High time for intelligent property moves

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Inflation, higher OPR calls for more due diligence and discernment in property buying and investing

By Yip Wai Fong 

The latest hike in the Overnight Policy Rate (OPR) to 3% on May 3 marks the end of cheap financing started during the onset of the Movement Control Order in 2020. In fact, the latest rate had been pushed higher by surging inflation compared to the start of 2020 before the first case of Covid-19 transmission was reported in Malaysia. 

The property market is one of the frontlines where the impact of the hike would be most felt as financing cost climbs. According to various stakeholders speaking to StarProperty, the situation presents both peril and opportunity for home buyers and investors, as per the following major observations they shared. 

Continued inflationary environment pushing costs up

While a higher OPR rate has the impact of strengthening the ringgit, persistent inflation will not bring down house prices due to the high cost of construction materials. 

“While the ringgit may strengthen through the remainder of 2023, it will not have a significant impact in bringing down construction material costs and therefore house prices, if at all, because we are still faced with a strong inflationary environment,” said REHDA president NK Tong. 

“Given the trend of the past few years, it is likely that inflation will outstrip any benefits of a strengthening ringgit and that costs will continue to rise,” he said. 

Buyers’ market might be in the making

According to GM Group founder Miicheal Yeoh, who is a mortgage specialist as well as a property and investment coach, the property market can be dynamic despite challenging external factors. 

“In my experience, during challenging times, developers often offer special packages in an attempt to sell properties and minimise their holding costs. Similarly, some owners of secondary properties may be compelled to sell at below market rates due to their need for cash.

“Presently, I would classify it as a buyer's market. Therefore, if you can acquire a property that is below market value now when the market eventually rebounds, buyers stand to make substantial profits upon selling,” he said. 

Yeoh’s observation was also the sentiment of some of the members of the KL and Selangor Property Investors Club (KL & SEL PIC). In an informal survey, some have expected the headwind for the property market to persist for a while and think that it is a good time to seek out good deals and hold until the market rebound. 

“For home buyers, it will be a challenge. (As high inflation eats into their disposable income for house purchases. But) as an investor, I see it very positively. (The speculators) will be filtered out,” said KL & SEL PIC member CK Lim. 

OPR hike a further hit to the rental market

Meanwhile, other KL & SEL PIC members opined that the latest OPR hike has occurred too early as the economic rebound has not yet lifted the rental market. The continuing depression in the property rental market, coupled with the latest OPR hike is a deterrent factor for some to invest for rental yield. 

When asked whether it is a wise move to make a property investment during high inflation, KL & SEL PIC member Clement Heng has a mixed view. 

“It is a yes to hedge against inflation. But from the poor rate of return from the current rental market, a big no,” he said. 

Meanwhile, Yeoh observed that the rental yield for residential properties is at 2% to 4% currently, while inflation stands at 3.4%. 

“Nowadays, you can see that more developers are launching Airbnb properties. It can provide ROI (return on investment) in the region of 6% or above. Given the current competitiveness of the rental market, you may want to explore properties suitable for Airbnb rentals, which can potentially yield higher returns,” he shared, adding that buyers should do their due diligence and avoid making impulsive decisions. 

Is property the hedge against inflation? It depends

For Financial Faiz founder Faiz Azmi, buying properties as a hedge against inflation means buying the intrinsic value of the property. So identifying the correct intrinsic value, such as the location, is key to making a successful hedge against inflation. Financial Faiz is a financial literacy brand that has made itself popular on social media, with more than 230,000 subscribers on its YouTube channel alone. 

“If your property is located near an industry that is (doing well) or is a necessity, such as near educational institutions, then your property might do well even during inflation,” he said, explaining that buying the right property means being able to ride on the inflation wave, where the rental or capital appreciation rises in tandem with inflation. 

“Whether or not investing in property is the right move against inflation depends on your strategy, whether it is for capital appreciation or rental yield,” he said.  

Intelligence and caution the real hedge

A majority of the KL & SEL PIC also agreed that while the property remains a hedge against inflation, the current OPR regime calls for more caution in investing. It also calls for stronger financial muscle to hold for the long term. 

“Property investment is not a money game which makes you rich overnight. It is a long-term wealth accumulation. In this inflationary era, we might need to learn more and invest in property wisely,” said Lim. 

Faiz also suggested diversifying assets as a safeguard in times of inflation. 

“You might get a property in a good area but the conditions in the area may not be good forever. You cannot know what will happen in a few years. You have to diversify in others such as shares or stock, which is also easier to keep at other locations such as overseas,” he said. 

It is likely that inflation will outstrip any benefit of a strengthening ringgit, said Tong.

It is likely that inflation will outstrip any benefit of a strengthening ringgit, said Tong.

Diversify in other investments such as shares or stock as well,  advised Faiz.

Diversify in other investments such as shares or stock as well, advised Faiz.

During challenging times, developers often offer special packages, noted Yeoh.

During challenging times, developers often offer special packages, noted Yeoh.


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