By Gary Chua
Property market in 2016 will continue to be soft due to the challenges we are facing externally – possible continuous rate hike in the US, Slower GDP growth in China, political unrest in Syria which has badly impacted oil price and commodities prices; and internally – 1MDB issue, weakening of Ringgit, high inflation and so on.
2016 is going to be a year with a high volume of completed new properties, both residential and commercial. Hence, the market will be soft in view that the impending supply in the year will need some time, for the demand to catch up.
2016 will also be a year of testing speculators who have invested in the projects back in 2013, which will be completing soon, especially those projects with Developer Interest Bearing Schemes (DIBS). This is because they would need to start servicing their installments, as well as compete with the competitive secondary market and the rental environment.
The most challenging aspect for 2016 is, in fact, securing a mortgage from banks. Financing will only get tougher, be it for first-time homebuyer or property investor. This is because banks are currently facing high asset to deposit (AD) ratio, meaning lower funding available due to Ringgit weakening and higher banking cost.
Average AD ratio in all banks have breached 90% level. This means banks have lend out more than 90% of their available funds to consumers. All in all, these have pushed banks to invest wisely or become pickier with customers’ profile and this is to ensure the best and safest return on investment for the banks.
In view of this, we strongly hope Bank Negara Malaysia (BNM) can step in to help to increase the liquidity in the market by lowering the statutory reserve requirement (SRR), which is now at 4%, to be improved to 3% or 3.5% – in order to improve the liquidity of banks and their ability to give out loans.
Another critical issue that we are facing today is banks are not lending to the first-time homebuyer primarily due to affordability issue. After the introduction of Responsible Lending Guidelines in 2012, another new segment has been classified in 2013, under this guideline, which is called the vulnerable segment.
This refers to Malaysian with monthly income below RM5,000 as defined by most banks. Banks are applying more stringent Debt Service Ratio (DSR) cut off at below 60% on net income for those who fall under this category whereas others can be as high as 80% to 90%. This has further dampened the chances of securing a financing from the bank to purchase the first house for the younger population who generally earns less than RM5,000 per month.
The property market dynamic will continue the revolution which more and more Malaysian favors value-added properties, especially, lifestyle properties. These properties are equipped with facilities which allows people to live in better lifestyle without compromising for something less. Younger Urban Malaysian is searching for work-life balance and hence the lifestyle living concept is a more preferred choice.
Earlier, lifestyle concept was not really introduced and as such there may be a lack of such supply. We foresee the demand on lifestyle concept new properties will continue to increase in the near future. Gen Y is the biggest population group in Malaysia, which comprise of 10.8 million or 38.2% of Malaysia’s population. 2016 is also a year where the Gen Y society hit early-thirties and this is the time for them to settle down – to purchase a place and build their nest.
Even though the market is weak in 2016, but it is indeed an interesting year for some as it is with such uncertainty that good deal is possible to be found and secured. It might be challenging to secure a financing from the bank, but knowing and preparing ahead keeps you stay ahead of the game, which may allow you to accumulate great wealth in a weak market.
In short, the demand is there, but it’s no longer easy to invest especially on getting your dream home financed, but it’s never impossible.
For those who are keen to know more, Gary runs a workshop to educate people on the latest winning formulas. Drop us an email for any feedback: general@smartfinancingco.com.
