Category: Swhengtee News Published: Tuesday, 14 February 2017 10:16
(2013 Swhengtee Annual Property Forecast Talk)
Source from : China Asean Business Text by:Evelyn Chin
An increasingly interconnecting world makes countries vulnerable to events in others. 2016 witnessed several events that ended up impacting economies all over the world, good and bad. There is undeniably a slowdown in the property market. Property prices in Malaysia have stagnated due to the recent economic slowdown since 2014. The slowdown is mainly due to weak interest, the general economic slowdown and instability of the ringgit. The ringgit depreciation [which has been among the hardest hit in the market] due to the surprise U.S. election outcome has created an alarmingly high alert among investors. Yet, there are still hopes for local as well as foreign investors.
China ASEAN Business Magazine had the opportunity to speak with Dato’ Sri Gavin Tee, the founder and president of SwhengTee International Real Estate Investors Club and the director of AGV Consulting Sdn.Bhd, to discuss the country’s expanding property, the challenges and opportunities of Malaysia’s property market in 2017. “Compared to where we were prior to the 1997 and 1980 crises, Malaysia is now in a far stronger position to weather any incoming storms,” said Dato’ Sri Gavin Tee.
Looking Back: A Year Walking On the Tightrope
“When we last took a look at the Malaysian economy, the country was reeling under the impact of falling oil prices, a depreciating currency, and rising inflation,” said Dato’ Sri Gavin Tee. The situation has continued to significantly decline since the shocking victory of Trump. Although the growth momentum has been stable so far, global uncertainties, together with political developments and weaker domestic fundamentals, are weighing on the overall economic outlook. A predominance of downside risks has prompted a few credit rating agencies to cut Malaysia’s sovereign ratings outlook.
Tee pointed out that government revenues from oil and gas income have been under pressure for some time now due to falling global oil prices. Any further descent in prices and the government will likely miss its fiscal deficit target of GDP growth, which is required to rein in public debt, this year. At the same time, falling export receipts of energy producers are causing the current account surplus to shrink. The declining value of Malaysia’s national currency, the ringgit, has had wide-reaching effects at all levels of the national economy.
Alongside external factors, domestic fundamentals and imbalances pose significant risks to economic growth. Malaysia’s public debt has been on the rise, and debt affordability has seen limited improvements despite the government’s recent initiatives for fiscal consolidation. Although the goods and services tax (GST), implemented as a part of fiscal reforms, is expected to improve the government’s revenue, its impact on consumption demand has been adverse so far.
“Private consumption has been slowing, and consumer confidence is waning,” Tee told China ASEAN Business that the phenomena were in response to rising prices due to higher taxes and imported inflation, falling government subsidies, declining personal financing by non-bank lenders, and softening of the labour market. Furthermore, the household sector is highly leveraged—its debt-to-GDP ratio has almost doubled between 2008 and 2014. Favourable credit conditions reinforcing high consumer demand led to a ballooning of household debt during this period.
The sharp decline in government revenues due to falling oil prices, strong capital outflows, and depreciating currency prompted the government to announce a revised budget on October 2016. It announced a series of restructuring measures that are likely to save the government. Several development projects have now been reprioritized in order to cut government expenses. The government has announced lower employee pension contributions and tax relief for low-income earners in order to boost consumer spending—the key driver of economic growth. At the same time, it has assured that there will be no capital controls to check domestic currency depreciation, which shows the government’s confidence in the economy.
Tee pointed out that the measures announced by the government in the revised budget were necessary, given the changing economic conditions and external uncertainties. However, these actions may not be sufficient to contain the fiscal deficit within the target range. Downside risks to growth are significant and are impacting economic outlook. Having said that, the government has made a sincere effort to consolidate its expenses for this year and to present a more realistic budget as global uncertainties continue to challenge economic growth. “This will likely boost investors’ confidence during these troubled times,” Tee told China ASEAN Business.
A Good Omen for Better Tomorrow?
Dato’Sri Gavin Tee is one of the influential figures in Malaysia’s real estate sector where he is famous with his keen observation in the property market. He continued to tell China ASEAN Business that Malaysia’s property market will still be a challenging one, especially for the high rise residential segment and for certain commercial projects in town. The reasons behind are the oversupply in the current market along with the aftereffects of the Goods and Services Tax (GST), lower commodity prices and stricter home loan approvals. He expected the market to recover only in the second half of 2017 if these conditions improve by then.
