Worsening of the Covid-19 situation will derail property market recovery

Last year had been extremely challenging for the overall market, including real estate, due to the prolonged Covid-19 pandemic and it continues to disrupt lives, economies, and societies globally.

Homebuyers and investors held on to their money due to the certainty in the market and because of that many developers registered a higher number of unsold properties.

Knight Frank Malaysia managing director, Sarkunan Subramaniam said the current worsening of the Covid-19 situation in the country is expected to derail the recovery in the property market as more developers push back their launches.

Sarkunan expects potential buyers and investors to likely postpone property purchases in the short-term as they adopt a wait-and-see approach.

He said the anticipated rollout of the Covid-19 vaccine is expected to boost hopes for a return to normalcy and will set the path for recovery of the global economy.

“The performance of the residential market is very much dependent on how the economy moves forward. The anticipated commercial rollout of the Covid-19 vaccine by 1H2021 will certainly boost the hopes for the country’s economic recovery and lift overall consumer sentiment. However, the current ongoing political uncertainties amid the worsening Covid-19 crisis has led property buyers as well as developers to rethink their future plans and strategies,” he said.

Sarkunan said these are reasons to believe that the residential market is expected to remain challenging in the first half of 2021.

Malaysia’s economy is expected to rebound in 2021 given the expected commercial rollout of the Covid-19 vaccine by the first half of this year (1H2021).

The government predicts that the economy will expand between 6.5 per cent and 7.5 per cent in 2021 driven by the anticipated improvement in global growth and international trade.

Sarkunan said post-Movement Control Order (MCO), selected developers have reportedly recorded improved bookings supported by the low-interest-rate environment and pent-up demand.

“The conversion of bookings into sales, however, has been more challenging due to stringent bank requirements,” he said in a statement that was issued following the launch of the firm’s latest research report, Real Estate Highlights 2nd Half of 2020, here, today.

The research report highlights the property trends and outlook in key markets of Malaysia.

As of 2H2020, the cumulative supply of high-end condominiums/residences in Kuala Lumpur stood at 64,272 units following the completion of five projects which are 8 Kia Peng (442 units), Tower 2 @ Star Residences (482 units), Arte Mont’ Kiara (1,707 units), TWY Mont’ Kiara (484 units) and Agile Mont’ Kiara (813 units).

Projects scheduled for completion by 1H2021 will collectively contribute some 4,408 units to the existing high-end residential stock. These schemes are 10 Stonor (364 units), The Manor (484 units), Eaton Residence (632 units), Lucentia Residences @ Bukit Bintang City Centre (666 units), Tower A Yoo8 @ 8 Conlay (564 units), The Colony @ Infinitum (423 units), The Luxe @ Infinitum (300 units), The Estate South Bangsar (328 units), Novo Ampang (421 units) and One Kiara (226 units).

In terms of prices and rentals, units at the newly launched Tower B @ TRX Residences, located within the Tun Razak Exchange (TRX) international financial district in Kuala Lumpur have a gross selling price or circa of RM2,046 per sq ft (psf).

In the locality of Mont’ Kiara, Allevia at Jalan Kiara 4 was launched at a gross selling price from RM1.54 million onwards or circa RM907 psf.

During the second half of 2020, the average transacted prices of Kuala Lumpur’s high-end residential market have generally softened, according to the report.

The report showed that by localities, the selected schemes monitored in KL City, Ampang Hilir / U-Thant, Bangsar, and Mont’ Kiara registered lower average transacted values (on psf basis) when compared to 1H2020.

In the localities of Damansara Heights and Kenny Hills, the average values remained relatively stable.

Moving forward, the report indicates that prices of high-end condominiums are likely to weaken further as the country enters the third wave of the Covid-19 pandemic amid a resurgence in cases.

In the leasing market, there was a mixed performance for selected localities under review.

Sarkunan pointed out that travel ban and border closures fuel rental drop in selected schemes monitored in KL City, Ampang Hilir / U-Thant, and Bangsar as with few exceptions, foreigners are generally still barred from entering the country.

The asking rentals for the localities of Damansara Heights and Mont’ Kiara, however, continued to hold steady, he said.

Overall, the rental market remains under pressure as tenants who are spoilt for choice look for more affordable options while landlords are slightly more accommodative by giving a rental reduction in order to retain their existing tenants or attract new tenants.

Sarkunan added that despite the cancellation of the Kuala Lumpur – Singapore High-Speed Rail (HSR) project, other proposed and on-going mega projects in the capital city such as Bandar Malaysia, TRX, Bukit Bintang City Centre (BBCC), and Merdeka 118 are expected to bring Malaysia into the radar of investors in the mid to longer-term.

“The short-term outlook for Kuala Lumpur’s high-end condominium market remains weak in light of current economic uncertainties although the expected commercial rollout of the Covid-19 vaccine provides a glimmer of hope towards its recovery,” he said.

Incentives to boost the market this year

Sarkunan said the re-introduction of the Home Ownership Campaign (HOC) in June 2020, coupled with several initiatives under the recently tabled Budget 2021 are expected to boost market activity – include a full stamp duty exemption on both instruments of transfer and loan agreement for the first home purchase worth up to RM500,000. The exemption is applicable for the sale and purchase agreement on purchases that are completed from January 1, 2021, until December 31, 2025.

Stamp duty exemptions on loan agreements and the transfer instrument for abandoned housing projects will be extended for another five years, also till December 31, 2025. The waiver of stamp duty will lower upfront cash payments and encourage home-ownership among the first-timers.

The proposed full stamp duty waiver complements the real property gains tax (RPGT) exemption as unveiled under the country’s Short-Term Economic Recovery Plan (PENJANA) in June 2020, whereby gains arising from disposing of residential property by Malaysians (limited to three units per individual), between June 1, 2020, and December 31, 2021, are exempted from RPGT. Sarkunan believes that collectively, these incentives are expected to spur more activities in the primary and secondary residential markets, further supported by the current low interest rate environment.

In addition to that, he expects the reduction in employee’s statutory contribution rate from 11 per cent to nine per cent effective 2021, will boost disposable income and ramp up domestic spending.

Moving forward, with lower-interest rates and higher disposable income, more potential purchasers who qualify for loans may be encouraged to start buying properties and this may provide some traction to the sluggish housing market, he said.

Source: NST