What lies ahead for young Malaysians
IN MALAYSIA, as in many parts of the world, chasing property ownership is part of the fabric of our society. However, affordable houses at favourable locations don’t come easy.
Many players in the property industry have contended that another wave of property price hike is looming, partly resulting from huge foreign investments and mega infrastructural projects.
With that in mind, the big number of home loan rejections is a sign that many Malaysians are already highly leveraged, while the cost of living has continued to rise.
Under the current market and economic situation, is it wiser to rent or to buy?
In favour of buying
For Henry Wiltshire director Vicky How, the answer is an emphatic no. She maintains the notion that tenants are merely helping the owners pay for their property.
How argues that it only makes sense to rent if the rental fee is so low that it could be offset by positive cash flows from two properties. On top of that, she reckons that the market is in favour of buyers and one cannot wait until they are rich to invest in property.
How, who also invests in properties abroad, says that Malaysia is still the cheapest when owning properties in compared to our neighbours.
“These low prices cannot be sustained as the young population in Malaysia continues to grow. In Malaysia, first-time homebuyers can still obtain 90% loan, while our neighbours only get 80%.
“Moreover, our interest rates are relatively low. In Thailand and Cambodia, the interest rates are hovering above 6%,” she adds.
For Affin Hwang Asset Management head of equity strategies and advisory Gan Eng Peng, one’s objective must be clear when it involves a huge capital outlay.
“Getting caught up and scrambling together with the rest of the market – otherwise known as risk of FOMO (fear of missing out), may lead to irrational investment choices and cause you to take on huge risks that exceed your initial tolerance level.
“We saw this in 2013 and 2014 when there was a mad dash to enter the property market due to attractive financing packages that were available,” he asserted.
However, Gan agreed that it pays to start early when it comes to investing in property.
“For people who plan to live in the unit, biting the bullet and taking the first step always feels like the hardest, but you have to start somewhere.
“For investors, it usually boils down to the location. This is especially true for developments that are in mature locations with good supply-demand dynamics, good connectivity or have existing physical infrastructure and amenities,” he said.
He adds that a key-trend emerging in the property space is Transit-Oriented Development (TOD) which is a type of community-based development with a mixture of housing, office, retail and public transportation.
However, Gan says there is limited room for property prices to trend upwards as income growth is just not proportionate to the increase in property prices seen today.
“According to a report from Savills and Pemandu, property prices between early 2009 and 2014 have increased by 80% on average, which has far outpaced the growth in income levels.
“Malaysia’s gross national income (GNI) per capita stood at RM43,100 (US$10,010) last year – which is behind the World Bank’s benchmark of US$12,275 for developed countries,” Gan explains.
As such, any increase in property prices will be gradual and is unlikely to be as explosive as what we have seen in the last five years.
While property developers are constrained by the rising cost of land, building material and labour to set a lower price for their units, Gan said the developers might instead maintain the existing price with a smaller unit in an attempt to defend their profit margins.
Despite this, he believes that property owners will still gain capital appreciation, but at a gradual pace, due to scarcer land resources, rising cost, income growth and demand from a growing population.
Is renting burning money?
While ‘renting equals to paying for others’ is the prevalent thought, there are some who think differently.
Independent certified financial planner Julian Ng believes that you can arrive at the same wealth by renting cheaply and investing the rest of your funds which could have gone into buying a property.
“The assertion that renting a home is burning money puzzles me because it ignores the fact that the renter can also invest, which will allow the renter to catch up to the wealth level of an owner.
“Online investing platforms that are coming up these days make it very much easier for people to invest like they are billionaires and with very small sums of money. So you can replicate the returns of property or stocks or any other asset class quite easily by buying into a low-cost fund,” Ng argues.
While he acknowledges that there are many issues to consider when deciding between buying a home or renting, Ng insists that both buyers and renters can be asset-rich by investing.
Ng questioned the wisdom behind property experts who insist that you must buy a property now before the next price hike arrives, lest we miss the boat altogether.
“If you are not an individual who has millions of dollars in assets, you should probably focus on the long-term gain and have a diversified investment portfolio.
“A regional or global equity portfolio would do a good enough job of accumulating wealth and give returns that beat inflation, more so than getting your money in and out of assets according to what ‘experts’ are saying,” Ng adds.
He also says the renter-investor is more “liquid” than the property owner who has to deal with the challenges of monetising his property to fund retirement.
Renting as a way of life
We have witnessed the rise of the rent-for-life culture, especially in the West.
However, a philosophical, cultural and lifestyle change may be necessary for Malaysians to adopt this practice.
On the downside, renters are restricted when it comes to home renovation and may face the risk of being kicked out if the landlord wants his property back.
Nevertheless, both Gan and Ng believe that the younger generation may find the option of renting more appealing because they do not want to be tied down by long-standing financial commitments.
“Renting frees you from a lifetime of debt. If you agree with the liberating minimalist philosophy that’s so trendy these days, renting is for you,” says Ng, adding that renting gives people more flexibility and mobility.