“We could see that lots of challenges are awaiting, as though the ‘cloud of uncertainty’ is hanging over the Malaysian economy,” said Tee. The property market will continue to be soft especially with the challenges we are facing both internally and externally, Tee told China ASEAN Business. He expected that 2017 will see a good volume of new properties, with many residential and commercial properties being completed.
“We expect that the property market dynamic in the country will continue to experience the revolution because more Malaysians are now looking at value-added properties, especially lifestyle properties”, Tee told China ASEAN Business when asked about the future of property market in Malaysia. He said that the trend is booming because these lifestyle properties are well-equipped with facilities and are surrounded by good amenities, which opens up opportunities for a more comprehensive and comfortable lifestyle. The lifestyle living concept is currently trending when most young urbanites are looking for work-life balance, especially in the hectic city.
The most challenging facet in 2017 will be securing a mortgage from banks. Financing is only going to get tougher, be it for first-time homebuyers or for property investors. This is because banks are currently facing a high asset to deposit ratio on top of the weakening Ringgit and higher banking costs. All these led to less funding available as banks will be tightening their reins even further to ensure that they obtain the best and safest return on investments.
Having said that, the uncertainties in the market could result in emerging good deals, which would not be present in an otherwise healthy market. “It might be challenging to secure financing from the bank but knowing and preparing ahead will keep the savvy investor at the top of the game as well as allowing for the accumulation of greater wealth in a weak market,” Tee pointed out the key factor for investors to keep up with the current property market.
Each Challenge Lies Opportunities
Young Malaysians, whether single or married, who relocate to the Klang Valley from their urban, semi-rural or rural hometowns for career opportunities, young Malaysians joining the workforce as well as couples and those starting families will continue to fuel property purchases.
In the Klang Valley, more and more homebuyers are purchasing homes in older, centrally-located city areas as well as new suburbs, which are mainly found in the south. Prices have generally been trending with an upside bias, with the exception of price-controlled properties.
There are always queries by property buyers of when will be the best time to purchase a property.
“I would advise that both homebuyers and investors think twice for the right decision,” Tee said. According to him, there is no such best timing but the strategy in purchasing a property. To him, the bargaining power is still strong in the Malaysian property market and buyers can effortlessly build their net worth as well as their assets if they invest for the long-term because investors always ‘win’ in the long run.
When asked about what types of property to buy this year, Tee said that it is all about asset selection. Depending on the stages and the cash position buyers are in, active buyers and investors alike can opt for undervalued assets. However not every property is suited for everyone and not every other bargain is suitable for every stage in life.
Properties are a double-edged sword where it can cut and harm you, but it can also make you wealthy effortlessly. “It is important to equip ourselves with the financial fundamentals as well as investment intelligence,”
Knowledge is power and if we mastered such intelligence, anytime is a good time to purchase properties, said Tee. Property investment is a long-term game, and investing into long-term markets will guarantee you great returns.
What Lies Ahead?
In today’s challenging property market conditions, what opportunities are there for investors and homebuyers?
“Homebuyers and investors have an excellent opportunity to secure a choice property. Most developers are offering good incentives and interesting promotion packages to entice sales,” Tee explained when asked about property strategy. According to Tee, first-time homebuyers are more likely to find their dream home as developers are launching more affordable units in the upcoming year.
“Homebuyers and investors should grab the opportunity to look for properties in mature areas and established townships where land is scarce or newer well-connected areas with good infrastructure and public transport such as highways, the LRT and MRT,” Tee urged both buyers and investors to consider the connectivity as one of the factor when they are deciding on which property to purchase.
The primary property market is expected to experience a further drop in sales volume. With the current economic climate, more financially-savvy working professionals have a wait-and-see attitude, especially if developers continue to sell at the current steep prices. Banks will also embrace a more prudent financial checks and as a result, applicants in the borderline category who got their loans approved during better economic times will not be as lucky this year.
Even though developers are not expected to reduce selling prices; they may offer more ‘freebies and rebates’ to attract new house buyers. Developers with deeper pockets will probably defer further new launches as they wait for the economy to recover. Thus, it can be expected that the 2017 primary property market will see fewer launches.
On the other hand, the secondary property market (sub-sales) is bound to be more exciting this year. In consideration of some of these property speculators not being able to afford to service their mortgage instalments upon completion of said properties, they will be compelled to sell off their units. With more secondary properties entering the market, some of these speculators may have to settle for selling prices that are lower than the original purchase price in order to secure a buyer.
Right strategy, Right Choice
“You can never go wrong investing in property as long as you know the strategy,” said Tee. Tee said that homebuyers and investors need to identify strategies that could put in place to ride out the current soft market.
