Concerns about rising household debt and the introduction of a goods and services tax (GST), which came into effect on April 1, are likely to contribute to a cooling in the residential segment of Malaysia’s property market.
However, the slowdown is partly seen as a welcome respite given the rapid expansion of mortgages and personal loans since 2008.
Residential property prices have increased by 60 per cent since then, according to the IMF, outpacing income and rental growth, with a corresponding surge in debt levels, particularly among young adults and low-income families.
As a result, measures have been introduced in recent years to curb the growth of household debt, with the implementation of the GST slowing appetite further. However, many. think that this could be a temporary slowdown, with momentum expected to build again in 2016.
GST set to bite
The introduction of the new GST, which will see a six per cent levy imposed on most transactions, is also contributing to a drop in activity. While house sales themselves are exempt from the GST, factors contributing to housing prices, such as the labour and materials used in construction, are not. Increased costs will inevitably affect overall prices. Analysts expect the GST to push up house prices by around four per cent, while Redha in March puts the increase at more than six per cent.
Siva Shanker, the president of the Malaysian Institute of Estate Agents, believes the residential segment of the property market is set for a slowdown this year, with activity rising in 2016.
“2015 will be a bit flat, but better for the secondary market. In 2016, the market will start climbing a bit,” he told local media in April. “In 2017, we’ll see serious interest and 2018 can be the next property high.”
Some analysts have suggested that the introduction of the GST could boost interest in older properties since these are less likely to be affected by higher costs, while for new builds there is likely to be a greater emphasis on affordability.
Tong Seech Wi, CEO of integrated property developer MCT, said his firm was looking to maintain revenue flow and earnings by sharpening its focus on more moderately priced units, with more than half of its output to be priced at RM500,000 or below.
“This is what this market needs,” Tong said “We believe with this right product and pricing, we should be able to ride through this difficult period.”