Property market holding out well

The real estate sector is a barometer of economic health. Property value is the first to be hit by an economic slump. StarBizWeek looks at the impact of the latest crisis on Malaysia’s property market

AMID the fallout from the US financial crisis and subdued consumer sentiment as a result of slow growth and recession, property markets around the globe including New York, London, Singapore, Hong Kong and Sydney, have taken a severe beating in terms of price erosion and sales. Given the looming gloom on the economic front, potential buyers are adopting a wait-and-see attitude as they believe the worst is yet to come.

In the US, the sub-prime loans debacle had severely affected property prices with falls of up to 90% and it is now harder to obtain loans to fund property purchase. Prices of properties in the other markets have dropped between 20% and 50%, and the outlook appears bleak for the next 12 months at least.

Despite the gloom and doom in the external front, Malaysia’s property market is holding out considerably well with property prices in the major growth areas including Kuala Lumpur, the Klang Valley, Penang and Johor still stable. This can be largely attributed to the fact that Malaysia did not experience a “property bubble” over the last few years, unlike in the other high-cost cities. Annual price increases for local properties had been relatively moderate.

However, the severe meltdown as a result of the US financial crisis has resulted in more caution among potential buyers. Developers have slowed down on new projects or deferred their launches and are resorting to pre-sale launches to gauge the market’s interest before proceeding with any project launch.

Going forward, the possibility of prices falling will be there if the global economy deteriorates further.

Knight Frank Ooi & Zaharin Sdn Bhd managing director Eric Ooi says that with the global financial crisis set to unleash its full impact next year, “the local market is expected to soften in the next six months which may see some correction in prices.”

Ooi says that even though interest has abated due to the current world economic crisis, Malaysia is still on the radar screen of investors looking for good buys in prime residential and commercial properties.

According to Ireka Corp Bhd executive director Lai Voon Hon, prices are holding out for now as there is no “panic selling”.

“This is attributed to the fact that prices of most properties are not too far above replacement or construction costs. Hence, I do not foresee property prices dropping drastically. The Malaysian real estate remains attractive in terms of price stability, value and potential appreciation,” Lai says.

He pointed out that the strengthening ringgit, against other major currencies, offers a promising outlook for local real estate as a good haven for a more secured and quality asset-class investment.

Echoing Lai’s views, Hall Chadwick Consulting Sdn Bhd director Kumar Tharmalingam says Malaysia was not part of the international euphoria on real estate values which saw values doubled, tripled and quadrupled over the last six years in some countries like Britain, Australia, the US, Hong Kong and Singapore.

“I believe the Malaysian property market is a very orderly and well-structured industry. Due to intense competition between the 13 states, where land development is a state matter, there is a range of values that is affordable right up to the luxury category which is still cheaper then anywhere else.

“As property sales are a function of population density, we can expect densely-populated locations like the Klang Valley, Selangor, Penang and Johor Baru to benefit despite the global crisis. The top end of the housing market is relatively immune to the economic downturn, and we expect the sector, especially in Kuala Lumpur and Penang, to remain steady,” Kumar adds.

Not discounting the possibility of some correction in certain overpriced areas, Lai says: “How long the prices would hold out will depend on the level of market confidence and buying support in the coming 12 months.

“Based on the market’s performance so far, it is safe to say that the fundamentals of the country’s property market are stronger than that of other markets. There is ample liquidity in the domestic banking system as the domestic financial system has remained largely intact and pretty much shielded from the global financial crisis.”

Zerin Properties chief executive officer Previndran Singhe says that while foreign investors are still interested in investing in Malaysia, transactions have slowed down in tandem with the global financial crisis.

“Landed properties in traditional locations are holding out well. So are the newer condos that are well designed and completed. I believe the market will hold out longer although there will be some price drops in poorer locations or poorly designed products.”

And with inflationary pressures easing, Previndran expects prices for landed properties in good locations to inch up in the first and second quarters of 2009.

By The Star

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