Let’s start this guide with an obvious but essential observation – the property market is complicated.
There are a wide range of factors – local, national, and global – constantly changing and impacting real estate prices.
Real estate economics are linked to market forces and changing circumstances that are often outside our control.
But if all that seems a little intimidating, don’t worry – there are many factors which investors and buyers can control, and ways they can react to changing circumstances to make the most of their opportunity.
And despite the challenges that property investors face, it continues to be a favourable asset type for many.
So whether you’re buying your first home with the hope of a financial return, or speculating on real estate investment to build for your future, here are 7 key factors impacting price in Malaysia’s property market.
1) Economic Landscape
The economic landscape provides the backdrop to the wider property market.
Positive economic conditions not only mean people have more money to purchase, but a more positive attitude towards investment in significant financial commitments such as property.
Interest rates are one area that can significantly impact property market transactions, since higher interest rates can make lending unaffordable for many.
High interest rates can reduce demand, and negatively impact valuations.
On the other hand, low interest rates make lending more affordable, and increase the number of people able to gain the finance for investment.
Inflation can be another major challenge, particularly in areas with a limited property supply. As inflation pushes up the value of goods, the price of property will increase as a result.
Economic factors are not limited to inflation and interest rates.
Unemployment levels, global trade structures, international financial circumstances, and many other factors all play a part in influencing the overall economic condition.
Economic conditions are beyond the control of an individual, but you can adapt your property market strategy to make the most of these circumstances.
In times of high inflation, it may be possible to sell your house in a particular area for a higher valuation, using the additional funds to purchase property in an area less susceptible to price rises.
This provides particular opportunities for individuals looking to move from popular and densely populated urban areas to suburban or rural locations with more available land for development.
Equally, if you’re lucky enough to have substantial banked capital and available cash, high interest rates could lead to deflation of property prices that make for a positive investment opportunity for you.
While others struggle to gain financing, your available cash reserves can freely operate in a market where house prices are falling.
2) Political Landscape
Investors like certainty, which means political change can negatively impact transactions in the property market.
This covers things like changing land policy, new ministers with fresh priorities, new building regulations, and a range of other political changes which may impact certainty in the housing market.
A changing political landscape can often mean positive steps on a national scale, but the question of change is where the challenges can lie for real estate investment.
Political change can be extremely hard to predict, and is inevitably outside the control of individuals.
Unlike the broader economic landscape, political change doesn’t lend itself towards specific patterns other than potential depreciation of house prices.
Both buyers and sellers tend to be shy of significant financial transactions until the landscape has settled.
While this may lead to a general depreciation in prices, speculators are equally likely to be nervous about capital expenditure in the face of such events.
3) Property Market Economics
Supply and demand are the king and queen of market forces. It is the most fundamental principle of economics – if people want to purchase an item which is in limited supply, prices will go up.
If there is a larger supply of an item than there are people willing to purchase it, then prices will go down.
While this hugely simplified summary doesn’t capture the detail of market interactions, it does sum up a valuable principle for the property market.
If there is a substantial excess of property of a particular type, demand for that property will be low compared to supply, and prices will suffer.
Recent trends in Malaysia’s property market highlight a slowdown, and even decrease in prices in some areas, resulting from an oversupply in some segments in recent years.
Supply and demand does mean that popular areas still continue to enjoy price growth, even while the broader market conditions indicate a mismatch in some sectors.
How to react in the face of changing property market economics may depend on your position as either buyer or seller.
A property mismatch may create a buyers-market, when price stagnation or depreciation offers an optimal time to purchase in some areas.
These circumstances could mean that property sellers may want to consider alternatives such as renting their property instead of selling during a slow market.
High demand and low supply still exists in key areas and segments, with landed property in desirable suburbs of Kuala Lumpur highlighting how property with a limited supply can continue to enjoy price growth, even in less favourable market conditions.
Location is a key part of buyers’ and investors’ decision making, as well as contributing to the desirability of a particular property.
While the location of an existing property is outside your control, property purchasers can make smart decisions about where to buy new property that substantially impacts house prices.
Trendy areas with good reputations, low crime rates, and ample amenities make for a great area to live.
That means they’re popular with buyers, which going back to our laws of supply and demand, means that property prices in these areas tend to be higher.
Location needs to be a key consideration in any property purchase, and is often one that involves detailed research to understand the cost versus reward.
Mature and highly desirable neighbourhoods such as Mont Kiara in Kuala Lumpur demonstrate the substantial price appreciation that emerging areas can enjoy, but buyers should be aware that continuous property value growth is not inevitable.
Location is about choosing an area where that balance of price and desirability can generate a worthwhile return on your financial investment.
Of course if you’re buying a property to call it your home, then it may be more down to choosing an area that you want (and can afford) to live.
Accessibility is a major element of location, but one which can be considered separately due to the ability to adapt and control how it benefits a property.
Kuala Lumpur again offers a fine example of how this might affect property prices.
Suburbs with good connectivity offer a notable bonus to property prices, yet areas of a suburb within easy commute of major connections such as LRT stations are likely to command an even higher price still.
Likewise, good accessibility to major highways can often result in higher property prices.
It’s important to do your research and understand how accessibility can impact property prices, especially looking at how distance from major transport hubs and routes can provide a positive influence on value.
Remember that paying a premium for property with good connectivity doesn’t guarantee a positive return on investment.
You should work to try and discover that sweet spot between distance from transport and house prices that offers the most positive result for your own purchasing priorities.
6) Future Development
Future development can have a big impact on existing property prices, creating a great opportunity for value growth in the right circumstances.
Newly developed mass transport connections such as new LRT, MRT, or railway stations can substantially boost property prices in the local area.
Highly desirable new malls or other elements of local infrastructure can also provide a positive boost. But don’t think future developments always go one way.
It’s important to realise that some unfavourable developments can have a negative impact on property prices.
Suddenly finding a new sewage plant or large prison being built two blocks over from your home won’t be welcome in your property valuations.
You can’t necessarily predict where big infrastructure developments might emerge, but with a smart eye for the detail, and some (hopefully informed) property speculation, you might be able to position yourself to benefit.
MRT and LRT extensions are potentially one area where a bit of future-looking and property speculation might enhance your investment opportunity.
Like any such investment, there’s no guarantee that your predictions will turn up good.
7) Quality And Presentation
Property purchasers want to know they are buying a valuable asset, so the more valuable you make your asset (home) appear, the more likely you are to sell it at a reasonable price.
This is an area where you as an individual can have huge impact, and should be a key consideration for any potential property sale.
If you live in an apartment block with 15 apartments currently for sale, your attention to detail and exceptional maintenance could make a valuable difference in a sale.
Ensure you keep your property immaculately clean, perfectly presented, and designed to impress the potential buyers.
Undertake simple maintenance and repairs as soon as possible, and work to ensure it’s always looking its best with minimal clutter and mess.
If your property looks well maintained on the face of it, people are less likely to think there might be problems they cannot see.
You can explore some great tips on how to enhance your home for a property sale on our handy guide.