Residential property market seen flat till 2017

KUALA LUMPUR: The residential property market is likely to remain flattish this year and the next, due to economic conditions locally and abroad, said Khong & Jaafar Sdn Bhd managing director Elvin Fernandez.
“It looks like it is going to be sort of flattish for a while and that’s not a bad thing. Not only this year but also extend into next year, because of global conditions and the economy. We were running at a higher gross domestic product growth but now we’re not,” he told reporters at the Malaysian Property Summit Mid-Year Review 2016 yesterday.
He said global factors including the China’s slowdown are affecting Malaysia’s economy, which in turn is correlated to the property market.
“There’s also the supply side, we have got a lot of supply at any one time coming in. Based on all of that, going forward, flattish is good, as long as it doesn’t drop; and an increase is not likely,” he added.
Outgoing Valuation and Property Services Department (JPPH) director general Datuk Faizan Abdul Rahman said the property market downtrend in 2015 continued in the first half of 2016 (1H16) and is expected to continue in 2H16.
“In terms of volume and value, the market has steadily declined since 2012. It is a steady decline but if you look at the House Price Index (HPI), in the fourth quarter of last year (4Q15), there was still an increase of about 7.2%,” he said.
Based on JPPH data, the increase in index points has been declining since 3Q13 from 12.2% year-on-year growth to 7.4% in 3Q15 and 7.2% in 4Q15. Faizan said the preliminary growth for 1Q16 is 6.8% and house prices are likely to see some correction.
“For this year, we have not finalised the HPI yet, but we expect the increase to be definitely lower than 7.2%. It all depends on the economy but I should think this year and next year, prices of properties will plateau off. It is good if the increase in property prices is tapped at 3-5%. Even at 7.2% it is still high,” he said.
PPC International Sdn Bhd managing director Datuk Siders Sittampalam said the reduction in cost of borrowing following the cut in Overnight Policy Rate (OPR) will not drastically improve the residential property market as lending guidelines are still stringent.
“If we look at the figures, it’s only about 40% of the loans that was approved. Lending guidelines are still stringent so by reducing the cost of borrowing, it only benefits those who are actually committed to financing, but it might assist in reducing or not increasing the non-performing loans,” he said.
He said the impact on property transactions will be very minimal as the OPR cut will not drastically reduce the interest rate. Even with another cut later this year, there will not be much changes as it does not necessarily mean more property buyers would qualify for loans.
Kenanga Investment Bank Bhd head of equity research Sarah Lim said that the issue is not interest rates but lending liquidity.
“Bank Negara Malaysia will need to address lending practices such as loan assessment methods, loan-to-value ratio caps and valuation of properties to ease lending liquidity,” she said during her presentation at the summit.
Lim said the tighter lending liquidity is caused by high household debt and high loan-to-deposit ratio, while banks also appear to be “reducing” exposure to property related loans.
She expects residential transacted values to decline slightly by 2% this year on flattish volume of 1% growth year-on-year.