The property market, not unlike most markets, is inexorably pegged to the Malaysian and global economies. With the world, or most of it, deeply affected by the Covid-19 pandemic, a recession on a holistic scale is expected. However, it remains to be seen if this artificially induced recession shall continue for a protracted period.

According to Sunway University professor of economics Dr Yeah Kim Leng, the local economy is likely to decline in the second quarter due to the shutdown period of over a month. With growth expected to be flat in the first quarter, two consecutive quarters of contraction are likely. Even if the pandemic is suppressed, the gradual lifting of restrictions will see continuing weakness in economic activities in the third quarter.

Yeah said hopes of a V-shaped recovery in the global economy, as well as Malaysia, are fading quickly, given the severity of the virus impact on the developed economies in Europe and US, which have emerged as the epicentres of the pandemic.

The twin domestic and external demand shocks coupled with supply chain disruptions are projected to trigger a two-to-three-quarter contraction of the Malaysian economy and delay its gradual recovery to 2021.

Yeah said the growth scenario is highly dependent on the trajectory of the pandemic, as its severity and duration will largely dictate the pace of normalisation of economic activities.

He explained that the global recession exerts direct and indirect effects on the local property market. The immediate effects are most notable through the reduction of foreign purchase, as recession strokes risk aversion and fears of further losses in a sliding market.

Indirectly, the global recession could engulf the local economy, and this will result in a decline in property prices and sales as first time home buyers and those looking to upgrade their homes stay on the side-line. Investment and speculative demand will also decline as falling property prices result in capital depreciation and income losses if sold below purchase prices or are unable to rent out.

Overhang market to continue indefinitely
With regards to the overhang market, Yeah explained that the loss of sales is offset to some extent by the delayed completion of new units during the MCO. After the MCO, the extent to which the pent-up demand will translate into actual buying will depend on house buyers’ confidence, financial ability, credit availability, price trend and market outlook. On the other hand, incoming supply that is held up during the MCO will come onstream and worsen the oversupply situation.

Post MCO strategy
“First and foremost, the suppression of the Covid-19 virus spread through the MCO and partial lifting of the restrictions thereafter has to be effective to avoid a further shutdown of the economy,” said Yeah.

He believes speedy and effective implementation of the stimulus packages are crucial to minimise the adverse economic impact of the shutdown in economic activities. The measures contained in the stimulus packages should be sufficient for now to help to ease the financial hardships faced by the majority of firms and businesses as well as small traders, vendors, stall operators and daily wage earners. Nonetheless, there will likely be an increase in company and individual bankruptcies and retrenchments. Hence, further measures to boost investment and job creation as well as retraining and skilling are needed to expedite economic recovery.

According to Yeah, sectors most affected by the pandemic such as aviation, hotels, travel and tourism, retail and entertainment outlets and other less affected industries may require government support. This may come in the form of restructuring, retraining and redeployment of labour as a new consumer demand landscape emerges in the post-Covid-19 environment.

Stay ahead of the crowd and enjoy fresh insights on real estate, property development, and lifestyle trends when you subscribe to our newsletter and follow us on social media.