Pandemic creates a reset that will challenge the real estate industry

By Viktor Chong viktorchong@thestar.com.my

The Malaysian property market is experiencing an unprecedented conundrum. With the overhang problem largely unsolved, now comes a pandemic that threatens to cripple not only the local economy but the world economy as a whole.

The factors that largely move the property market also appear unhelpful in these times, as transactions are influenced by buyer’s sentiment, economic prospects and global financing, which affects banking institutions’ stance in providing loans for the purchase of a property. Uncertainties abound, and questions require answers. Industry leaders and analysts have been called to the forefront to comment on the future of the property market, and this is what they have to say:

Product type and location shall determine property prices

Real Estate and Housing Developers Association Malaysia (Rehda) president Datuk Soam Heng Choon expressed concerns as the property market currently has a considerable overhang stock, with the products being different compared to the situation during the 2008 financial crisis. 

In a recent webinar, he pointed out that areas such as Klang Valley, Penang and Johor hold many high-rise stocks and these products are experiencing resistance from buyers.  He believed landed properties in good locations will recover quickly after the crisis, but the property market may take time to reflect the improvement of the economy.

Reinforcing Soam’s statement is Malaysian Institute of Professional Estate Agents and Consultants president Loh Soong Park, who predicted a tough outlook for the year. “We feel the market would be in a position to recover sometime around mid to end 2021, because of the expected quantitative easing worldwide, and that we envisage a vaccine to be available by the first quarter of 2021,” Loh commented. He added that further investments and monies would then be channelled back in the property market similarly to the situation as per the 2008 financial crisis.

Loh is optimistic that people shall continue to purchase property as it is a safe bet against inflation.

When prompted about the drop in house prices, Soam said this is determined by factors such as the seller’s need for cash. If sellers want cash faster, then they would likely drop prices, he said, adding that the six-month moratorium on loan repayment may reduce the possibility of individuals opting for a fire sale.

Rehda Institute chairman Datuk Jeffrey Ng Tiong Lip said the fear of unemployment, together with concerns of loss of personal disposable income needs to be alleviated for people to start purchasing property again.

Malaysian Institute of Estate Agents president Lim Boon Ping expects the property market to see a market adjustment of 10% in Malaysia.

Ng further pointed towards the country’s younger population, who are expected to propel the future demand for housing. “So long as the banks are there to provide the financing, then logically speaking, the demand for houses would be there, and there is no reason for house prices to drop,” he said. However, if a developer holds massive unsold stocks, then profitability is of secondary importance as cash flow will be required to meet financial and operational obligations. Sunway University professor of economics Dr Yeah Kim Leng said prices, especially the medium and high-end property segment, may experience further correction or remain depressed for longer.

“The property market recovery will track the recovery of the economy especially if jobs and household income growth pick up on the back of flushed liquidity, easy credit and low-interest rates,” said Yeah.

Loss of job and the economic downturns, brought about by the looming recession shall further erode purchasing power, inadvertently pushing people to choose affordable houses. “This presents a challenge to policymakers as there is a shortage of affordable housing, especially in urban areas where 70% of the country’s population now reside,” he said.

“There is a need for closer public-private sector collaboration in finding a feasible and sustainable model to address this issue and scaling up as well as replicating the model throughout the cities in the country,” Yeah advised.

Moving into the unknown

Soam also touched on the complications brought about by the movement control order (MCO). “Effectively turnover for the month of April is probably zero for everyone as our turnover is based on work done, and cash flow is affected,” he said, adding that the stoppage of work has hampered the delivery of products from March up to September. 

“Cash flow is the most important criteria now for any company,” said Soam.

Since the date of vacant possession may not be met, developers will incur liquidated ascertained damages. Similarly, buyers are also affected as they may not be able to fulfil their payment as per the duration provided in the sales and purchase agreement. “We have asked the government to invoke a temporary measure bill to prevent more litigation going forward,” he said.

Concerning the primary market, disruption is expected to continue even after the MCO is over. To ensure the full decline of the virus, the government might introduce a soft landing approach. Health director-general Datuk Dr Noor Hisham Abdullah said this would mean social distancing rules and bans on large gatherings were likely to continue for the rest of the year. 

“Even after we have lifted the MCO, we will continue advising the people to stay at home if they do not need to go out of the house. That is the principle,” he added.

Developers are mainly challenged in their ability to close sales, as property transactions traditionally require face-to-face communication with house buyers. After the movement control order, people are likely to shun mass gatherings such as property fairs or events at sales galleries, which are among the ways developers translate their sales.

“Not all purchasers are well informed on the material spec, so a lot rely on visiting the showroom to look at the material used and ask accordingly,” said Yap.

Electronic communication seems unlikely to breach this problem either, as attested by M101 Holdings Sdn Bhd CEO Datuk Seth Yap Ting Hau. He said digitisation could only act as a supplement to these proceedings since house buyers have a habit of visiting the physical showroom. “I believe due to the quantum involved, only a very small portion of the purchasers would buy a house without meeting or seeing a physical show unit,” said Yap.

“Digitising our promotion to engage them is one thing. My experience is that there are just no other alternative techniques to replace the physical meeting. To close a sale, or a purchaser to buy a house, they still prefer to meet our representative in person,” he concluded.

The future of office spaces is in question

Before the pandemic, the future of work was expected to move towards working remotely. However, this shift has been expedited by the pandemic. This startling change is not only affecting how work is currently being conducted, but also how it will continue to operate in the future. 

 “Office accommodation is a high fixed cost, and business leaders may consider whether it is actually necessary for all teams to have a dedicated desk,” said Knight Frank Malaysia executive director (capital markets) James Buckley. Hot desking, remote working and some provision of co-working can help businesses to reduce this fixed cost and also provide flexibility to scale up or reduce business space as and when required.

“To ensure business continuity, organisations are advised to have a solid networking infrastructure in place, enabling their employees to stay connected and be productive while working remotely,” Buckley advised.

 “This does not mean the death of the office, but we could see a shift in the working model where it becomes more a place for connection, socialisation, creativity and innovation,” he explained. Buckley is of the opinion that flexible home working will be more accepted for certain businesses. In fact, not all remotely based employees are operating from their homes as many can choose to work from co-working spaces, coffee shops or restaurants.

 “The upside of working from home is to avoid the long commutes, the preparation time and additional costs of being out of home. It can be treated as financial benefits given cost avoidance which becomes available to individuals,” added Knight Frank Malaysia executive director (corporate services) Teh Young Khean.