As I write, the real estate market in the Klang valley has been relatively slow.
A few years back, many bought condos, SOHOs, SOVOs … or their equivalent in anticipation of flipping them for a quick buck as soon as they had received keys for their units. Regrettably, most flippers failed and flopped. Today, these units are offered either at cost price or prices below their original launch prices.
Perhaps, you may ask, ‘Is investing in real estate now risky?’
Hence, last month, we have Charles Tan, Founder of kopiandproperty.com, live on our 1-Hour Webinar to share his insights on the local property market in the Greater Kuala Lumpur (Greater KL) region. Personally, I’ve attended the session and found it to be very insightful.
Now, if you have 3-5 minutes to read, no worries. I’ve briefly summarized what Charles had shared in that 1-Hour session so that you won’t missed its essence. Thus, here are the 4Ps which drive the Greater KL’s Property Market in 2019 & beyond.
The First P – Population
In 2016, Greater KL had a population of 7.2 million. By 2020, its population will grow to 10.0 million, a CAGR of 6% per annum. Education, jobs, and commerce are key drivers of growth in the Greater KL region. So, what does this mean? As I write, the average size of our household is 4 person. Hence, on average, every 1 million in population increment would translate to an increase in demand for homes of 250,000. Ultimately, they would need a roof over their head – be it by owning a property or by renting it.
Thus, it leads us to …
The Second P – Prices
Today, 57.5% of Malaysian households are earning below RM 6,000 per month. Thus, the maximum affordable home price is estimated to be RM 350,000. This could explain why lots of developers today are launching new property units at RM 300,000 – RM 400,000 as these price points are ‘affordable’.
There are two methods to measure the affordability of a property in Greater KL by its local residents. This would tell us whether property prices would increase sustainably in the future. Let us use RM 400,000 as our property price point for a simple case study.
1. Monthly Instalments
First, it takes RM 1,824 a month in monthly instalment to service the mortgage for a property priced at RM 400,000. Typically, a person or a household making RM 5,000 a month would be able to afford the instalments. Let us assume that the property would appreciate to RM 500,000 in 5 years and another person or household buys the same property. The new owners’ instalment is RM 2,280 a month, which is still quite affordable even if their income is RM 5,000 a month.
2. Down Payment
Second, it takes RM 40,000 (10%) in down payment to buy a property priced at RM 400,000. It is arguable whether households in Malaysia have the amount in hand to purchase the property. Anyway, in 5 years time when the property had appreciated to RM 500,000, the down payment to purchase the same property would go up to RM 50,000.
So, can property prices appreciate sustainably in the future? The answer would depend largely on the ability of residents to increase their monthly income and bank balances over the next 5 years.
The Third P – Policies
The Singapore property market is a classic example of how its government can influence prices based on its policies on home ownership. Lately, it introduced a few more cooling measures to suppress its property prices such as a revision in the Additional Buyer’s Stamp Duty (ABSD) rates and tightening of limit on its Loan-to-Value (LTV) ratio.
On home soil, the Malaysian government is committed to build about 100,000 affordable homes in 10 years. Would it impact the property market in Greater KL in the future?
Here is my view. From Point 1, I had learnt that the population in Greater KL is increasing from 7.2 million in 2016 to 10.0 million in 2020, an increase by some 700,000 a year. Based on average size of four person in a household, we would need to build 175,000 properties a year to house the rise in population. Hence, the 100,000 affordable homes in 10 years (10,000 homes in 1 year) is minuscule to be of impact to the Greater KL’s property market.
The Fourth P – Preferences
Malaysia is a youthful nation with 20% of the entire population currently at the age group of 20 – 29. If you look around, it is common to find new properties to be developed with features and amenities which are catered to the lifestyle for residents in that age group – Millennials.
If you are not in that age group, as an investor, it is good to start ‘thinking’ like one. How much are they making a month? Do they save? What do they like to spend on? Is the location you are buying into accessible to their many wants in their daily lives? Can most of them afford to buy their own properties? Do they prefer renting? The answers to these questions, I believe, are helpful guides to investing in the right kind of property at the right location.
A Bright Future to Properties in Greater KL
Overall, the property market in Greater KL is not as bad as it seems. In fact, it is promising with greater connectivity and continuous growth in population from both locals of other states and foreigners. Presently, the income bracket for an average household in Malaysia is relatively low. This means, we are not exactly a rich or high income nation. Thus, properties for low to middle income earners would remain resilient in the future. For the full webinar recording,
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