Will property prices fall when loan moratorium ends?

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The property market will not be spared the economic slump, but there is hope for certain segments.

The property industry will not be spared in the worst economic slump of the country’s history as a result of the Covid-19 pandemic.

And with the moratorium on housing loan repayments drawing to a close, homebuyers must decide whether or not to go ahead with their purchases, negotiate big discounts or walk away empty-handed.

On April 1, the government introduced a six-month moratorium on the payment of property loans to help Malaysians weather the impact of pay cuts, retrenchment or loss of business during the Movement Control Order.

According to the Department of Statistics Malaysia, the number of buyers who qualify for property loans dropped because unemployment affected 778,800 people.

Now, most property buyers believe prices will drop tremendously when the moratorium ends next month.

A spokesman for MustaphaRaj Sdn Bhd told Property Advisor that buying sentiment for residential property is expected to be cautious in the short term.

“This is mainly due to the uncertainty over whether people will hold onto their jobs or businesses and the ability to rent a property.

“Those with excess cash may go for it as they can hold on. Problems arise for the mid-tier and lower-end markets. In addition, banks may begin dumping foreclosed properties on the market.”

He believes however that the issue now is the ability to pay, as it is a great time to buy.

“Coupled with that … rental yields may be low or non-existent … But for personal occupancy, it is ideal. The fear is that after the moratorium ends, there will be a seismic fall in house prices.

“But I don’t think so … there will be some reduction but not as severe as the crash of the late 1980s. Most likely, house prices will decline by 20% to 30%.”

At the moment, he does not expect the number of foreclosures to change much. “However, with the moratorium coming to an end, we do expect an increase after September, especially those unable to extend the moratorium with their respective lenders.”

Lagenda Properties Bhd managing director Jimmy Doh said that with the economy expected to see its biggest slump in history, he advises homebuyers to purchase what they can afford and not over-leverage themselves.

“Homes are deemed essential, and for those with the financial bandwidth it is a good time to buy as the government has extended the Home Ownership Campaign, which includes exemptions on stamp duty. Developers are offering many discounts and interest rates are at a historic low.”

Doh added that the exemption on Real Property Gains Tax will ease the exit for existing homeowners.

“This will add to the supply, from those who are looking to dispose of assets in favour of better cash flow. However, property is still the best hedge against inflation.”

He added that there may also be an increase in investment properties being put up for auction.

Lagenda Properties is the developer of affordable homes with two townships currently under development in Perak – Bandar Baru Setia Awan Perdana in Sitiawan, a five-phase township with 10,500 semi-detached and terraced houses; and Lagenda Teluk Intan with 10,000 homes.

Demand for houses moving forward

The spokesman for MustaphaRaj says demand for houses in the short term will be challenging due to the job market, financing and the property overhang.

“Like everything else, it will settle into an equilibrium in about two years. The main issue will be new and current construction taking place at this time.

“The cost has decreased slightly as contractors need to take jobs at low margins to keep their business infrastructure moving. Developers are currently in the planning stages of developments and it may take six months to a year before any sales launches can be expected.”

Lagenda Properties’ Doh foresees that demand from first-home buyers, especially those with stable jobs, will remain strong. “There will always be demand for properties in the right price range and the right location.

“We foresee less demand for investment properties this year as investors adopt a wait-and-see approach to an uncertain market.”

Doh said the company remains upbeat as no transactions have been put on hold. “Every year, we see an uptick in demand for houses as people get married, have children and move out of their parents’ homes.

“Anecdotally, in conversations with our customers, we see that the MCO has increased awareness of the need to own their own properties as families are spending more time at home.”

This article was written by Sharina Ahmad of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.