Is real estate still a safe investment?

KUALA LUMPUR: The signs of financial distress in the country are becoming more frequent and clear as the effects of Covid-19 penetrate deeper into the Malaysian economy, leading to rising unemployment and falling incomes.

The Bureau of Statistics data from May 2021 showed that the unemployment rate was 4.5% and included over 728,000 workers, although it decreased slightly from 4.6% in April 2021.

The economic impact is not isolated, with the damage spreading to other sectors, including property, despite various relief efforts and credit moratoriums.

The 2020 Household Income Estimates and Poverty Incidence Report found that 20% of the middle 40 (M40) income group – those earning between RM4,850 and RM10,959 – were moved to the bottom 40 group due to the pandemic, while among those in the top -20 category, 12.8% have shifted to the M40 group.

This means that some property owners may need to outsource properties to stay afloat.

While the vaccination rate is well on the way to herd immunity by October 2021, the future remains unclear how quickly the economy can recover from the damage in Malaysia under the National Covid-19 Immunization Program, or PICK administered.

In percentage terms, this means that 48.3% of the country’s population received the first dose of the vaccine, while 26.9% completed the full two doses.

Christopher Tan, 47, is one of many property owners who were forced to give up their homes during the pandemic.

When worldwide travel ceased, Tan, who lives in Singapore, lost his job as a pilot in June last year.

To earn a living with his wife and two children, he had to unload his apartment in Cyberjaya last August.

“It was a tough decision, but it was the quickest way to get some money, even though it was at a loss. I bought this apartment for RM 826,000 but sold it for only RM 450,000, ”he said.

At the end of 2020, the rejection rate of home loans in Malaysia was 28%, according to Bank Negara.

Reasons for this were, among other things, that borrowers were already highly indebted and, after taking into account the monthly cost of living and existing financial obligations, had a poor credit rating with low residual income.

According to the National Property Information Center (Napic), the entire real estate sector recorded 295,968 transactions in 2020, valued at RM119.08 billion as of 2019.

Meanwhile, a total of RM 117 billion is expected to be withdrawn from the Employees Provident Fund this year, mainly through the i-Sinar and i-Citra programs.

The fact is, the real estate sector was faced with oversupply and surplus issues even before the pandemic, and Malaysia has long been known for the fact that its house prices are prohibitive compared to average income levels – a combination of factors that has brought prices down a bit.

PropertyGuru Malaysia found that in the first quarter (Q1) of 2021, total asking prices for properties were down 0.84% ​​quarter-over-quarter (qoq) and 1.79% year-over-year to 87.86 index points due to buyer concern .

Napic also announced that the number of newly launched residential units fell significantly to 5,919 units in the first quarter, compared to 14,865 units in the fourth quarter of 2020.

According to the latest report from the PropertyGuru Malaysia Property Market Index (MPMI), total property supply in the market increased 34.53% year over year and 11.94% quarter over quarter in the second quarter of this year.

The surge in real estate supply in the country in the second quarter was likely driven by an increase in homes being offered for sale in the secondary market in the current economic climate, according to the real estate technology firm.

The upward trend in real estate supply was observed in four major economic states covered by the MPMI, namely Kuala Lumpur, Selangor, Penang and Johor, which saw year-on-year increases of 16.91%, 48.95%, 40.32% and 17.47 respectively % recorded.

AmInvestment Bank Bhd has maintained a “neutral” stance on the country’s real estate sector for the second half of 2021 in a recent research report, with a cautious outlook.

The investment bank said the various movement and economic restrictions could cause the sector to recover more slowly than expected.

It found that the real estate sector has contracted over the past five to six years after a boom in mid-2013 when the house price index rose double digits.

The investment bank is less optimistic about sales in the second half of the year, as the momentum could slow down since mid-May with the imposition of the Movement Control Order (MCO) 3.0.

“Last year, when the first MCO lasted 1.5 months (March 18 to May 3, 2020), home sales declined 11% in Q2 2020 compared to the previous quarter and then rebounded 121% in Q3 2020 % compared to the previous quarter. However, we do not expect the same pace of recovery in the second half of this year, as economic activity will not be allowed to resume until the third phase, which is scheduled for September under the National Recovery Plan, 12 months, ”it said.

Real estate distribution and media company Juwai IQI believes things aren’t just bleak for the real estate sector, especially if a recovery is expected that will create a backlog in Malaysia.

Co-founder and CEO of real estate distribution and media company Juwai IQI, Kashif Ansari, said Bank Negara’s stance to keep both ringgit structural stability and price inflation under control would keep economic momentum amid the effects of Covid-19 Receive.

The group’s co-founder and CEO Kashif Ansari said Bank Negara’s stance of keeping both ringgit structural stability and price inflation under control would keep economic momentum amid the effects of Covid-19.

“We expect the real estate sector to grow 3% to 5% over the next year due to strong demand, the reopening of the economy and expansionary monetary policy.”

He said real estate remains a safe asset for discerning and astute investors. – Bernama