Date
19 November 2019
With property prices having fallen as much as 50 percent in some prime areas, Malaysia offers great bargains, the author says. Photo: Reuters
With property prices having fallen as much as 50 percent in some prime areas, Malaysia offers great bargains, the author says. Photo: Reuters

Taking advantage of the Malaysian property market downturn

With the recent unrest in Hong Kong, several property markets around the world that once were languishing in doldrums are starting to see signs of life as wealth migrates ahead of people. Malaysia is one such market, which for a few good reasons, is no surprise.

Firstly, we reckon that obtaining a visa in Malaysia is one of the cheapest and easiest processes in the world. Depending on your profile, a total fee between US$60 to US$100,000 can get you a 10-year multiple visits visa with quite some perks under the Malaysia My Second Home (MM2H) program.

Secondly, the property market is in a valley not seen for the last 20 years. Property prices have fallen as much as 50 percent in some prime areas, making them great bargains.

Thirdly, the Ringgit has fallen to a historical low against all major currencies, presenting an exceptional buying opportunity.

Of course, one should never invest on bad news alone without a glimmer of hope. And that hope is the fact that despite some political and economic woes, Malaysia remains a beautiful country with lots to offer across multiple Asian cultures including strong Chinese roots.

With the new government and new policies enacted to repair the blunders made in the past, I am confident the country is now on the right path. Don’t be surprised that it may just become a relatively safe haven as populism wreaks havoc around the world.

In a strange twist of fate, Malaysia had its populism episode earlier than most, toppling the previous government. The country has since moved on to recovery, and probably won’t see another revolution any time soon.

In other words, chance of things getting better is a lot higher than it becoming worse.

The property market however, is in a very different situation.

I have always said that property is like morphine to an economy. It is one of the fastest ways to kill pain but if not prescribed in controlled dosages it can lead to abuse with dire consequences.

Rampant corruption, careless financing, irrational greed and irresponsible planning under the previous government led Malaysia into its current property overhang of a massive 51,265 units completed and unsold. All that without taking into consideration another 123,234 units that had been approved and were under construction as of end-2018.

Such situation would explain why developers are heading to Hong Kong in droves to push their projects to those who have less understanding of what is actually happening, armed with the usual guarantees, glossy brochures, rebates and high commissions.

I personally think that it is the right time to buy in Malaysia. But perhaps not necessarily the projects that developers and marketing agents would like you to. So here are some of my thoughts about how you can take advantage of this quite possible once a lifetime opportunity to bottom-pick.

Buy right

While there are ample options given the overhang, it is important to pick the right location, quality and price points. Given the current political and economic situation, the pressure is the greatest within the premium market, hence the bargains. Quality has always been a major concern when it comes to Malaysia. Hence completed units that could be inspected would make sense.

For projects under construction, developer’s reputation and commitment to quality would be crucial. Due to weak enforcement of regulations, too many developers compromise quality when lowering their prices so as to keep their margins at the buyers’ expense.

Yield is not the game

Along with the overhang, yield is significantly falling all across the markets especially in the premium sector. Many are turning to AirBnB to maximize their returns. However the inevitable high wear and tear of short-term leases, inability to then furnish the units to a level of quality as you would like and the fact that yields are also being compressed as the number of units listed for AirBnB rose to over 53,000 in Malaysia.

The fact is if you buy right, it is possible to find units with attractive yields. But that can take a bit of time and effort, as well as intimate knowledge of the market. For most oversea buyers, avoiding the whole renting strategy is an option to avoid earring less than its worth, banking the investment on capital growth and personal enjoyment.

Find the bargains

The Malaysia market is clearly short on buyers at the premium level and demand has shifted to affordable projects for the younger generation. Naturally, that would be where the bargains are found. In the prestigious Mont Kiara area for example, you will find units being sold at 40 percent below their launch price. The same can be said of KLCC or Bukit Bintang areas. If your budget is a million and above, you will find many bargains and options if you look hard enough. There is simply very little motivation to buy the new and shiny ones at this moment.

Future upside

With the present state of the economy, local participation in the premium sector will take a while to recover in confidence and transactions. If this end of the market were to experience any revival it will certainly be from foreign participation. Fortunately for Malaysia, there is currently no lack of global instability to stimulate demand from many places such as Hong Kong. If anything, as strange as it might sound, the more the world falters, the property market in Malaysia might just become more and more attractive as a safe haven.

Conclusion

Bottom-picking is not as easy as some might think, especially when it comes to a market as confusing as Malaysia. However, I strongly believe that when you hit the valley bottom, there is no other way to go but up. As much as it might take some time, the Malaysia property market might just be presenting investors a once-in-a-lifetime opportunity to bottom-pick. That is of course, assuming you pick well.

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RC

CEO and founder of RunningStream