Millennials are getting stung in 3 crisis; can we still own a house?
No age group will escape the pain of the current economic slowdown, but millennials were already on more precarious financial footing than their elders. They left college with unprecedented levels of student debt and missed out on crucial years of wage growth because of the 2008 downturn.
Compared to other groups at the same point in their lives, people in their 20s and 30s have relatively low levels of home ownership, net worth and real income.
For millennials, the timing of these events has been particularly damaging. Because an economic crisis hampers job mobility, the effects of one early on in a person’s professional life can last for the next 20 years, research from Carnegie Mellon economics professor Shu Lin Wee has found.
This also was partly a result of years of underemployment, writes Rachel Rosenthal from Bloomberg; people were often stuck in jobs for which they were over trained and underpaid. This cost them leverage when seeking new jobs, even when those were plentiful.
Millennials will have to rent longer, co-habitate (living together with parents or friends) longer, and stay in starter homes longer. Already millennials, because of their debt burdens and a pricy housing market, had been slow to dive into home ownership, a key way to build wealth.
Only one-third of millennials (those born between 1981 and 1998) are able to afford to own homes due to escalating house prices and slower salary growth, according to HSBC’s first Beyond the Bricks study.
Now millennials are being hit with another recession. Economists estimate the economic cost of the movement control order (MCO), now further extended to May 12, to be at least 25 percent of the GDP. The devastation wrought by the pandemic, with job losses estimated to be around 2 million which will definitely affect many Malaysian’s millennial.
Since the start of the year - before the Covid-19 pandemic, millennials have accounted for 70% of purchases at new housing projects, 53% of Subsale real estate purchases and 55% of rentals, according to transaction data from real estate network IQI Global.
Millennials are the most numerous buyers compared to older generations who are less likely to complete a real estate transaction in any given year.
It is proven when millennials’ share of purchases at new projects rose to 62% recorded in 2019 from 48% in 2018.
Looking at the bright side of the current pandemic, as governments across the globe rally to flatten the curve of the Covid-19 outbreak, businesses are forced to rethink and re-strategies the way they operate.
In response, property developers in Malaysia have quickly adopted new operational strategies once the movement control order was introduced on March 18.
While the property market is expected to remain challenging in 2020, for those looking to buy a home for their own stay, real estate industry experts feel that Covid-19 pandemic may be a good time to buy as sellers are more flexible with their asking prices while developers are offering attractive packages with freebies and other incentives.
This is the best time to pick up bargains as property is a long-term investment and the market will eventually recover as it eventually rebounded because Malaysia's financial system is a lot healthier now and better equipped to handle crises.
Surprisingly, according to property experts after reviewing previous post crises, terraced houses and high-rises had better rebounds than detached homes. The property market did well because people gravitated towards brick and mortar.
Customers preferred to have landed property because while the building degrades and depreciates, the land will appreciate instead. This will eventually increase the demand of both types of property particularly resilient in crises.
Few market segments might get benefits from buying property during COVID-19 and Post-MCO. It is reported by PropertyGuru Malaysia’s Property Market Index that owner-occupiers and long-term investors are the most suitable homebuying candidates to buy property after this crisis because the nature of investment is long-term.
Based on historical data, the property market will rebound quickly and will be adding value to drive the take-up of their projects within the timeframe of a year or two and this will give customers more time to prepare financially before diving into investing in property.
Millennials can start preparing themselves for home ownership by start looking, weighing options, and preparing financially as well as monitor the property market condition within 6 months to a year post-crisis.
The millennials generation, especially first-time homebuyers can start to house hunting during post-MCO whether to buy Subsale property (properties purchased from an existing owner) or new developments (fresh off the developer’s construction site).
According to surveys conducted by PropertyGuru Malaysia, most people have a preference towards new developments for various reasons including less capital outlay, more financing options, and sometimes when developers package things, customers can get more good deals on their purchase.
In the end, it depends on the individual preferences of home ownership whether to choose Subsale or investing in new property developments.
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30 April 2020 | By HomeCrowd team