THE property market began its downward slide from 2012, after enjoying good business in the preceding few years.
In 2012, Bank Negara Malaysia introduced what came to be known as the Responsible Lending Guidelines, which came into force from January 1, 2012.
Under these guidelines, property buyers could no longer borrow money based on their gross income. They could now only borrow money on their net income, i.e. total income less expenses and existing repayments.
This threw a curveball at the market, with many potential buyers suddenly finding that they no longer qualified for housing loans or more likely, could not get the amount of loan they actually required.
The property market in Malaysia had been spoilt by easy financing and low interest rates for too long. Buyers suddenly found it difficult to adapt to this new situation and could not accept reality easily. Rather than dip into their cash reserves, most buyers simply opted not to buy. Gone were the days where you could get 100 per cent financing for your purchase. Gone were the days where you could buy a property with virtually no money down.
The market slowed down, registering 427,520 number of transactions in 2012 compared with 430,403 in 2011. This was a mere 0.7 per cent decrease, a small drop in the ocean. However, this was just the beginning of our troubles. The market continued to worsen, with 2013 registering only 381,130 transactions, which represented a whopping decrease of nearly 11 per cent. Further slowdown measures imposed in 2013 led to this drastic drop in total transaction.
A cold tremor of fear enveloped the market. People began to get worried, especially those who bought their properties during the market rally of 2009 to 2011. Many had bought their properties on the advice of so-called experts who had convinced them that, upon completion, they could sell their properties in the secondary market for 20, 30 and even 40 per cent profits.
The downward slide continued for the next few years, with only a small gain in 2014. This small gain was not sustainable, and the market continued its downward slide. By 2015, the whole property market was filled with doom and gloom. Developers were having trouble clearing stocks and as a result, began to defer project launches.
The logic was if supply was reduced, demand would eventually rise. But this was not to be. The downward slide continued through 2015, 2016 and even last year.
In 2016, the market registered 320,425 transactions compared with 311,824 last year. This was a small 2.7 per cent drop, a far cry from the 11 per cent registered in 2013. This could possibly signal that the slowdown is “slowing down” and that we may be at the bottom of the “U” curve.
Without the availability of more data, this is the closest we can come to an accurate analysis. I believe we are indeed at the bottom of the property cycle. The market will either flatten out or manage a slight improvement this year.
The first three months of this year have been unexciting because everyone has adopted a “wait and see” attitude. The blame for this must squarely be laid on the election and the intense speculation that people have been engaging in, trying to guess when it will be held. Now that the dates have been fixed, we should start expecting the market to become active again. My opinion is, independent of with side wins, the market will go on its merry way after a small period of adjustment. The second quarter should see better sales, buoyed by positive sentiment on the back of an improving market.
Potential investors should start bracing themselves for the market uprising.
The property market is a cycle and like everything else, is vulnerable to ups and downs. Bad times never last forever. The astute investor will learn to recognise this and will become good at anticipating market swings.
If you are an investor and you understand that property is a long-term play, now is the time to start sourcing for properties to buy. There are bargains aplenty, both in the primary as well as in the secondary markets. Take advantage of the slow property market to pick up one or two properties at depressed prices. Nurse these properties over the next few years and when the market improves, you could become a winner.
Until then, happy hunting and may the force be with you.