Covid-19 And Its Ongoing Impacts on The Property Market
The coronavirus pandemic had sent large parts of the world into major lockdown. It has also disrupted the worldwide economy both negatively and positively.
More particularly, Covid-19 has greatly affected the housing & mortgaging market. It has also sent shock waves across the Malaysian population especially to the blue-collar employees and low-income individuals.
With unemployment and growing pandemic uncertainty, many families, sadly, are not able to pay their rents. And without a moratorium on household loans, most of them simply defaulted their loans.
And by just looking at the housing market from a high-level overview, you might assume the market itself will be performing badly due to low housing demand. But in an unexpected twist, the Covid-19 pandemic actually increased the housing demand.
Before we dive deep into the Malaysian market, let’s look at the property market from a macro perspective first.
What happened to the housing prices around the world?
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In the United States, the number of homes available to buy in April dropped by 40% compared to a year ago and 50% from 2019.
According to the Organization for Economic Cooperation and Development (OECD), real house prices rose by almost 7% between the fourth quarter of 2019 and the fourth quarter of 2020. This marks the fastest year-on-year (YOY) growth compared to the past two decades.
So, why is this happening? The answer lies in change in the government policies.
As governments around the world look for ways to bolster their economy, policy measures were implemented that conveniently facilitated the uptick in the property market.
Rock bottom rate has always been a key driver for housing prices, particularly in the US and Europe. This is because they make borrowing loans more affordable, therefore, encouraging more people to buy property.
As demand increases, housing prices begin to skyrocket. Property sites also began to see a significant increase in traffic with real estate agents reporting an increase in registrations.
What about the housing prices in Asia countries?
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During the very start of Covid-19, China implemented a strong lockdown measure and successfully contained the pandemic within months. Even though their economy is slowly reopening, there is still the risk of an outbreak happening anytime.
So, what policies have the Republic Government of China implemented, particularly towards the housing market?
They announced grace periods and extensions on mortgages with repayment difficulties. The government continued by announcing various fiscal policies that aim towards uplifting the property market.
Their aggressive measures have shown that the government continues to view property as a key sector for long-term wealth creation. That’s why they will do whatever it takes to ensure medium-term price stability.
Though other Asia countries such as Japan saw a price slide in its housing market during Q2 2020, the price had since rebounded in Q4 2020, with a 1% growth rate.
Other countries such as Singapore, Indonesia and India witnessed a continuous growth in their housing prices for all quarters just like Europe and the US. Their overall growth rate was around 2%.
Why -do housing prices continue to increase in some countries amid the pandemic?
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The appreciation in housing prices is mostly buoyed by ultra-low interest rates and government fiscal stimulus packages.
Such measures have encouraged individuals with better credit ratings to take on more debt in order to buy a house, leading to a spiralling in property prices.
As demand soars out of control, the market is also showing signs of overheating, which is essentially bad for the industry. Signs of overheating include:
- the lack of available properties
- rising prices due to excessive demand
To counter that, policymakers have tried to enforce stricter mortgage lending rules and lower tax rates on non-property investments.
But to no avail, most of the measures implemented are considered half-hearted as governments continue to prioritize their country’s broader economic growth.
Malaysia’s housing prices in 2021
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In Malaysia, affordability plays a significant role in sustaining the housing demand. A drop in demand and an increase in overhang units will most likely lead to market correction.
Therefore, under such circumstances, it is highly unlikely that housing prices in Malaysia will experience a surge that is similar to the countries as shared earlier.
In fact, according to the latest data released by NAPIC, the Malaysian House Price Index fell by 0.9% in the third quarter of 2020, the first in a decade.
Some point to the development of high-rise properties as the major contributor to the decline in housing prices. High-rise properties contributed to a negative growth rate of 2.7% in the third quarter of 2020.
Considering that we were still in an economic downturn during the fourth quarter of 2020 and first quarter of 2021, housing prices will likely continue to decline.
The future of Malaysia’s property market moving forward...
While it’s not all gloom and doom, the government has actually implemented various policies to help uplift the market.
Here are some measures implemented by the government and Bank Negara Malaysia:
- decreased interest rates
- Home Ownership Campaign (HOC)
- exemption in RPGT
- removal of the 70% loan limit for buying a third property
According to The National House Buyers Association, the estimated cost savings amassed from these measures accumulated a total of RM11,250, making it ideal for first-time homebuyers to get their first home.
As the economy recovers, homebuyers and investors like you can take advantage of these policies. All these initiatives also gave plenty of opportunities to savvy investors for capitalising on cheaper property prices.
Besides, there is also a rise in overall interest in the secondary property market. As some property owners rushed to sell off their assets in order to maintain liquidity, investors caught on to such opportunities to acquire property at a lower market value.
The sluggish property market has also resulted in property developers offering discounts, rebates, freebies and easy payment schemes to boost sales. Developers have also been refocusing their attention to build affordable homes that are priced below RM500,000, resulting in better offerings to investors and homebuyers alike.
Malaysia’s 2021 Budget also revealed that the government will be increasing its focus on affordable housing in the coming years, announcing several measures that will incentivise homeownership among the lower income (B40) segment.
A report by Kenanga Research mentions that the property market could potentially start seeing a mild rebound in the second half of 2021. And with the distribution of vaccines continuing to phase out throughout the year, the property sector is expected to improve over time.
While the property market is beaming with opportunities now, interestingly, many first-time home buyers are still taking a wait-and-see approach.
As shown in a consumer sentiment study shared by PropertyGuru, 58% of Malaysians aged between 22 to 29 deferred their property buying decision by 1-5 years due to the Covid-19 impact.
Though the market is filled with various opportunities now, consumer confidence is still lacking. But over time it will improve as the economy recovers.
In conclusion, whatever challenges we face down the line, we expect the housing market to remain resilient with a steady growth towards 2022.
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15 July 2021 | by HomeCrowd team
