After experiencing stagnant sales in the local Property market over the past two years, many are wondering if this year is probably the time to strike a deal. Well, here is an analysis to help you before making your decision to buy a property this year.
Based on the news, research and expert opinions, we can conclude that the devaluation of the ringgit, weak consumer confidence, and worrying debt levels (especially among young working executives), will continue to dampen the economy and property market. However, policies put in place during the Budget 2017 announcement by the government coupled with expected price consolidation due to the slump, may help to put some relief on the pressure.
Sharp Devaluation of Ringgit Hurts Both Ways
To further dampen the outlook of the average Malaysian’s purchasing power, the ringgit almost falling to RM4.50 in December 2016 didn’t help at all. Instead, experts are expecting a wave of inflation to hit the country and there is no sign of recovery at this point. This further justifies our rationale to save up our cash instead of investing in property or towards other unnecessary expenses.
Reported by a local news firm, economists believe the sharp devaluation of the ringgit will drive the imported goods prices up and the cost will be transferred to consumers. In the report, both UOB Research firm and Nomura Research firm forecast Malaysia’s inflation rate at 2.5% in 2017 compared with 2.1% in 2015.
On top of that, local contractors and developers will have to bear the higher cost of imported materials including steel, machinery and also labor that involves foreign currencies. With the double whammy effect from sales and construction, many developers such as Mah Sing Group Bhd had put a hold on their ongoing projects, especially high-end properties to control their budgets.
It was reported by The Star recently that the sale and transfer of property valued at RM500,000 and below will now be subjected to a 1% conveyancing fee.
“Taking effect today, it came about with the revision of the fee structure in the Solicitors’ Remuneration Order by the Bar Council last year. The revision, which was approved by the Solicitors Cost Committee on Feb 28, will also see 0.8% conveyancing fee for properties worth above RM500,000 but below RM1 mil,” it added.
Millennials At Higher Risk of Facing Bankruptcy
Embracing their first five years in society and moving upwards in their career ladder, millennials are facing higher risks of bankruptcy and moving further away from their dream of owning a home.
In November 2016, it was reported by the News Straits Times that a total of 22,581 bankruptcy cases were recorded by the Insolvency Department between 2012 and September this year, with the individuals involved all aged 25 to 34. This group, categorised as the millennials, may continue to face difficulty in their daily expenses, let alone having the capability to own a property.
The ongoing lack of financial knowledge among young executives and fresh graduates will continue to put them in a dangerous spot given their higher risk to overwhelming debts such as personal loans and hire purchase loans and not knowing how to overcome them.
With a starting salary ranging from RM 2,000 to RM 2,500 for entry-level executives and an average annual salary increase of 10%, it is depressing to realise the net disposable income, which is probably less than 30% for average Malaysians in this category after deducting daily expenses and debts.
Delights from Budget 2017
Despite the challenging issues faced by Malaysia’s economy, our government has acknowledged our concerns and put in place several policies to reduce the burden for everyone. These include incentives for first-time home buyers, BR1M to subsidize lower-income group and also PR1MA housing projects for those who deserve it.
For first-time home buyers, they get to have the opportunity to buy more than 30,000 houses, the selling price of which will be between RM150,000 and RM300,000 that is lower than market price, through government’s NBOS (National Blue Ocean Strategy).
With a total of RM6.8 bill allocated for BR1M, lower-income group families can have extra space to save up for their next property ownership. Other incentives such as the lifestyle tax relief and civil servants incentives would help too!
Alongside with that, the harsh economy might finally do something good and brings the total number of residential property transactions to fall by 13.91% to 49,640 units, or 11.96% by value in Q3 2016, from a year earlier, according to the Valuation and Property Services Department (JPPH). Residential transactions accounted for 64.9% of all property transactions in Q3 2016.
That means with the excess supply in the market, it is possible that price corrections will occur for some of the new projects and this may enlighten some of the first time homeowners to adjust their budget more freely.
Though it is important to understand the market and external economic factors before buying a house, you must evaluate your wants and capability at the same time. Ask these questions to validate your decision before you want to buy a property:
- Can you afford the loan repayment in the first five years if your salary remains the same?
- Do you need such a big or luxurious house?
- Do you have enough insurance and financial plans to sustain yourself for at least two years in case anything happen?
- Do you really know what you are buying?
If you have the right answer to all these questions and you do want to own a house, it is always the right time to buy a house in Malaysia.
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