Property prices will keep up with rising inflation
by AUFA MARDHIAH / pic MUHD AMIN NAHARUL
RISING interest rates and pressing issues related to the property market loom larger in the minds of the public than the upcoming general election (GE), said the Real Estate and Housing Developers’ Association Malaysia (Rehda).
Its president Datuk Tong Nguen Khoong said regardless of which coalition forms the government after the 15th General Election (GE15), the people will always need a roof over their heads.
“This is based on what we have seen in the first half of 2022 (1H22) when people began to come out of their homes, there’s a lot of revenge shopping, revenge eating and revenge travel happening.
“Although the economy is going up at that time, the property industry is not really taking off as it requires more time due its bigger commitment,” Tong said during the association’s Property Industry Survey 1H22, and Market Outlook 2H22 and 1H23 media briefing.
Tong said the concern on the rising interest rates actually reflects Bank Negara Malaysia’s (BNM) view that there is rising inflation.
“Malaysia has had a very low-interest rate and it is increasing slowly. Globally, rates increase to actually control the inflation — on one hand, that may increase your end financing cost as homebuyers, but is coming off a very low base.
“It does increase the cost of buying a house, however, it’s also recognising that inflation is coming down the pipe and therefore, property will be a good way to protect you against inflation.”
Commenting on the current property market situation, Rehda deputy president Datuk Ho Hon Sang stated that the market is now in unprecedented times.
He said the association has been hearing complaints from fellow developers on land prices not going down.
“On the compliance cost, (it is) very clearly articulated by the Rehda Institute that the compliance cost cross-subsidisation is contributing to quite a big component of the cost. On top of that, from the dialogue I joined previously, two very serious issues have been raised (concern) labour [labour acute and labour shortage].
“You couldn’t get labour to proceed to do construction work on site and from some developers’ feedback, they couldn’t get a tender for the job. Even if they come in or even manage to cannibalise from the other project site — the normal RM40/day now becomes RM80/day, so the cost blows up.
“Other aspects that will impact the overall cost include the increasing construction material cost, the cost structure, the sales and marketing, as well as the operation cost of the company. With that, hopefully we can (get) through this very unusual period,” Ho said.
On unsold units, Tong said some of the units may take some time to sell, at some point either buyers come back or the developer must be a bit more realistic in terms of pricing.
He added that it is a free-market economy, so it will adjust and the concern is also on the consumer purchasing power.
“There’s always the question of didn’t the developer do some market study before a project (is) launched? We do.
“So, why are the units not sold? Well, quite a lot of projects from the survey were subjected to affordable housing requirements — so cross-subsidy pushes prices up behind the affordability or the marketability of the project.
“For example, we might do a survey that this neighbourhood can easily position RM600,000 units, but then one of the requirements is the cross-subsidy of affordable housing, hence the price can no longer be RM600,000.
“Maybe it needs to be RM630,000 or higher and that’s when you suddenly get resistance from homebuyers. Thus, this will lead to the percentage of unsold units creeping up.
“To add on that, consumer ability to afford it, as well as loan rejection — the whole thing will add up to a higher rate of unsold units.”
Moving forward, Tong said the bigger challenge for the country is there will be less affordable housing coming on the market. He said based on the statistics, developers are a bit more cautious about launching projects and this means they will be doing less cross-subsidising affordable housing.
“So, this idea of cross-subsidy may work very well in boom time due to a lot of regular-priced houses selling very fast than a lot of cross-subsidy and affordable housing coming up, but when the spiral slows down, you’ll find that the affordable housing production also slows down, which is not ideal for a country with a growing population,” he said.
Back to Normal?
On when Rehda expects the market will go back to normal, Tong said this depends on Malaysia’s economic situation and the global economy.
“When the industry will get back to normal is tied to when will the country’s economy get back to normal because we cannot run ahead of the economy. When will Malaysia’s economy get back to normal ties down to when will the world get back to normal,” he explained.
Bank Negara Malaysia (BNM), in its latest monetary statement on Oct 8, said that the transition to endemicity and policy measures have contributed to the country’s stronger growth performance in the second quarter of 2022.
Going forward, BNM said indicators point to continued growth, underpinned by support from private sector spending. Labour market conditions and income prospects remain positive, with unemployment and underemployment declining further. The reopening of international borders will lift tourism-related sectors, the central bank said.
However, Tong said the more interesting question lies on when the country will go back to pre-pandemic level.
“In the meantime, while the GDP percentage may be high, it may still not be at the 2019 levels. All that will impact the economy, consumers, rakyat — how much we feel towards income and ability to buy properties.
“I guess the biggest challenge the world is facing now is very high inflation and that’s something unfortunately (from my point of view) that is the new normal.
“It is going to be around for a while, we are not going to go back to low inflation for at least the next three to five years, which also is very favourable for property purchase because properties tend to protect you from ravages of inflation — as in if inflation increases, property prices do keep up with that,” Tong said.
This article first appeared in The Malaysian Reserve weekly print edition