. That was the crux of Liew’s views with regard to speculation. It feeds a buying frenzy in any type of market which in the longer term may not be sustainable.
Now that speculators have been weeded out – they have gone on a holiday – developers can now get on with the business of building houses that the market needs and wants, says Liew.
Although it is true that developers are not reporting hot sales – another point which both developers and consultants agree – potential buyers are looking around for a good buy.
“At least there is activity,” says Knight Frank Sdn Bhd managing director Sarkunan Subramaniam.
“There are some who are going back into the market looking for bargains. Transactions have not come in yet but they are shopping around. In that sense, there are activities in the market which is good and as rightly pointed out by developers, some are seeing an improvement in their sales. This means their marketing strategies are working,” he says.
His conclusion: sentiment may be improving after a long and dry spell in 2015 and 2016.
Sarkunan expects the last quarter of this year to look slightly better as there are still a bit of uncertainty on the national front. Once there is more certainty about the political and economic scenario, stability will seep through.
Because buying a house is a big ticket item, it is always good to look around for six to eight months before actually making a decision, he suggests. Towards the end of the year, barring any unforeseen circumstances, some may consider properties above RM1mil to pre-empt the higher stamp duty.
Sarkunan expects some to “bring sales forward”, to avoid paying extra stamp duty. We will monitor the situation. The government announced in Budget 2017 last year that it was raising the stamp duty for properties worth more than RM1mil from 3% to 4% effective Jan 1, 2018.
Going sideways
The second feature both developers and consultants are agreeable on is regarding the flat market which may continue for a while. Both developers and consultants are of the view that being flat – or going sideways – is better than a downtrend. In periods of consolidation, the graph shows flat-lines instead of heading south. Both sides also agree that sales will first pick up for landed units priced between RM500,000 and RM750,000.
At the Star Property Awards event on March 21, a couple of developers say they see an improvement in sales, among them are SP Setia group and Penang-based developer Bon Estates Sdn Bhd, who has a high-rise residential project in Bangsar South.
SP Setia Bhd president and chief executive officer Datuk C.J. Khor said he noticed “more quality buyers” going into their sales gallery and they do get their loans approved.
“We are seeing ‘real’ buyers,” he said. This changing scenario was noted in February with strong sales for landed housing priced between RM500,000 and RM700,000. Landed segment will lead the way for the group, said Khor.
Property consultant Jordan Lee & Jaafar managing director P. Tangga Peragasam says landed units costing about RM500,000 – or lower – will be fine. Anything above RM700,000 will depend pretty much on location. Within a 15-20 km radius of Petaling Jaya, demand remains although the price may rise to RM750,000. Properties of RM1mil and above will have difficulties.
Depending on how much prices have dropped, Tangga expects some strengthening for this segment of the residential market.
“People have been looking for landed housing for quite a while and, in both downturn or upturn, the landed segment will be the most attractive and will provide support for the overall sector,” says Tangga.
The amount of landed units is fixed in the near term – or short term – unless buyers are willing to go further away from the city, Tangga says.
Caution remains
It may still be early days to say that the sector is bottoming out, says VPC Alliance director and chartered surveyor James Wong, in view of national issues like the general election, yet-to-be-resolved affordability issue and regional challenges like the current Chinese capital controls on fund transfers.
These factors will affect overall sentiment, says Wong.
He reckons the market will be flat for a while and even when it moves on to a better trajectory, the increase – both in terms of prices and the volume of transactions – will be marginal.
“The investing public remains rather cautious today,” says Wong.
A lot of families are downsizing and those properties purchased on developers interest schemes between 2010 and 2014 would have taken possession of their units this year. They will need to pay 90% mortgages.
Because many have bought multiple units, they would have tried to flip them, failing which they may have opted to rent them out.
These units would have to be absorbed by the market before the market can handle new supplies, he says.
However, Wong says developers with very innovative marketing strategies or attractive offerings will continue to gain market share.
What Wong is seeing today is developers entering into joint ventures in order to spread the risks, which is better than not doing anything at all.
CBRE|WTW managing director Foo Gee Jen says the current improving sentiment notwithstanding, the issue of affordability still needs to be addressed and the faster the better.
“There is still a mismatch in terms of cost and affordable homes available in the market. To address this, everyone needs to play one’s part and this includes the government, developers, planners and related parties. Only then can this (mismatch) gap be reduced.
“This is one of the biggest challenges we will be facing over the next few years,” says Foo.
Rental market
As for the rental market, many expatriates have already left. Condominium rental rates have dropped compared with three to four years ago. Something that was rented out at RM15,000 four years ago are today going for RM8,0000 and RM9,000 a month, says Sarkunan from Knight Frank.
However, over the past year, we have not seen such massive drops. Many units, says Sarkunan, were vacant for 12 months or more. Rent is bottoming out and I don’t see rent going much further down and the same with capital values, says Sarkunan.
“There will be one or two odd sales which will be lower than the market, particularly those who bought under the developers’ interest rate scheme and who are unable to make repayments.
“Many of us do not see the market going further down in terms of general pricing and there will be bargains,” Sarkunan says.
Jordan Lee & Jaafar’s Tangga says “there will not be much appreciation in the next couple of years which means those who buy are owner-occupiers.”
... and the naysayers
Just as there are upbeat developers and consultants, there are also naysayers. Among this group, one pounced on semantics.
Does a pick-up in sales means the end of a bottoming out of the sector? No, says a real estate professional.
“It is not quite right to say that because sales are now picking up, the property sector has bottomed out. In the same way, to say the sector has bottomed out is different from bottoming out.”
For prices to have bottomed out means a floor has been found. This level is now the floor and the prices cannot go any lower. In a bottoming out scenario, prices are still trending down, that is, it has not yet found a floor. The process of bottoming out is still on-going. I believe we are in this process currently,” he says.
Semantics aside, the other thing is the work “pick-up” in sales. Pick-up from what level. Transactions for 2016 was low, lower than 2015, and the last quarter of 2016 was really bad.
“Therefore, any improvement will be deemed as a ‘pick-up’ in sales but it may not mean real demand. The term ‘real demand’ does not mean selling a couple of houses. Real demand is attributed to population growth, leading to an increase in demand.
“Urban migration also leads to an increase in demand and this is where investments – whether from local or foreign sources – are very important. Investments help to create jobs,” he says, adding that there are other factors which lead to a higher demand for housing.
The property market is unlike property stocks which are on a roll generally. The other point to consider is the long upcycle enjoyed by the physical property cycle from 2010 onwards.
In the Asian Financial Crisis in 1997/1998, property prices and transactions bounced by within a year. “It suffered a big drop, but it was short-lived – between eight to nine months,” he says.
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