In a recent report by Free Malaysia Today (FMT), real estate veteran Ernest Cheong got real about the difficulties in the property market that is set to hit an all time low in 2018. According to Cheong, developers and house owners will struggle to find buyers, as present consumers are already having a tough time paying their monthly instalments, while the rest do not have the financial capacity to own a home.
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Sounds familiar doesn’t it? Well, there’s more to Chong’s predictions:
It’ll kick in early next year, so brace yourselves
“The panic [within developers and house owners] might start after Chinese New Year in February or later if the government decides to pump in money to strengthen the market,” said Cheong.
Too many unsold units forces developers to take desperate measures
Deputy Finance Minister Lee Chee Leong said that in the first half of 2017, unsold completed residential units rose by 40% to 20,807 units compared to 2016. Residential units cost a whopping RM12.26 billion; it’s also not surprising that the majority of unsold homes are condominiums and apartments that cost over RM500,000, with RM300,000 homes considered as the more affordable option in the Klang Valley.
However, the RM12.26 billion is only from the primary market, which comes with launches by developers. This doesn’t include the secondary market that is made up of those who are seeking to sell their existing homes.
Developers have created a “generous payment mode” in order to not lose their financing
With so many people not having the financial capacity to afford homes, developers have to do whatever it takes to sell, which is why they are willing to allow buyers to pay only 1% of the property price and pay the remainder upon completion when previously buyers have to pay a 10% deposit.
Cheong was quoted saying that “[developers] are in danger of losing their bridging finance from banks if they fail to sell at least 40% of the total units. The bridging finance is used by developers to support their construction.”
Property prices will face a huge drop too
With there being more supply than demand, Cheong predicted that the prices of houses would fall from RM500,000 to RM300,000. He also estimated that there are 4 million homes from the secondary market waiting to be sold, meaning that RM16 billion of properties are waiting for buyers.
“There should not be any urgency to buy a property at the moment. Try renting first.”
Cheong’s advice? To spend cautiously and save money for rainy days. He suggests consumers not to commit to buying a house unless they are able to save up to RM1,000 a month for at least a year, something of great difficulty since 89% of Malaysians earn less than RM5,000 a month, according to The Employees Provident Fund.
But other experts disagree with Cheong’s statements, here’s what they have to say:
“For anyone to say that the market will crash next year is a bit too pessimistic,” said Henry Butcher Malaysia Chief Operating Officer (CEO) Tang Chee Meng. In a report with FMT, Tang added a couple of reasons why the property market won’t be as bad as expected.
Read more about it here.