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Slowdown in properties across the board for most states

August 16th, 2014 Leave a comment

And so it is true. Property consultants’ laments about the property market consolidating and transactions slowing down have now been confirmed by the National Property Information Centre (NAPIC) in their first quarter numbers for this year.

Although the findings are six months backdated as it is already August, the government agency’s figures are about as accurate as one can get about the state of the sector, down to how many transactions being done.

Most states recorded overall drop in the number of property transactions for the different sub-segments, namely, residential, commercial, industrial, agricultural, development land and others. The trend of decrease is definitively evident.

The president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Siders Sittampalam says he is not surprised.

“It confirms what I said, that the Malaysian property market is consolidating. It is not a slump which is characterised by oversupply and declining prices,” says Siders. He is also PPC International managing director.

Based on the NAPIC report, the temperature for Kuala Lumpur, Selangor, Penang and Johor is distinctly cool.

In a nut shell, all four states recorded an overall drop in transactions with Kuala Lumpur seeing a 13.4% dive compared to the last quarter of 2013.

Penang recorded a marginal 0.3% drop while Johor, which enjoys one of the most buoyant market in the country as a result of Iskandar Malaysia, saw a 4.5% drop in transactions. Selangor had a 10% drop for the period under review.

Considering the interest in the property market the last couple of years, it can be concluded that this may be the first significant quarterly nosedive in the last four years.

NAPIC is currently analysing the second quarter numbers. Siders is not too hopeful.

“The market is not going to change a lot. The consolidation process is expected to remain for some time as there is no impetus. Positive economic conditions does not mean an immediate return of confidence in the property market. There is always a time lag,” says Siders.

The residential sub-segment

Residential transactions make up an average 75% of overall property transactions, according to the NAPIC numbers. All four states recorded a drop in transactions with Kuala Lumpur deals decreasing 15.7% against the last quarter of 2013. The number of deals completed this year is also lower than a year ago, confirming grouses by real estate consultants that the market has been softening since a year ago. Still on the Kuala Lumpur market, the number of properties below RM300,000 is becoming increasingly limited, which explains why transactions for such properties are decreasing.

Siders says there is “room for correction” in the overall high-end residential market.

NAPIC research shows that the greatest number of transactions are for properties priced between RM500,000 and RM1mil. Overall, the total value of properties transacted dropped for all price segments with the exception of properties costing RM1mil and above.

There are a couple of ways how one may read this – people are either holding on to their cash waiting for prices to fall or they may want to buy but have difficulties getting a loan.

Raine & Horne executive director Lim Lian Hong says transactions have been slow since last year, particularly in the secondary market.

“The drop (in overall market) may continue into the second quarter,” says Lim, adding that many properties have moved into the RM1mil and above segment.

Condominium units dominate the residential sector with transactions accounting for 70% of the market compared with 30% for landed units. Increasingly, developers are resorting to building high rise as this is more lucrative. Condo units are being priced about RM700,000 per unit this year compared with about RM600,000 a year ago.

Prices of double and 2.5 storey terraced housing continue to climb from an average of about RM700,000 a year ago to about RM900,000 in the first quarter of this year. A note of caution is needed here. These prices are average figures, not absolute numbers.

Commercial property transactions also showed a general downward trend in the city.

The softening market is evident in Selangor’s residential market.

“We are seeing a slowing down of transactions in Selangor,” says Lim, with transactions dropping compared with a year ago and against the last three months of 2013.

Volume is concentrated in the RM500,000 to RM1mil range. The indication is that developers are offering housing within this price range.

Most of the high-rise units transactions are concentrated in the district of Petaling although Selangor includes Klang, Kuala Langat, Kuala Selangor, Sabak Bernam, Gombak, Hulu Selangor, Hulu Langat and Sepang.

The pricing of average high-rise units have also risen ranging from about RM280,000 a year ago to about RM330,000 for the first quarter of this year, an increase of about 17%. This has to be read with the big picture in mind as units in Petaling are considerably higher.

Penang market

Last year’s downward trend has continued into 2014, Raine & Horne Malaysia senior partner Michael Geh, based in Penang, says.

“It is a general downward trend in terms of units transacted but prices remain firm,” says Geh.

Across the different segments, the largest decrease is in the industrial sub-segment followed by the residential sector.

Transactions of development land continue to remain robust, particularly in the Bukit Mertajam area and on the north east part of the island.

Transactions for commercial properties continue to have its share of interest.

