As we move into 2017, we continuously hear various expert opinions across sectors commenting on investment instruments such as equities, commodities, forex and of course PROPERTY. Today, I will share my humble insight on the property market based on 2 recent news articles on the Malaysia property market as a whole.

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Of 90% of the population,  the biggest expenditures in a person’s lifetime would likely be the following 5 categories :

1. Property 2. Vehicle 3. Healthcare 4. Education 5. Insurance

Today I will be writing specifically on No. 1 – Property, also known as as real estate. Personally, I have two great interest : the real estate market & the financial market. Professionally, I have substantial experience in both sectors.

Suicide to buy a house now, says consultant

After reading both articles above, I would say both have strong grounds to argue their respective case. If we were to put both man across one another, I am certain the argument will go on endlessly. Additionally, the Tradeview team has had the opportunity to meet both in person. Today, as an impartial observer, I would like to share some basic insights and preferably paint a clearer picture for fellow readers.

The saying of “having a roof over one’s head” refers to one of human’s basic necessity to have a safe and secure habitat to sustain living over a long duration of time. Property / Real Estate helps satisfy this basic human necessity. However, due to the ever increasing population of mankind, the limited liveable space (fit for habitat) is always playing catch up in terms of supply to demand. Couple this with the effects of inflation, over time, property / real estate becomes another form of investment instrument.

If we were to breakdown the function of property, I will say there are 5 main ones :

1. Habitat 

2. Investment / Hedge against inflation 

3. Sense of belonging 

4. Legacy / Heirloom 

5. Status Symbol

When we read news, articles or opinion pieces, it is vital to consider from which angle we interpret the message behind it. I will elaborate my views based on these 5 points.

The Malaysia property market has been on doldrum since the peak of mid 2013 as per the Housing Price Index Malaysia. Since then, the property market has been on downtrend. In other words, the property market has been “soft”.

If we look at the timeline of events, we can attribute this to various factors such as the abolishment of DIBS scheme, revision in RPGT,  increase in loan rejection rate, first US rate hike in Dec 2015 and others. In short, demand side for property was affected by policies introduced by the government and institutions. This has resulted to some extent the correction in property prices since 2013. How about supply side? 

As of August 2016, according to the National Property Information Centre (Napic), 18,908 of the 81,894 units of residential and commercial properties launched in the first quarter of 2016 have yet to be sold. These unsold properties amount to RM9.4 billion and it is an increase of 16% from the value of unsold units in the 4Q 2015. Based on this, there is clear oversupply in the market. Developers have been building and the market is not absorbing.

 In short, in economics 101 terms : Demand Fall while Supply Increased = Price Fall (E1)

Based on these information, it would appear that Mr Earnest Chong is right and PropertyGuru survey is wrong. With property prices on a downtrend coupled with oversupply, maybe renting is the way forward. Then why did PropertyGury survey showed over 58% of people are looking to buy property in 2017?

Property Function No. 1 – Habitat

In my humble view, it all comes down to the details. While the high level figure do show that there is an oversupply in the market, however, there is in fact an underlying demand for property. This comes to my first point, Habitat. As a household grows from a couple to a nuclear family to extended family, there is the need to move out and build your own nest. This is the actual demand for property. This segment of people usually creates the perpetual need for property be it old or new. I call this segment “New Household Builders”. They are the one supporting the property market through the good and bad times. Property price do not change the fact they need property. It merely affects the timeline they purchase. While they wait for the right timing to purchase, often they continue to stay with their parents otherwise they rent. 

My view : If there is an actual need for a habitat, anytime is a good time to purchase a property provided one has the means to purchase without over leveraging.  

Property Function No. 2 – Investment / Hedge Against Inflation.

Moving on, we can look at the market from my second point, Investment / Hedge Against Inflation. It goes without saying property price appreciate with time. Myth : Manhattan New York today was bought by the Dutch for $24 from the native americans. Today, a landed terrace house in Bandar Utama, Petaling Jaya cost only RM180k in the 1990s, is valued over RM1 million. With the effects of inflation, property / real estate has proven to rise over time. As a result, many with the means would often put their money in property in hopes of achieving capital gain or act as a hedge against inflation.

However, with the downtrending property price, many who bought at the peak of 2013 with Vacant Possession in 2016 is now stuck with the high property purchase price without a buyer or tenant. They continue to service their monthly instalments for empty unit. Those without holding power would have to sell at a loss (firesale) or face foreclosure from the bank.  

My view : If one is looking to buy property for solely investment purposes, one must have the holding power to reap the full benefits. Otherwise, it is suicidal as per what Mr Earnest Chong said. Unlike equities, property transaction takes time. Gains or loss is not easy to be realised without a specific timeframe for the transaction to conclude. Having said that, the market has continuously move downwards in the past 3 years. Those with the means may be able to start looking at property at selected segments and locations (such as Landed property within Klang Valley)

The 3rd point, Sense of Belonging is one of the most important qualitative factors of owning a property. As one of the 7 billion people living on earth, having a place to call home or a sense of belonging is paramount to the justify a sense of self existence. I am sure many of you have travelled overseas for holidays and upon the journey from the airport, you must have said “I cant wait to get home”. Owning a property provides the sense of ownership + belonging especially if the title of he property is in your name. It is a place in the world where you feel you feel truly belonged. This feeling is not the same as renting. Renting as a tenant however long term will never give you this sense of belonging as in the back of your mind, eventually, you know you will move out. You wouldn’t put a 100% into the house decoration, you wouldn’t ensure the cleanliness is 100%, if there is a problem with the piping, you wouldn’t fork out your own money to repair it. Instead, you will call the landlord.

My view : If money can buy you a sense of belonging or a sense of ownership, it is worth every dime in the world. 

Property Function No. 4 – Legacy / Heirloom

Of all property functions, this is probably least considered by many. Legacy / Heirloom is a feudal concept which landowners and barons of the land focuses on inheritance for the family legacy. In today’s world, this concept is no longer that relevant except for certain ethnic group or social class. Therefore, if one were to purchase a property for this reason, it is actually not necessary. As parents, who have worked hard all their life to put food on the table and a roof over their head, it is important to reward themselves. As we all have limited time in the world, we should always find some little enjoyment instead of worrying over inheritance, legacy etc. 

My view : If your purpose of buying a property is for this purpose, chances are you have the means to hold through bad market and demand or supply issue in the property market matters little to you. Renting also will not be in your dictionary.