A tale of two predictions
Will residential property prices rise or fall?
By Joseph Wong
Conflicting observations regarding residential property prices are causing some confusion in the market as potential property buyers are still holding back their purchases. On one hand, the yeasayers are of the opinion that residential property prices will spike up in 2024 while naysayers say that the possibility of a crash is imminent.
According to the latest IQI Property Survey and Index – Malaysia Q4 2023, the year 2024 holds promising prospects for Malaysia’s real estate markets. IQI, a global real estate agency network with over 30,000 agents and negotiators and a member of Juwai IQI, gathered its insights from a vast research panel.
Juwai IQI co-founder and group chief executive officer Kashif Ansari highlighted the robust market sentiment observed among the real estate professionals contributing to the research.
The survey reveals a strong buy-rent ratio, with 91.1% of participants recommending buying compared to only 8.9% advising renting. This sentiment is consistent across Kuala Lumpur, Selangor, and the entire country, with 88.8% favouring buying and 11.2% suggesting renting.
Ansari suggested that agents may be inclined towards recommending purchases due to anticipated significant increases in both sales prices and rents in 2024. The optimistic outlook is influenced by expected economic trends, investment inflows, infrastructure improvements, and demand-supply dynamics.
Rents also expected to rise
The forecast indicates a projected 9.95% increase in residential prices and a 9.57% rise in rents over the next 12 months. Specifically, for Kuala Lumpur and Selangor, the industry expects a 9.7% climb in prices and a 9.9% increase in rents.
Positive sentiments prevail across all locations, with only 5% of the research panel expecting prices to fall and 3% anticipating rent decreases. The widespread expectation of price and rent hikes signals potential capital appreciation and rental yield growth, likely encouraging increased market activity and new project launches by developers.
Looking ahead to 2024, an upswing in demand is anticipated, driven by Malaysia’s demographic trends, urbanisation, economic growth, and changes in housing affordability. The majority of transactions are expected to involve moderately and affordably priced properties, with 51% of purchases falling between RM100,000 and RM500,000, according to data from the National Property Information Centre (Napic).
In terms of the economic outlook, the research panel maintains a cautious optimism, monitoring broader economic factors and global disruptions that could impact Malaysia’s trade growth.
“Over half (56%) of respondents expect a more robust economy over the next 12 months, while only one-third (33.5%) expect the economy to weaken. The most common view is that the economy will be somewhat stronger (35%), followed by somewhat weaker (25%),” said Ansari.
The World Bank’s projections, released in October, align with this positive outlook, forecasting a 4.3% GDP growth in 2024, up from 3.9% in 2023.
“We believe this report is the first comprehensive research on the industry’s attitudes towards the real estate market and economy in 2024. It should provide valuable insights to developers, consumers, and policymakers. The IQI Property Survey and Index – Malaysia Q4 2023 is based on survey research conducted from 1 to 22 November 2023 with a research panel of 203 real estate agents and negotiators in every state and territory except Perlis,” he said.
An alternative opinion
On the flip side, the surge in house prices observed in 2023 appears to be losing momentum, signalling a departure from the possibility of a crash, according to naysayers.
The shift is attributed to changing factors, with key drivers of house prices shifting from a positive trajectory to a point where the heightened demand for housing is tapering off. Notably, auction clearance rates have declined from their peaks, reflecting a slowdown in buyer activity. The earlier boost in demand, fuelled by the possibility of revenge buying, has largely been met.
A significant factor contributing to the changing dynamics is an increase in housing supply, as evidenced by a notable uptick in the number of dwellings for sale. This shift represents a reversal from the scenario observed in late 2022 and the initial part of 2023. In essence, the current trend indicates a decline in demand alongside a rise in supply.
Another critical factor influencing the trajectory of house prices is the weakened labour market. According to the Statistics of the Labour Force published by the Department of Statistics Malaysia, there were 577,300 unemployed people in August 2023, down from 579,200 the previous month, while the unemployment rate stayed at 3.4%. There was a slight decrease in the number of the unemployed but it was too insignificant to make an impact on the real estate industry as buyers remain cautious and this is anticipated to impact house prices, considering the link between employment status and mortgage servicing capacity.
And while analysts and economists expect Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 3% till the end of the year, the fact that it had risen multiple times remains fresh in people’s minds. If both the OPR and the unemployment rate increase in 2024 and 2025, housing demand is likely to be significantly affected. Individuals facing financial hardships, particularly with mortgages, may need to sell, contributing to an increase in housing supply.
Unemployment emerges as a potent factor impacting housing demand, surpassing even the influence of interest rate settings. Potential interest rate cuts in late 2024 and 2025, if realised, are unlikely to substantially impact house prices due to the overarching economic weakness accompanying such a move. The potential positive effects, such as improved cash flows and sentiment, will be outweighed by the negative impact of a sluggish economy and rising unemployment.
Despite naysayers expecting a moderation in house prices in 2024, a sharp fall in pricing is deemed unlikely as many property developers have already slowed their new launches. The reduced increase in the supply of newly completed dwellings over the next 12 to 24 months is expected to mitigate the growth in new listings.
While variations in price changes are anticipated across cities and regions, naysayers foresee a potential price fall of around 3% to 5% in 2024, with the possibility of larger declines if unemployment intensifies.