MARKET OUTLOOK: OPPORTUNITIES RENT VS OWN THE EDGE INVESTMENT FORUM ON REAL ESTATE 2018 7 TH APRIL 2018
A fish out of water to a water out of fish. Is it time for a faithful leap? 2
Volume (unit) Value (RM Million) MALAYSIA S PROPERTY MARKET OVERVIEW OVERALL MARKET PERFORMANCE The property market has been on minimal decline in recent years since 2015. Overall, the transaction value pursued the movement in transaction volume. Total Transaction Volume and Value 400,000 200,000 300,000 150,000 200,000 100,000 100,000 50,000 0 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017f 2015 2016 2017f 0 Volume Value 3
Volume Value (RM) MALAYSIA S RESIDENTIAL SECTOR OVERVIEW RESIDENTIAL MARKET TREND DIBS No DIBS 1995-2007 RPGT 0-30% 2007-2009 RPGT Exemption Period 2010-2011 RPGT Flat rate 5% 2012 RPGT 5-10% 2013 RPGT 10-15% 2014 RPGT 15-30% 2015 GST 6% 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017f 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Residential Volume Average Transacted Price 4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 WILL PROPERTY PRICE DROP? 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 GE-8 Malaysia House Price Index (Base Year 2010) GE-9 AFC 1997/98 AFC: 1997-98: -9.1% 1998-99: -2.3% GFC GE-10 GE-11 GE-12 GE-13 GE-14 Robust economic performances prior to AFC led to moral hazard of unnecessary risk-taking, large investment and spending on infrastructure, property prices soared Subsequent devaluation of currencies led to ballooning debt repayment (Risk of) loan default increases -> asset disposal -> mass supply in the market -> pulls down the price 5
2,158 625 Transactions 4,775 3,901 3,642 3,201 8,333 14,591 21,737 31,029 MALAYSIA S RESIDENTIAL SECTOR OVERVIEW TRANSACTION ACTIVITY AS AT 1H 2017 85.4% 66.9% 35,000 30,000 25,000 20,000 15,000 10,000 5,000-43.1% 73.1% Primary 6 Secondary < RM150,000 RM150k -RM300k RM300k - RM500k RM500k - RM1 mil RM1mil and Above
RESIDENTIAL OVERHANG AS AT 3Q 2017 Condo/Apartment 32.6% By Type 2-3 Storey Terraced 28.2% > RM1,000,000 15.8% By Price 20,904 units RM500,001 - RM1,000,000 20.3% RM12.5 billion 2-3 Storey Semi-D 9.9% RM400,001 - RM500,000 17.8% Single Storey Terraced 2-3 Storey Terraced Single Storey Semi-D 2-3 Storey Semi-D Detached Townhouse Cluster Low-cost House Low-cost Flat Flat Condo/Apartment 7 < RM50,000 RM50,001 - RM100,000 RN100,001 - RM150,000 RM150,001 - RM200,000 RM200,001 - RM250,000 RM250,001 - RM300,000 RM300,001 - RM400,000 RM400,001 - RM500,000 RM500,001 - RM1,000,000 > RM1,000,000
MALAYSIA S RESIDENTIAL SECTOR OVERVIEW STOCK SUPPLY NO OVERSUPPLY Annual growth in population 390,000* New houses needed 97,500 units/year** Annual completion 78,216 units WHY OVERHANG? Notes: * Based on population growth rate of 1.3% on population of 32 million as of 2016 ** Based on average household size of 4 8
HOUSING DEMAND Quarters 3% Rental 29% Owned 68% Out of the 2.08 million households in Klang Valley: 68% (or 1.4 million households) own a property 29% (or 0.6 million households) rent a property House-ownership in Malaysia by DOSM: 72.5% in 2010 to 76.1% in 2014 Higher than Australia (68.1%), UK (67.4%) and US (66.5%) 9
Residential properties in Kuala Lumpur and Selangor considered as unaffordable, with median multiplier of 5.4 and 4.0 respectively. Note: Median Multiplier classification 3.0 and below: Affordable 3.1 4.0: Moderately unaffordable 4.1 5.0: Seriously unaffordable 5.1 and above: Severely unaffordable Source: Khazanah Research Institute, 2015 10
THE NEED TO UNDERSTAND THE MARKET DEMAND What type of property is undersupply? Where is the gap in the market? Stop building, let the market absorbs first? Where are the preferred locations? Are they supported by public transport/connectivity? What are the optimum sizes for different types of property? Squeeze on profit margin to match the price with affordability in exchange for better sales? Who are the target groups? What is their price expectation? Inadequately high density put buyers off? 11
What about renting?
