Latest economic data affecting property market

Let’s get into something more concrete and serious. There are some economic data that has just been released by Malaysia Central Bank (BNM) this week that may affect Malaysia property market. Numbers that you may want to ponder on for a while:

Year-on-year gross domestic production (GDP) growth
Malaysia’s year-on-year GDP growth for the 3rd quarter of 2008 has declined to 4.7% from 6.7% in the 2nd quarter, and from the peak of 7.3% in the 4th quarter of last year, 5.5% in the 1st quarter of 2007. This is a sign of slowing down in economy activities at quite a significant pace.

Year-on-year industrial production output and manufacturing index
In Oct the industrial production output has shrunk by -3.1%. Consecutively for 2 months, the production index shows signs of contraction. Similarly for the manufacture index, which posted a 2nd contraction in Oct at -2.5% after -1.0% in Sep. Year-on-year manufacturing sales data first time dropped to 1 digit growth in Sep since Mar, i.e. 9.2%. (Mar manufacturing sales 9.6%)

All of the above data predicted a rise in unemployment rate in the last quarter of 2008. Unemployment will definitely be a threat to property sales and prices. If unemployment rate kept rising for a longer period, say more than 6 months, market sentiment may grow depressed enough to eventually drag down prices of everything, including rental income of properties.

Three-month interbank rate (KLIBOR) and Net non-performing loans of banking system (3-month classification)
3-month interbank rate has dropped to 3.38% since 5th of Dec, from 3.65% in Nov. Non-performing loans surprisingly dropped to 2.4% in Oct – the lowest level in the year. This may be a good sign to Malaysia financial sector as it shows good control of bad debts by Malaysian banks, compared to most US and European banks which need their governments to clean up the toxic debts for them using hundreds of billions of taxpayers’ money.

This decline in non-performing loans also proves the strong fundamental of private sectors in Malaysia. However, export-related sectors may have a tough period ahead.

The next 6 months are crucial to property market in Malaysia. If unemployment rate can be controlled in order not to depress the whole market further, with the aids and supports from our financial sector; investors will be able to pick up cheaper properties. They are able to leverage for higher return with lower capital outlay, and rely on steady rental income to maintain (if not increase) cash flow from the real estate investment. Investors are also advised to carefully select their new tenants on their rental properties and continue maintaining good relationship with their existing quality tenants.

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

7 Comments

  • KCLau

    Reply Reply December 19, 2008

    Looks like the worst hasn’t arrived yet.

    • ongkl

      Reply Reply December 19, 2008

      Yes, it’s still a long way away.
      And we have more things to do along the way – look out for opportunities that the crisis can bring to us and grab them wisely, timely.

      Cheers

  • Syed Muhammad

    Reply Reply February 25, 2009

    I would like to buy an apt at putri indah condominium for RM350k.Do u think it is a reasonable price?MayBank valuates it at 350K.However UOB values it at bet 250k – 260K.The unit was bought at RM480K.It is beiong tenanted at RM1700.Monthly maintenance is RM330?It has condo facilities like pool, sauna and the unit has full seaview.It is 178 Sq metres.
    [1]Do you think it is a good buy?

    Pls reply.tks

    • ongkl

      Reply Reply February 26, 2009

      Hi Syed Muhammad,

      Based on the current rent of RM1700, less the maintenance fee say RM330 per month, with capital rate of 6%, the estimated value for the unit is RM274k only. (You can read our previous article How to estimate the value of a property? to learn the simple way to estimate the capital rate and value of a property.)

      We have viewed two units of Putri Indah condominium in November 2008. One of them was a walk-up unit (without lift). We are not sure yours is with or without lift. At the time, we were offered RM330k for both of the units. And we walked out from the deal because we believed that the price was too high to us.

      However, this condominium is located at a quiet and yet convenient place close to the new custom checkpoint with less than 70 units in two low rise buildings. The management is stringent. No motorcycles are allowed in the premise. They even require owners to seek their approval before they can rent their units out so as to maintain the quality of the residents there, which we don’t find it friendly to be a rental property.

      Cheers

  • syed muhammad

    Reply Reply February 26, 2009

    Hi Ong,

    Tks for yr prompt reply. The unit that i’m thinking of buying is on the 7th flr.It has lifts.Would you classify it a s an upmarket condo? Is or will there be any capital appreciation for the condo.With IDR coming up do u foresee condos in JB appreciating? How can I further negotiate on the price. Appreciate yr help. tks

    • ongkl

      Reply Reply February 27, 2009

      Hi Syed Muhammad,

      We believe the only reason for condos in JB to appreciate is the demand. As we discussed in our article Why apartment can be the best real estate investment? demand on apartments and condos in JB is expected to increase in the near future. We have seen the same phenomenon in other cities like KL and Singapore.

      The location and environment of Putri Indah are nice although the property is quite old. If you are interested in the unit, just offer the vendor a price which is much lower than what you expect and see what’s the response.

      Cheers

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