“A Perfect Storm?”
Stormy weather warning
5 reasons why the outlook for the High End KL Property Market isn't rosy :
1. Inflation numbers. CPI is lower in Malaysia because many items in the price basket are controlled. Forecast CPI rates are likely to be revised upwards because of higher petrol, food and commodity input prices. It should be noted Putrajaya's petrol subsidies are a huge drag on government finances. According to one analyst, the subsidies benefit higher income families more, IE they are regressive in nature.
2. Rising interest rates. An inverted yield curve signals a possible recession ahead for the US if the Fed’s expected 2% hike in interest rates for 2022 comes too late. Should interest rates in Malaysia increase by between 1-2% , some borrowers with multiple investment properties are going to find difficulty paying higher loan installments.
3. Ringgit underperformance. On 26 April the Ringgit reached a new low versus the SGD at 3.18. According to the Edge Markets, Economics professor Dr Yeah Kim Leng said that although rising palm oil and crude oil prices should have strengthened the ringgit, the positive currency effect has been overwhelmed by short term factors that include changes in market sentiments and expectations.
If Bank Negara Malaysia chooses to keep its accommodative policy on increasing interest rates when the US, the EEC and the rest of world is headed towards higher interest rates, the Ringgit is likely to continue to underperform.
4. Greater KL property market still in doldrums because of the property overhang problem, rising housing unaffordability and the end of the loan moratorium and HOC. According to the recently released JLL Greater Kuala Lumpur property market monitor Q1’22 report, residential capital value growth declined 2.5% quarter-on-quarter (q-o-q) and average rent declined 2.3% q-o-q. JLL’s analyst Eva Soo said, “the incoming large supply is mainly due to delays in completion over the past two years due to the economic restrictions brought on by the pandemic.” She added, “This will lead to an increase in unsold properties over the next few years before the market adjusts itself”.
My auction real estate agent J noted (via a WhatsApp message dated 29 April ) there were no bidders for a recent auction unit at Idaman Residence @ KLCC, so the price was cut by 10% to RM651 psf for the May auction of the two bedroom 1044sf freehold property. I am seeing more signs of property investor disinterest in the high end property sector : nobody turning up for 3rd and 4th auctions. It looks like the rising number of high end properties going to the auction block is not going to stop anytime soon.
In fact if expats on the MM2H visa start to leave in droves, and dump their properties in KL and Penang, the high end property market is going to be hit hard, IE Knight Frank's gradual recovery for the High End Condominium market won't materialize -the expected recovery will turn out to be just a Dead Cat Bounce.
5. Political uncertainties. On the back of recent state elections that have seen the opposition in disarray, Fitch Solutions is expecting early elections to be held in 2H2022, according to Edge Markets
Post Script
This post was written on 5 April as a reaction to MIEA’s comments on recent Bank Negara half yearly reports. It was updated on 29 April and the title changed to “A Perfect Storm”
