Malaysia’s real estate market has fallen in each of the past two years, but the consensus is that Malaysia’s housing market will recover in 2010. Economic growth is expected to return as well, thanks to recent tax reductions, favorable residential lending conditions and favorable capital gains treatment, among other factors. See the following article from Global Property Guide.
Malaysia’s housing market is expected to recover in 2010, after falling house prices and low sales during 2009.
According to the Real Estate and Housing Developers’ Association (REHDA) of Malaysia, 50% of members expect property prices to rise by up to 20% during the first half of 2010. Price stability is expected by 30% of respondents, while less than 5% anticipate price falls. Transactions in the first half of 2009 were 30% down on the same period in 2008, according to the Valuation and Property Service Department (JPPH).
This “cautiously optimistic” outlook is due to an expectation of a stronger economy in 2010. Low interest rates, better access to loans, and favorable taxes are also expected to stimulate the housing market.
Malaysia’s housing market was hit by the global economic slowdown in 2008 and 2009, with political instability also roiling business confidence. Average property prices fell -0.9% in 2009 when adjusted for inflation. Some developers deferred project launches, while others scaled back. Malaysia’s GDP contracted 3.6% in 2009, due to the global recession, after rising 5.75% annually from 2002 to 2008. Consumption growth slowed sharply.
Confidence since then has been boosted by Najib Razak succeeding Abdullah Badawi as Prime Minister on April 3, 2009. Badawi’s last months were marked by public criticism of cronyism, ineptness and corruption. Disaffected members of the ruling party threatened to provide support to the opposition’s Anwar, if Badawi did not resign. And the economy grew in Q4 2009. Malaysia now anticipates 4% GDP growth in 2010.
Economic boost, tax cuts
In the wake of the crisis, Malaysia’s budget deficit rose to levels unseen for two decades. The over-all deficit in 2009 was around 7.4%, according to the Malaysian Institute of Economic Research (MIER), an independent think-tank. This followed 2008’s 4.8% of GDP deficit (the deficit averaged 3.4% from 2005 to 2007).
A stimulus package worth MYR60 billion (almost US$17.5 billion) or 3.5% of GDP, was announced in March 2009. Implementation will be spread over two years and includes spending (MYR15 billion), guarantee funds (MYR25 billion), equity investments (MYR10 billion), private finance and off-budget initiatives (MYR7 billion) and tax incentives (MYR3 billion).
There are also tax cuts:
- a tax relief for homebuyers on housing loans interest relief up to MYR10,000 (US$2,900) a year, for 3 years
- deferred housing loan repayments for 1 year for those retrenched.
The first stimulus package, announced in November 2008, had amounted to only MYR7 billion (US$2 billion) or 1% of GDP, and was allocated to spending on projects with high-multiplier effects like infrastructure. Fuel subsidy savings financed the packages – in April 2004, petrol pump prices were raised by 40%.
Home ownership made easy
Malaysians face low barriers to homeownership, according to Datuk Michael Yam, REHDA’s deputy president:
- Mortgage interest rates can be as low as BLR minus 2.3%
- Financing is available up to 100%
- There is zero lock in period
- There are stamp duty exemptions
- Repayment periods extend to 30 years, or up to age 75.
Outstanding housing loans reached MYR177.5 billion (US$51.6 billion) in 2009, around 24.7% of GDP, up 11% from a year earlier.
A low and steady base lending rate (BLR) has encouraged loan growth. From May 2006 to October 2008, Bank Negara Malaysia (BNM) pegged its key rate at 6.72% before gradually adjusting it downward to its present 5.51% in August 2009. Average lending rates fell from 6.63% in September 2006 to 4.83% in December 2009.
Capital gains taxes are back?
In mid-2009 the cash-strapped government announced it would restore the 5% real property gains tax on all transactions, abolished in April 2007. But the real estate community reacted strongly, and the government backed down and restricted the 5% real property gains tax to properties sold within five years of acquisition.
The government also added some exemptions:
- The level of exemption is increased from MYR5,000 (US$1,454) to MYR10,000 (US$2,908) or 10% of the chargeable gains, whichever is higher
- Gifts between parent and child, husband and wife, grandparent and grandchild are exempt
- One residential property in a lifetime is exempt
Foreign buyers more discriminated against!
The Malaysian government has partly retreated from its December 2006 liberalization of foreign property purchases. Effective January 2010, the price floor below which foreign buyers can buy is hiked to MYR500,000 (US$145,383), twice the previous level.
Foreign purchases above MYR500,000 (US$145,383) are placed under the “purview of the State Authorities” under the new regulations. Approval is expected to take one to two months.
The REHDA opposed the new restrictions, arguing that “the restriction might impact residential property acquisition by foreigners in the country, as the number of properties priced above MYR500,000, especially outside the Klang Valley areas, are limited.
“The ruling may be applicable to properties in Kuala Lumpur areas, but we should also consider other states with lesser price ranges,” said Datuk Ng, president of REHDA in a statement.
“This is definitely not the right time to restrict the property value to be purchased by foreigners.”
The over-supply of high-end condominiums is a concern. There were 66,328 units unsold at end-2010, though this was lower than 2004’s peak level of 83,888 units unsold.
The take-up rate has however improved says James Wong, president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector (PEPS). He added that many developers scaled back or postponed projects in the first half of 2009. The resale market for luxury condominium will remain soft until 2H of 2010, Wong adds.
The secondary market for landed residential properties is strong.
There is a constant flow of new supply of mass housing, as a result of the government’s attempt to make housing more affordable. From 2004 to 2008, more than 100,000 low cost housing units were built by government agencies nationwide.
In October 2009, the government announced the construction of 44,000 low cost housing units priced between MYR21,500 and MYR 35,000 (US$6,250 – US$10,176). It also ordered the construction of 74,000 low-cost rental housing units by the end of 2010.
Weak house price growth
The house price index rose 4.7% in 2008, but actually fell slightly (-0.66%) when adjusted for inflation.
In 2007, the house price index rose 4.8% (2.6 % in real terms)
In 2006, house prices rose 2.1% (a fall of 1.4% in real terms)
In 2005, house price rose 2.3% (a fall of 0.7% in real terms).
In Kuala Lumpur:
2008: house prices rose 4.5% (-0.9% in real terms)
2007: house prices rose 7.9% (5.7% in real terms)
2006: house prices rose5.3% (1.7% in real terms)
2005: house prices rose 6.5% (3.35% in real terms)
2004: house price rose 6.5% (5% in real terms).
House prices in Malaysia are still below their pre-Asian Crisis levels. House prices rose rapidly in the early 1990s with two particularly dramatic upward surges – in 1991, when 25.5% (20.3% in real terms) price rises were achieved, and in 1995 which saw 18.4% price growth (14.7% in real terms).
After the Asian Crisis, prices of luxury detached Kuala Lumpur houses fell by no less than 39%, between 1997 and 1999
Small rental market
Malaysia’s rental market is small. Only 6% of the housing stock is in the private rental sector. About 85% of the total stock is owner-occupied, while government-provided housing accounts for 7% of the housing stock.
The active luxury rental market caters mainly to expatriates, centered on Kuala Lumpur. Rental yields in Kuala Lumpur are relatively good, ranging from 5.5% to 8.7% in October 2009. Smaller units generally earn higher yields. On the other hand, yields on KL bungalows are relatively poor at around 3% – 4%.
This article has been republished from Global Property Guide. You can also view this article at Global Property Guide, an international real estate analysis site.