Investors and homebuyers can look forward to deals and easy ownership packages. In terms of what and where to buy, it depends on their needs and means. Investors and homebuyers should evaluate the risks. It would be safer to buy from reputable property developers, Tee pointed out the key factors to consider when investors and homebuyers are purchasing a property.
It is important investors look out for factors such as quality, reputation and location. Good connectivity and a prime location will increase the value of the property over the years. Individuals should also select a developer with a good track record, which increases the chances the projects will be delivered on time with high quality.
The right products in the right locations will always be a good investment. Developments located near existing or future rail line stations or transit-oriented developments are generally good investments, which will attract long-term buyer and tenant demand.
Also, properties within well-planned townships in locations that are well served by a good highway and road network, provide accessibility and connectivity and come with amenities and facilities will also be a good investment, especially for homebuyers. Locations or townships that include catalytic components, such as leisure attractions, major commercial or business-oriented developments and healthcare or education hubs, will also have an advantage over others that are ‘run of the mill’.
During tough times, it is crucial that buyers are mindful of the track record, reputation and ability of the developer to deliver the product on time. It should be able to follow through with the promise of providing the amenities and after-sales services upon the completion of the properties, especially when these are strata-titled. Failure to do so and with bad management may cause the value of the properties to drop.
Given the current economic climate, it is a buyer’s market. Developers are very competitive at the moment in their product offerings and price points. As an investor or homebuyer, it is an opportune moment to look for good buys in the market now and take advantage of the attractive packages, discounts and other incentives that are being offered.
We Are All Set
When asked about the competitive advantages of Kuala Lumpur as an investment destination as well as a location to set up regional headquarters, Dato’Sri Gavin Tee explained that investors are positioning Kuala Lumpur as the location to set up regional headquarters for multinationals, whether they are in business services, engineering, finance, retail, supply chain or health care. Kuala Lumpur portrays potentials of thriving business ecosystem with a broader talent pool.
Furthermore, the infrastructure projects that underway increase the attractiveness of KL both as a place to do business and as a place to live. There are many mega projects undergoing constructions and developments. To name a few, Mass Rapid Transit (MRT) project and high-speed rail project are among the big projects that will increase the efficiency of connections in the city. Kuala Lumpur is growing from a population of 6.5 million to 10 million. “We will not be able to complete our vision of making Greater Kuala Lumpur into a modern and world-class city without the infrastructure,” said Tee.
In February 2013, the governments of both Malaysia and Singapore officially agreed to build a 330km high-speed rail that linked Kuala Lumpur with Singapore. With the groundbreaking on construction expected to begin in 2018, the railway promises to significantly cut back travel time between the two cities. With current estimated travel times between Kuala Lumpur and Singapore ranging from eight hours via train, five hours by bus and 45 minutes by plane, the proposed railway is expected to reduce time en route to 90 minutes. Other than the high-speed rail project, Kuala Lumpur is currently serviced by a comprehensive rail network, which includes two Light Rapid Transit (LRT) lines, a monorail, two commuter rail lines, and an airport rail link.
In the bigger scheme of things, there is a plan for a train linking Kuala Lumpur to Kuantan via Mentakab. Recently, the inking of the deals with China that involves RM 55billion of soft loans to construct The East Coast Rail Line Project(ECRL), is said to be the crucial step to further enhance the position of Kuantan Port as the gateway access for investors. The first phase of the rail line will be from the Klang Valley to Kuantan, second from Kuantan to Kuala Terengganu, third from Kuala Terengganu to Kota Baru and Tumpat. Port Klang, Bentong, Mentakab, Kemaman, and Kerteh are towns that will be connected to the 600km-long rail route. The project would also allow Kuantan Port to become a hub where cargo from the east could pass through Kuantan to reach Port Klang and vice versa, with the railway line connecting the two ports. The rail line project is said to be the key to unearthing a lot of potentials and benefits to the development of East Coast Economic Region as well as the Kuantan region.
On A Final Note
The property market is now in a consolidation phase at present and there are opportunities there for people to invest. Initial phases of new projects with an advantageous location and connectivity, strong master planning and delivered by reliable developers will continue to attract buyers. This is especially for developers who have historical data that show asset appreciation over time, particularly when the market is recovering.
Purchasing property can be a shrewd, but not foolproof, investment. The property market is influenced by supply and demand, availability of credit, and the health of the Malaysia economy, all of which are constantly fluctuating. As purchasing a piece of property, regardless of size or location, is a substantial investment, it is important to understand the current challenges affecting the market.