The Penang market is dominated by both landed and high-rise units with condominiums contributing about a quarter to residential sales value. Most of Penang’s interest continue to remain on the island although there is growing expansion of the market on the mainland side, in the Butterworth area.

Johor excitement

The state of Johor continues to be “the most dynamic” as a result of the Iskandar-Singapore factor.

While other states showed signs of slowdown a year ago, Johor’s property market rose 10.5% in terms of the number of volume with total value of transactions rising nearly 60% compared to a year ago.

However, transaction volume and value have dropped 4.5% and nearly 35% respectively against October, November and December of last year.

To put things in perspective, in the first quarter of 2013, Johor’s property sales totalled RM4.7bil. It leapfroged to RM11.62bil in the last quarter of 2013. In the first three months of this year, it dropped to RM7.6bil.

Among the different sub-segments, land for development is the second most popular after the residential, an indication that local and foreign developers continue to like that market.

The most popular type of housing continues to be two- and 2.5 storey housing and single and 1.5-storey housing with the number of condominium and apartment units on the rise in Johor Baru. The question is how will Johor fare in the event of a slowdown in China?

Note: NAPIC research includes both primary and secondary sales. Prices are on an average basis while the number of transactions are absolute.

Source: StarProperty.my

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  1. mickey
    August 16th, 2014 at 19:36 | #1

    what? I thought a lot of people are buying now to avoid GST price increase? Oh, maybe in spite of that, the value is still lower than previous quarter. Wah lau eh, what is going to happen after GST then? Situation will be worse?

  2. IsaacTan
    IsaacTan
    August 17th, 2014 at 10:32 | #2

    KL & PG still holding strong…….

  3. Micheal
    August 17th, 2014 at 21:32 | #3

    Looks tough now. Every sector from consumer to industrial and even financial sector facing slowdown. It definitely will affect property sector.
    Even bank and government policy to curb property speculation not helping much.

  4. Potatoh
    August 18th, 2014 at 09:47 | #4

    Pg marnignal 0.3% drop. More like stagnancy. Investors more prudent while home seekers still hoping for a drop in property prices. I believe KL investors are shifting some of their investments to Penang.

    I think people will realise that property prices will not drop to ridiculous low of RM250 – RM300psf. (exception of affordable and LMC) and drops will be maybe RM20 – 50psf. tops from the market price eventually and start buying before GST takes effect.

  5. eatgrass
    August 18th, 2014 at 10:41 | #5

    @Potatoh

    I believe 0.3% is for overall Penang (residential+commercial+industrial+land). If you look at residential alone, there’s a ~8% drop in volume and value. That’s pretty major.

    If you’re looking at properties with value higher than RM300k, it’s even worse, because there is actually an increase in volume+value for properties with value lower than RM300k.

    Things will get worse until there is significant price correction.

  6. Potatoh
    August 18th, 2014 at 12:01 | #6

    @eatgrass

    Do agree as well as many people are more reserved awaiting for the many affordable homes that will be introduced pretty soon.

    But generally I still see Penang has a stronger holding market compared to other states. So, even if there is reduced demands and sales, owners are likely to hold until price correcting or appreciated to a more lucrative value. How long this will be, nobody can tell … Hahaha

  7. testmenow
    August 18th, 2014 at 12:05 | #7

    Penang property crash is expected very soon. For prime area like Tanjung Tokong, it will drop to RM400psf. For non Prime area like Sg Ara, expect price drop to RM300psf.

  8. eatgrass
    August 18th, 2014 at 13:44 | #8

    @Potatoh

    Yes, Penang buyers have strong holding power, otherwise with this current glut that we have, many people would be jumping off buildings.

    I would advice potential buyers to stay away from those projects which they think would have very low occupancy rates (because most buyers had bought it for flipping) as there will be very high default rate for monthly maintenance payments. So what happens when owners don’t pay maintenance? No money to maintain common facilities lah. So the condition of the building will deteriorate very fast.

  9. joe
    August 18th, 2014 at 14:07 | #9

    @eatgrass

    can u give some examples for those projects with low occupancy rates?

  10. eatgrass
    August 18th, 2014 at 14:15 | #10

    @joe

    There are many. Take a drive around after dinner, watch out for houses without lights on, it shouldn’t be difficult to figure out.

  11. Potatoh
    August 18th, 2014 at 16:28 | #11

    @eatgrass

    Though you do have a point, few residents doesn’t mean that there will be default maintenance payment. The building could be entirely sold out and owners are still required to pay maintenance even when they are not residing there as per the agreements. Even when they want to sell the property if they have not been paying, they will still be required to pay up everything with interest of 10% per annum. A fully residing low medium cost will have more default payments in comparison to a high end 50% residing condo.

