(A cynical bricklayer) How much will property prices drop?

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By Viktor Chong viktorchong@thestar.com.my

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I have attended various webinars for the past two months while in confinement, among them, topics about the property market in general, economic projections and overhang stocks. The most common question being asked at these webinars is, “Will property prices drop?” It is an interesting question, albeit a rather nebulous one, since a manifold of variables governs the price of properties.

Unsurprisingly, these experts who were asked the same question, time and time again, gave vague replies. I may not consider myself an expert on this matter, but for the sake of clarity, and with the current ongoing development, it is quite safe to say that house prices will go down. But, the question is what type and where is the location?

In areas like Kuala Lumpur and Johor where the market is saturated with high-rise properties, the answer is a definite yes, but few can confidently point out the lowest bottom that these prices will go. Landed properties, on the other hand, have always remained resilient, and they perform well even in bad economic conditions. The prices of landed properties may dip slightly, or stall indefinitely before picking up again when the economy recovers.

For high-rise properties, the drop in prices is expected, but bear in mind that property is also influenced by other factors such as location, price range, demographic movement, economic catalyst, and population growth or devolution. The rate of recovery of high rise properties will be slower compared to landed properties, but ultimately, the price shall climb again as the demand for property is always there. According to the Department of Statistics Malaysia (NAPIC), our population is growing at a steady rate of 1.1%, which is a relatively healthy rate to induce demand for property.

Unemployment to slow down the property train

Concept of business failure and unemployment problem.An unemploy

For the short term, however, it will take more than homeownership schemes, discounts and incentives from the government and developers to entice house buyers. Under the current climate, job prospects are volatile, and a good deal of people may not know if they will still be having a job by tomorrow. Jobless people are highly unlikely to be taking up a loan anytime soon, and banks may be more reluctant to approve loans in a climate where job security is in question. 

Based on information from NAPIC, the unemployment rate of the country is at its highest in 10 years. Newly released data showed an increase in unemployment by 3.9% since March 2020, which is the highest recorded in the country since June 2010, which was 3.6%. The number of unemployed persons had increased to about 610,000 for this month.

Pay cuts and reduced working hours are already being implemented, and this shall translate to a weaker purchasing power, further dampening consumption. A wait-and-see mentality is expected from the majority, and the current drop in demand should induce a further decline in property prices. 

Smaller developers may experience cash flow problems as the days drag by, and they may be inclined to slash prices to stay afloat. This condition is exacerbated by the overhang market, which in 2019, recorded a total of 30,664 unsold units worth RM18.82bil. Also, there are a total of 72,692 units under the unsold and still under construction category. Moving forward, fewer property transactions are predicted.

We are all connected

62

The solution is not an easy one either, as consumer sentiment piggybacks on the economic situation, not only locally, but on an international scale. Those thinking that the containment of the virus in Malaysia will bring back normality will be in for a surprise. 

Malaysia is an export nation, and the economic downturn of our trading partners will spell a lower consumption of our goods. Our population of 32,581,400 people is not enough to consume all our export products if they were to be channelled back inside. 

This drop in demand for Malaysian export is bound to create waves in our locality, further increasing unemployment. Hotels and tourism-related businesses are suffering, as tourist arrival will normalise only when the world, in general, has recovered from the virus, which seems unlikely, with nations like America racking up an infection count of five digits per day.

Even after the shadow of the virus has disappeared, time is required to heal our economy. A shotgun solution like homeownership campaigns and discounts will not be enough. The first step in the right direction involves regaining the confidence of the people, and that means stable jobs and economic growth.

A cynical bricklayer is an opinion piece by the writer and does not reflect the stance of StarProperty.


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