Weak property markets ahead

This week, The Edge predicts that home prices in Singapore will fall in the second half of this year, as developers begin to cut prices to move their unsold units.

Over the past 4 months, the take-up rate of fifty projects in Singapore, which have sold less than 50% in total, was less than 0.8% a month. Two projects have sold nothing since their launch.

The positive news is that the Singapore property market has depth and if the prices were to be reduced by 15% to 20%, the unsold inventories will move fairly quickly.

In Malaysia, home prices are definitely trending downwards as confirmed by the recently released Malaysian House Price Index. On a year to year basis, prices are up 8%. But on a quarter to quarter basis, there was no growth in the first quarter of this year.

In Selangor, prices fell 0.4%, with high rise residential units declining by 3.8%. Elsewhere, price increases were a small fraction of what it was previously.

Read The Edge this week for the complete analysis.

What happens when the party ends?

In the third and final installment on global capital flows, we argued that rising interest rates in Malaysia is inevitable and likely to happen soon. This will happen either preemptively, as a policy decision of Bank Negara Malaysia (BNM), to arrest asset bubbles and household debts or being forced into it as a result of capital outflow.

Raising domestic interest rates on our own, sooner rather than later, is clearly the right option.  We believe BNM will decide on this route as well.

US long-term interest rates have risen sharply and short term rates will inevitably rise.  The interest rates differentials between Malaysia and US are already trending downwards even based on short-term US rates.

We explained the consequences of the above on the stock market, the bond market, the property market and the Ringgit.

Read more in The Edge this week.

The Avira launch in Iskandar - better news

Tong's Take 
The Edge Malaysia 2014, Issue May 12-18

Better response to the soft launch of phase 1 Avira garden terraces in Medini last weekend was a much welcomed news for Iskandar Johor, which has seen a slowing momentum following the property cooling measures introduced late last year and the stricter mortgage lending rules.

Source : Avira's e-brochure from E&O

Since its soft launch, Avira has achieved 70% bookings for its 208 units of garden terraces.  The units are priced at an average of RM580psf and with a built up of approximately 2,200 sf, the average price for each terrace house was just below RM1.3million.

Avira is considered one of the more successful launches in Iskandar in recent days.

Why has Avira done well?

Using the earlier launch of Puteri Cove in Puteri Harbour as a comparison, we identified and elaborated on several possible reasons in the article for the differing market reception towards these two projects, which amongst others, include pricing, product and branding.

Despite this, Avira was expected to do better.  It is the last known project in Medini that involves the joint effort of the investment arms of the two governments; Khazanah and Temasek, and hence are likely to benefit from the enhanced investor confidence and potentially stronger buying interest on this project.  Its pricing is also relatively lower than the established neighbouring developments like Horizon Hills and Bukit Indah. These are signs that the property market in Iskandar has indeed softened.

Read more in The Edge this week as we shared on what next to watch out for in Iskandar. Stay tuned.

How is Malaysia handling the global liquidity?

This week, The Edge analyses the impact of the shift in fund flows and the imbalances of the global economy on Malaysia and Malaysians.

The aggressive policy measures by the US, Europe and Japan has resulted in massive liquidity finding its way to the emerging markets in search for better returns as the bond yields in US and Europe declined sharply.

Emerging markets have attracted foreign capital due to its higher yields, stronger economic growth and as such, better appreciation prospects for a wide range of asset classes.  Like other emerging markets, Malaysia has enjoyed the benefits of these foreign fund inflows which boosted the prices of local assets including stocks, properties, bonds and the Ringgit.

This is however, not without cost. Bank Negara Malaysia’s balance sheet has expanded substantially with the rising cost of sterilization. Keeping interest rates artificially low has resulted in negative real interest rates. This encourages consumption and discourages savings which in the longer term can weaken the Country’s current account. It also creates asset bubbles. 

Read the full article in The Edge this week.

Next week, we will discuss how this party can end and what the consequences are to the stock market, bond market, property market and the Ringgit.

Property transactions fell in 2013, expect lower prices in 2014

In my blog posting in March, “Staying cautious on Malaysian properties”, we cautioned on a challenging property market in 2014 on signs of excess supply and slackened demand that are likely to put pressure on property prices and yield moving forward.  This is amplified by the impending GST imposition which will take effect in 2015.    

The data from the Property Market Report 2013 substantiated our concern.  It reveals a drop in overall transactions volume by 11% year-on-year to 381,130 in 2013.  Residential segment is still the key segment, accounting for 65% of the total volume and 47% of the value of transactions in 2013.  The national average take-up rate for new launches declined to 45.1% in 2013, which is the lowest take-up rate since 2009. This we believe was mainly due to the credit-tightening measures by the banks.   

In terms of supply, Selangor and Johor are the leading states, accounting for 21% and 17% respectively of the total incoming supply in Malaysia. 

In 2014, we expect lower residential transaction volumes to continue. Historically and rationally, a fall in volume is a precursor to subsequent lower prices.  Developers’ ability to raise or maintain prices will depend largely on the market demand.  If demand falls and market conditions persist, price declines may be inevitable due to the competition to sell and to generate cash flow.  The ability to defer launches will also be limited in view of the costs implication.   

Read the full report in The Edge this week.