    However, the “no lights on” condo research can be used as a benchmark to indicate the number of actual residents versus investors. If investors is high, means there will be more flippers than buyers, so buyers can negotiate price. If not there is many other alternative choice in the same building. However, be realistic and negotiable doesn’t mean 50% discount or crap like that …

  12. eatgrass
    August 18th, 2014 at 17:39 | #12

    @Potatoh

    You are right to say that “owners are still required to pay maintenance even when they are not residing there as per the agreements.”. But more often than not, you will see a high defaulting rate when you have more investors than owner occupiers, especially when they can’t rent out the units.

    You are again right to say that “Even when they want to sell the property if they have not been paying, they will still be required to pay up everything with interest of 10% per annum”. But the problem is, when you have a leaky swimming pool to fix, or a faulty water tank pump to fix, you don’t have the time to wait for money to come in. So property koyak lor.

  13. Ranee
    August 18th, 2014 at 19:15 | #13

    @eatglass

    How about those currently launch project in order for the potential buyer to judge whether there are many buyers bought for flipping?

  14. Potatoh
    August 19th, 2014 at 10:09 | #14

    @eatgrass

    Agreeable that investors are potential defaulters but it really depends. I’m an investor myself and I still pay for the maintenance of the units that are not rented. In fact I pay in advance cause I’m lazy to go over to the management office every month. So, assuming investors are high risk to defaulting is just stereotyping but I still agree there are some ridiculous investors that don’t pay their maintenance fees.

    So, for this case, it would be the management’s responsibility to indirectly or directly “motivate” the owners to pay the maintenance. For example, for the condos I own, the management has taken a few measures. (i) Disabling of access card after 1 month’s default, (ii) Notice on Resident’s Buletin Board (this is the huge message board at the lobby) whereby late payer’s name, NRIC and even photo is published (you know people very kiasu and when their reputation is at stake they’ll make payment), (iii) Notice at entrance to unit, (iv) disabling lift access card and many others. So defaulters will find it difficult to get to their unit, agents will have trouble bringing potential to sell their unit etc.

    I agree with you that if the swimming pool leaks or if there is a major defect in the facility then maintenance wouldn’t be enough to rectify it. However, the question is targeted to the developer now. Is it that bad that the swimming pool of all condominiums will leak after 2 years? This is more of the quality of the developer. A good developer’s swimming pool may last more than 10 years without any leak or problem (of course you still need to service the balancing tank etc.) So, major issues is a seperate issue from a rundown status of the building. Of course, it would be good if the building is repainted every 5 – 10 years to maintain its outlook which would require a large sum of money. So choice of developer is important. I know there are developers out there that sells cheap upon launching but workmanship and materials used is shoddy. These properties are still normally snatched up very fast. Basic human psychology; buy first complain later. But basically you get what you pay. When you buy a LMC, you don’t expect condominium standard materials used either right? Similarly a don’t expect too much from a cheap condo no matter how well the sales staff sell it to you. It’s their job to beautify the product they sell.

    So conclusion is, nothing is perfect. Buyers should balance their needs. Investors will always be there no matter what, just more prudent and cautious with the current regulations and restrictions. Default maintenance payers will be there whether it is a fully occupied high-rise or not. Unforeseen things happen, just get read.

    Generally I agree with many of the things you say, but my opinion may differ slightly from yours. But it’s a free would and everyone have different opinions. :-)

  15. fathotdog
    August 19th, 2014 at 14:48 | #15

    @Potatoh

    I have been a committee member for quite a number of condos in Penang, I think what eatgrass said is true, high occupancy rate, high maintenance collection, low occupancy, low collection, that’s the general trend.

    In Penang, price can’t be taken as the indicator for product quality. Sometimes high price, but quality sucks. Mayfair is one good example. Bellisa Court had a major swimming pool problem in the first few years.

    In short, in Msia, as it is now, don’t count on quality!

  16. YH
    August 20th, 2014 at 14:55 | #16

    transaction vol down so what? housing price still going up. this market is crazy

  17. AhBoy
    August 20th, 2014 at 16:30 | #17

    Transaction volume is a good indication of market sentiment. Sentiment on affordability, sentiment on price up side, sentiment on demand etc. When sentiment is good, it goes up. When sentiment is bad, it goes down.

    Then you might ask, so what? When sentiment is bad, the seller can always ask for whatever price they want! That’s true. We are all counting on this type of sellers to keep the price afloat. Hehehe! Hahaha!!

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