Opportunities in a soft market

The outlook for Malaysia’s property market may not be bright at the moment but JLL Property Services (Malaysia) Sdn Bhd country head and managing director YY Lau (pictured) thinks pockets of opportunities can be found if you know where to look.

“The property market is expected to continue to be subdued in the light of the weakened economy,” she says. “[However], many opportunities exist. For instance, one may arise because of the seller’s financial circumstances or need to relocate because of his job.

“To take advantage of these opportunities, investors and homebuyers need to do some research on the range of market values in relation to the location, the developer and the management’s reputation before investing in the property market.”

According to JLL Research, “the housing supply in the high-end residential market is forecast to see a substantial increase in the submarkets of Mont’Kiara and KLCC, while supply in Bukit Tunku, Bangsar and Taman Seputeh remains subdued”.

The Malaysian property market has slowed recently, with the value of transactions declining 4.08% in 2015, says Lau.

She adds: “The weak sentiment is expected to spill over into 2016. A slower projected economic growth of less than 4.5% in 2016 due to the sharp drop in commodity prices and the weaker external environment is expected to impact the property market.

“Unemployment edged higher to 3.2% in 2015 versus 2.9% in 2014. Banks have become more cautious in lending to this sector. Despite an apparent rise in demand for housing loans, approvals have not kept up with demand. Investors and homebuyers are adopting a wait-and-see approach, hoping for lower entry prices.”

Lau says the property market is unlikely to see a sharp recovery soon. This is because of the “slower economic growth impacted by the drop in commodity prices, which will not likely reach the levels experienced in 2010 to 2013 due to the global and regional economic slowdown”, as well as the government’s measures to rein in household debt.

“In all likelihood, the much-needed recovery in commodity prices to boost household incomes is likely to happen more gradually than sharply,” Lau says. “From past cyclical downturns, it took more than two years for the economy to bounce back. To sum up, the market is expected to see a slow recovery in the second half of 2016 and any recovery is likely to be felt in 2017.”

Lau notes that the current market slowdown differs from those in the past. “Historically, property prices in Malaysia have been sticky on the downside. The most severe drop in property prices was experienced during the Asian financial crisis when values dropped 47.6% in 1998. The 2008 global financial crisis’ impact was not as severe, with values falling 8.3% in 2009.

“The current economic climate differs from the two financial crises as it is characterised by a slowdown rather than a recession, with a V-shaped recovery as experienced in past crisis periods. For this reason, we do not expect a sharp correction in property prices.

“Moreover, the weakness in the economy and the adverse impact on household incomes are confined largely to the government and commodity sectors. The economy is still experiencing positive growth in the manufacturing, IT and service sectors.

“We think that the current property slowdown is more sentiment driven, rather than fully reflective of fundamentals. The adjustment downwards in house prices will be relatively moderate but may take longer to recover,” she concludes.

Lau will present on the topic, “Market Outlook: Where are we at the Curve?”, at The Edge Investment Forum on Real Estate 2016 on April 30. Held at Sunway Putra Hotel, Kuala Lumpur, the forum’s theme is “Riding out the storm: Pitfalls to Avoid”. - The Edge Property