2014 MALAYSIA PROPERTY OUTLOOK

Publication: NST

Date of publication: Apr 25, 2014

Section heading: 1Klassifieds

Page number: 001

Byline / Author: By Gerald Chuah

VETERAN property investor Dr Peter Yee, author of Property Secrets and Hierarchy of Money Skills said when it comes to property investment, it is important to "buy on the upcycle and sell on the way down."

With more than 20 years experience as a real estate property investor, Yee said property investors must leverage on the property market cycle, which follows closely the economic cycle.

"At the moment, there is an oversupply of unaffordable property prices in many locations, and the property market will readjust itself to this new equilibrium in 2014," he predicted.

Yee said that mistakes in property investment can be very costly and will take a long time to recover, as such it is important to take calculated investment risks.

Below, he examines some of the key factors which may affect property boom and bust cycles for the rest of the year.

* REAL PROPERTY GAIN TAX

The 2014 Malaysia Property outlook is getting more challenging at this rapidly changing market with the introduction of the new Real Property Gain Tax (RPGT) in 2014's budget and the anticipated (Goods and Services Tax) GST in April 2015.

He explains: "After the 2008 US subprime crisis or property bubble. Malaysia's property market has enjoyed a super boom for five years from 2009 to 2013 mainly due to the massive printing paper money globally, or Quantitative Easing's (QE's).

Property prices in Klang Valley, Penang and major towns has increased dramatically about 30% to more than 100% in the past few years.

The supply of new property increases along with the increase in property prices and profitability.

The Malaysian's Government has also increased Real Property Gain Tax (RPGT) in budget 2014 to curb property speculation and to stabilise the property market.

The Malaysian's property market began to slow down after the announcement of 2014 Malaysian's budget. The new rates for RPGT 2014 is as followS:

For Malaysian citizens, RPGT is 30% for 1st-3rd year, 20% for 4th year, 15% for the 5th year. For properties sold after the fifth year, no RPGT will be imposed. Non-Malaysian investors however, will only be eligible to purchase property costing RM1 million and above.

* HOUSEHOLD DEBTS

Malaysian household debt to Gross Domestic Product (GDP) at the end of 2013 is 86.8%. According to Bank Negara Malaysia's (BNM) statistics, house purchase amount to 44.6% household debts, followed by car purchase at 17.6%, personal loans at 16.8% and credit card debt at 4.2%.

Generally, a household debt service ratio of 30% or below is consider good household debt management.

In 2010, Malaysian household debt service ratio was 47.8%. By now, it should be more than 50%, that means on average more than half a household's income goes to repaying debts and not much left for living expenses. The sudden increase in interest rates may lead to debts crisis and property bubble in Malaysia.

Property boom and bust cycles are certain but the quantum and duration varies. It is similar to natural cycles of the sun and the moon, rises and sets. Property bust or crisis in 2008, followed by a super boom for five years from 2009 to 2013.

The high debt levels such as household service ratio above 50%, and household debt to GDP in 2013 is 86.8%. House purchases amount to 44.6% of total household debt.

* GOODS AND SERVICES TAX (GST)

The proposed change in the Government's policy of Goods and Services Tax (GST) in April 2015, standard rate of 6% will be imposed on all building materials and services. The additional costs of production will be translated to higher new property prices.

The overall price increase for new residential properties could be marginally lower than the new commercial properties due to the different tax structures.

The anticipated price increase in new properties may stabilise the slowing property market in 2014.

* OVERSUPPLY OF PROPERTIES

At the moment, there is an oversupply of unaffordable property prices in many locations and the property market will readjust itself to this new equilibrium in 2014.

Location, type of property, and timing could be the main determinant of property prices. Properties in good location with limited supply will not drop in prices. The oversupply of high-rise residential properties such as apartments and condominiums may correct itself.

The high-end landed residential properties such as super link, semi-detach and bungalow houses may also correct itself due to rental income, which is not sufficient to support the monthly bank's repayment.

The over supply of office space and retail space may also correct itself due consumer's high debt level. Overall, the property prices correction will happen partly due to high debt level and over supply of unaffordable properties.

* UNDER CONSTRUCTION PROPERTIES

The risks of under construction properties are also getting higher for purchasers and developers due to the introduction of GST in April 2015, and cyclical nature of property market.

After a period of property price correction and consolidation, property prices may go higher than the current high, as the value of fiat paper money will eventually drop to zero.

In summary, my proposed 2014 property investment wisdom and strategy is to reduce, or sell a liability type of overvalued property with no rental income or negative cash flow, and keep, or buy undervalued positive cashflow properties for perpetual rental income and capital gain.

* Peter Yee is an author of "Property Secrets" and "Hierarchy of Money Skills". You can reach him at www.PeterYeeProperty.com.