Its a definitely a Good time to Buy!
The Malaysian property sector generally has a steady stream of demand that are fueled by first time domestic purchasers, domestic upgraders and domestic speculators. We are short of quality homes at affordable prices. We also have a constants stream of foreign investors from Pan-Asian countries, and on occasion when there is trouble else where, we get a lot of Middle Eastern including Iranian investments, who tend to target medium to premium end residential property products because of affordability or qualitative virtues of that product. The Singaporean investors have been long time investors in our market. Therefore it is safe to assume that there is a healthy and constant demand throughout the market, and thus Prices are generally expected to rise because of this.
The Malaysian market is supply driven. The more supply comes online, the slower the growth or rise in property prices. Newer properties are also coming to market with better, safer and more high tech features, hence the higher pricing/values. When newer benchmarks are established, newer properties top that benchmark.
Prices in Malaysia generally do not come down, as there is a healthy inflation that is built into the system that allows property prices to float higher in value every year. There is also a trillion ringgit in cash that buyers have saved in EPF that can be withdrawn at anytime for property purchases. There is also great liquidity in the Stock Market ready to be used in the property market. There are also bank loans ready for disbursements to ordinary mortgage holders allowing property prices to hold up.
Therefore, the greater the supply the easier to purchase the property. Property developers need to offload properties quicker, and banks realise their big financing quicker, and then finance the end user for their long term incomes. Hence, why rental returns are low at about 4.5% to 5.5% gross (rental) yield. The rest of the expected yield from that property is expected to come from capital gains, or gains on sale.
Property prices will only come down if there are issues in other industries cutting the supply of funds or financing, ie: Oil & Gas, Manufacturing, Tourism and Education. Otherwise, property prices come down because of maintenance, age, fair wear and tear, and of course security and community. After 25 years of age, even the worst of properties rise in values in tandem with inflation, infrastructural costs, and costs of replacement of such products. Raw materials are on the increase because of global demand, so construction this year is expected to be significantly more expensive than say 10 years ago.
Yes recession does bring down pricing of properties, but in actual fact it brings down everything like other cost of goods and services and sometimes your own income. Therefore at those instances, although things appear cheaper, frankly it isn't as everything else is cheaper as well. Unless you have savings to dig into and buy property, it doesn't really make much difference.
Your real cost in buying property is your interest rates. Since everything else about property is controlled in terms of legal fees, stamp fees, really its your mortgage rate that defines your property investment. These are good times to buy property for 25 years as mortgage interest rates are under 3%, lower than inflation itself.
Therefore Thomas, even though property prices have gone up, the cost of acquisition and repayments are now actually lower. Prices are up because of the better provisions in that development. Although building quality has reduced compared to the 50s/60s, they are still in line with Global quality standards. And the top 20 Malaysian developers, are some of the best developers in Asia.
Also, an income of RM Protected content will allow that buyer today to purchase a property what a RM Protected content earner was able to purchase 10 years ago. In fact today, he has better access to wider choices. And you know in Malaysia, a household income earner of RM Protected content guaranteed a loan, an affordable home and assistance unlike many of our neighbouring countries. With the floor pricing of RM500,000 for foreign purchasers, the Government has ensured the affordable property market is exclusive to Malaysian buyers: first time domestic purchasers, domestic upgraders and domestic speculators, and a ready stream of both local and foreign tenants demanding rooms and tenancies.
Also keep in mind that outside money is only destined for medium premium to uber premium segments of the economy, and has no real effect on the fundamentals as it accounts only to 20% of the transaction units, but 3 times higher in actual values. The other 80% of the economy is domestic driven and because of lower values, transaction numbers are about 6 times more than foreign property purchases. Therefore it is safe to assume that foreign money actually helps absorbing excess supply, and in other circumstances creating supply.
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If you enjoyed reading this and wish to read more, check out:
Malaysian Property Market 1 | Economic Issues!
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Malaysian Property Market 3 | Buying vs Investment
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