KUALA LUMPUR, 2 April 2020 – The impact of the MCO amid the ongoing COVID-19 outbreak on the Malaysian economy has yet to be fully realised. Conservative estimates forecast Gross Domestic Product (GDP) growth of 2.0% to 2.5% for 2020, while other analysts foresee domestic and global recession.
However, PropertyGuru Malaysia, in line with its commitment to being the nation’s property advisor, anticipates corresponding effects on home seeker sentiment to be short-lived,with prospects for recovery in the near term.
“Income and employment have been adversely affected by the closure of non-essential businesses during the MCO, and many Malaysians are prioritising bread-and-butter issues.”
Sheldon Fernandez, Country Manager, PropertyGuru Malaysia
“This dampened sentiment is likely to persist through to H2 2020, though measures such as the government’s Economic Stimulus Package (ESP) announcements and Bank Negara Malaysia’s (BNM’S) six-month moratorium on financing payments are laying the foundation for the market to bounce back.”
Sentiment among home seekers was already in decline at the start of the year, with the PropertyGuru Malaysia Consumer Sentiment Study H1 2020 reporting a drop in the Property Sentiment Index to 42 points, down from 44 points in the corresponding period last year.
This will likely see a fall in home loan applications, despite catalysts such as BNM’s recent revision of its Overnight Policy Rate (OPR) to 2.50%. Other markets experiencing COVID-19 outbreaks have seen mortgage applications drop by as much as 30%.
Beyond these short-term impacts, research by property data analytics and solutions provider MyProperty Data Sdn Bhd underscores the property market’s resilience in the face of prior economic downturns and viral outbreaks, notably the severe acute respiratory syndrome (SARS) epidemic of 2002.
While recent events have brought industries such as tourism and hospitality to a standstill, property transaction volumes and values have remained strong throughout periods of uncertainty (see Chart).
“The 1998 recession, in conjunction with the outbreak of the Nipah virus, saw volumes and values declining by 32.3% and 47.6% respectively, the largest downturn in recent decades,” says Fernandez.
“However, the industry still moved forward, with 186,000 transactions worth RM27.9 bil. In addition, house prices as a whole have only continued to grow over the past few decades, highlighting the merits of property as an asset class.”
According to the National Property Information Centre (NAPIC), the national house price index has not exhibited an overall decline since 1999, though its growth moderated to a low of 1.1% in 2001.
In terms of property types, high rises exhibited the most volatility in prices from 1999-2009, from a high of 15.1% growth in 2003 to a low of –5.9% the previous year.
From 2009 to 2018, this volatility spread to other property classes such as detached and semi-detached homes. Since 1999, terrace homes have shown the most stability and consistent price growth among property types, with prices in the segment growing by 6.5% in 2018.
As such, terrace homes will likely be a key focus for property seekers moving forward. This is supported by the PropertyGuru Malaysia Consumer Sentiment Study H1 2020 report, which found that terrace homes are the residence of choice (39%) among Malaysians.
Whether in terms of price, transaction volume or value, the property market has repeatedly showcased a tendency to bounce back immediately following a downturn.
This is seen in surging transaction volumes and values in the years following 1998 (the Asian financial crisis and Nipah virus outbreak), 2002 (the SARS outbreak) and 2008 (the global financial crisis and H1N1 outbreak).
“Price growth, as well as transaction volumes and values, have slowed down in recent years, with measures in place to address the residential overhang. This may cushion potential impacts on the market as it rolls with the blow.”
“Moving forward, investors tend to restructure their portfolios in uncertain times to manage risk, with property as a potentially lucrative venture. This, along with natural corrective forces as the market regains equilibrium, may account for the sharp recoveries seen in domestic property following crisis years.”
These patterns are set to repeat themselves following the MCO and COVID-19 outbreak, with various initiatives contributing towards significant domestic liquidity moving forward.
These include BNM’s reduction of the Statutory Reserve Requirement Ratio to 3.00%, moratorium on financing payments, OPR revision as well as revised voluntary EPF contribution guidelines in the government’s earlier ESP announcement.
PropertyGuru acknowledges the potential impact of the MCO and other recent events on industry stakeholders, particularly property agents, who are often overlooked amid the larger national housing agenda.