RENTING IS A SENSIBLE OPTION WHEN AFFORDABILITY IS A CHALLENGE Income and house price mismatch requires long-term correction in the market and in the economy as a whole Renting takes up lower financial commitment and presents as an easier and immediate access to accommodation UNDER-UTILISATION OF PROPERTY If there is abundance of vacant units or aged properties, then it may be worthwhile to consider transforming into rental use SOFT MARKET Rental yield becomes more attractive when capital gain is slow in a fatigue market VIBRANT POPULATION AND DYNAMIC LABOUR MOVEMENT Renting may be preferred in major cities/cbds where the population is presumably more mobile and consists of higher number of expatriates with the support of open door policies on expatriates employment RAPID INCREASE IN HOUSING DEMAND Housing demand grows in tandem with urbanisation and population growth, putting up more houses for rental is a quicker response RE-ADAPTATION Conversion of vacant commercial units/shopoffices into residential use (e.g. studio office) 13
Countries with public rental housing Public rental housing schemes are common even in advanced economies like OECD countries In Hong Kong, 30% of the population living in public rental housing 80% of Singaporeans live or rent HDB flats
BUILD TO RENT IN LONDON
LONDON S BUILD-TO-RENT FRAMEWORK Policies Developers Objectives National level White paper by the Department for Communities and Local Government National Planning Practice Guidance (NPPG) Local level: The Mayor s Affordable Housing and Viability (SPG) Borough s planning such as Ealing s Southall Opportunity Area Planning Framework and Camden s Draft Local Plan (2015) Institutional investors such as private and public pension providers and sovereign wealth funds Private developers from bespoke BTR developers and operators Local authorities, including general fund investment, council-owned development companies Public institutions in jointventure arrangements with the private sector Housing associations A mix of housing types at different price points in the market Stability and certainty for tenants Quality homes Sustain income stream for local authorities Large scale developments Long-term investment and stewardship in the local area Supporting the regeneration initiative in local areas Social integration and flexibility 16
BENEFITS OF BUILD-TO-RENT DEVELOPERS/INVESTORS Longer lease term offers steady and stable revenue in the form of rental Attractive to large institutional investors such as pension funds who need reliable recurrent returns 17 TENANTS Longer lease term offers security Quality assurance as purpose-built homes are professionally managed and specialised for rental Catered for lifestyle of millennials or young family units who seek for onsite services and facilities
RENT-TO-OWN IN MALAYSIA Rental housing by PR1MA for up to 10 years with option to purchase at the end of tenancy Eligibility: Successful PR1MA applicants who are unable to secure a home loan Option to purchase: Offered in the 5 th or 10 th year of tenancy at a price set by PR1MA RTO scheme by Maybank Islamic Bhd for the general public, currently available for Klang Valley properties Eligibility: Must not have more than 1 home financing at the point of application and household gross income of RM5,000 and above Option to purchase: Available after 1 year of renting at a pre-agreed price Option to sell: Available after 1 year of renting. To sell the property at market value. Gain between the pre-agreed price and the sale value goes to the tenants fully Option to abort purchase: Allowed if after 5 years of renting at no cost or continue on renting 18
PROS AND CONS OF RENT-TO-OWN Longer lease term guarantees accommodation for tenants Certainty in rent increment, usually stated in a contract Lock in property price for future purchase Allow time for tenants to build up financial capacity, save for down payment and accumulate credit score history Easier entry and pathway to house ownership with low initial financial commitment Opportunity to assess the property and its surrounding prior to purchase Appeal to genuine buyers 19 May be more costly depending on the rental rate and contribution to option money May incur a big financial loss to the tenant if property purchase is aborted, forfeiture may be exercised Challenges in property and tenant management for landlords Recommended to prospective buyers. Sign up if you are confident to buy. Understand the contract: Rental schedule Purchase price setting Contribution to option money Forfeiture/penalty if purchase is aborted Conditions for lease termination
Rental market in Malaysia: Writing on the wall?
RENTAL MARKET IN MALAYSIA COULD DO WELL Affordability is a prevailing challenge even to those eligible to buy affordable houses The rental market is regulated but not excessively controlled Urbanisation is a natural crowdpulling factor A check-andbalance mechanism needs to be formulated to protect tenants and landlords 21
OTHER MATTERS TO LOOK INTO Reduce red tape and speed up the planning process Extra density allowance Tax incentives (e.g. 50% tax exemption on rental income up to RM2,000 in Budget 2018) Adjusted tax system, avoid overly generous capital gains tax and prevent negative gearing Comprehensive regulatory framework to protect tenants and landlords to address challenges of property maintenance, tenants obligations. risks of rent default and any other related concerns Check-and-balance system/third party intermediary (e.g. Rental Bonds Office in Australia) Public-private partnership on land release. Shared ownership between developers and government. Construction cost is a constant, but land prices and taxes can be made cheaper Transparent and supportive planning (e.g. development of rental housing is among the strategic considerations in local panning in London) No erratic policy changes that would dampens investors confidence and trust Avoid excessive control such as rent control that would discourage investment activities 22
RENTAL HOTSPOTS IN KUALA LUMPUR Setapak LRT Putra Platinum Victory, Skyarena, Zeta Park: RM1,400 RM2,200 per month per unit Key criteria: Public transportation network Rent justified by quality Proximity to commercial area MidValley LRT Putra, KYM Bukit Jalil LRT Star 23 Southview: RM2,000 RM3,200 per month per unit KL Eco City: RM2,800 RM4,000 per month per unit Arena Green, Parkhill Residence, Kiara Residence: RM1,200 RM1,900 per month per unit
FUTURE KEY AREAS Kwasa Damansara/ Sungai Buloh Kelana Jaya/ Kota Damansara Kajang Putrajaya Kuala Lumpur 24 FUTURE GROWTH LINKED TO RAIL Rental market shall be catalysed by rail connectivity, more so than road connectivity Sungai Buloh, Kajang and Putrajaya being the end terminals for MRT Both LRT and MRT are running along and serve the areas of Kelana Jaya and Kota Damnsara Kwasa Damansara is an upcoming township integrated with transit points such as MRT stations Kuala Lumpur as the centre of activities and transportation hub will remain popular Legends: MRT Line 1 MRT Line 2 (Under Cons.) LRT
PERHAPS IT S TIME FOR A PARADIGM SHIFT Home-ownership is not the be-all and end-all Moving away from the typical Asian mindset, absence of homeownership does not imply welfare deprivation. The ultimate priority is to have a shelter over one s head, be it rented or owned. 25
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