You’ve got it all (in the eyes of your family and friends, at least): a stable career that pays well, a decent car, a loving family of your own, and a modest property.
There might have also been a little urge that was taking shape inside you, one that was telling you to grow your personal wealth by investing in properties.
After all, you’ve heard plenty of gurus advocate that getting into the real estate game is one of the tried-and-tested methods to successfully do so.
However, we’re now facing some of the most uncertain times in the history of Malaysia. Yes, we’re talking about the COVID-19 crisis!
So, is it still the right moment for you to go ahead with your plan to acquire a few assets of this type, and hopefully provide a more comfortable future for your family? Read on to find out!
First, What Is The Government Doing To Aid The Economy?
Ever since the first MCO took effect on 18th March 2020, the government has sprung into action with a number of measures that would serve as catalysts for financing.
For example, we saw Bank Negara Malaysia (BNM) reducing the Statutory Reserve Requirement (SRR) Ratio from 3% to 2% effective 20 March 2020.
The SRR is an instrument that’s used to manage liquidity (read: cold hard cash!), and this move was supposed to release approximately RM30 billion worth of liquidity into the banking system.
With more domestic liquidity now, and a sharp decrease in the number of loan applications, banks will now be on the lookout for quality borrowers. Here’s a quick look at how much the financial scenery has changed over the course of just a few months in 2020： BNM cut the Overnight Policy Rate (OPR) FOUR times：
The first was on 22nd January, where it was reduced from 3% to 2.75%.
Second was on 3rd March to 2.50%, as a "pre-emptive measure to secure the improving growth trajectory amid price stability".
Next, it was cut on 5th May 2020 to 2.00%.
Then, on 7th July, it was reduced to the lowest ever rate at 1.75%.
While the OPR has stayed at its lowest rate at 1.75% for 2 years, BNM has announced a hike of 0.25% on May 11th 2022, bringing the OPR up to 2.00%. As of July 2022, BNM has announced a revised rate for OPR, which now stands at 2.25%.
It does seem like there’s a lot of extra cash in the market now and the interest rate is at a historical low, but it still remains to be seen if you should take the leap or not.
So, Does Now Seem To Be A Good Time For Investing In Properties?
Investors, in general, would now be restructuring their portfolios to manage any risk. Meanwhile, those with leverage can take advantage of homes on the market that are priced cheaper than normal (undervalued).
1) Long-term investors who can afford it
Are you someone who’s able to weather a number of shocks (for example, property prices dip), but you can hang on till the prices recover? Or perhaps you’re someone who’s not looking to sell in the next 3, 5, or 10 years?
If you can relate to the above, then yes, it’s a good time for you to join the real estate game!
You see, not only are property developers currently adding value to their unsold units to make them more enticing, asking prices are decreasing and the financing environment is conducive.
Interest rates will be very forgiving thanks to BNM’s OPR cuts that we mentioned earlier, compared to the 8%-9% or even double-digit rates in the past.
2) Short-term investors or anyone looking to flip properties
No, please stay away from the real estate game, as it’s currently a tenant’s market and price growth is moderating.
Tenants are spoilt for choice right now; they’re in a better position to negotiate for a deal or terms that are more agreeable to their side.
Adding on to that, price growth has moderated in recent years, thanks to strict financial lending guidelines, and the Malaysian economy moving towards maturity.
However, if short- to medium-term investors know how to play their cards right, the current environment can actually be beneficial for the flipping game.
You see, current conditions favour speculative investors as they have the option to secure good assets at a much lower value.
The only risk factors they might face are finding the demand, and racing against time; there’s no locational or asset risk.
Decreasing prices will lead to improvements in rental yield, coupled with the low interest environment. However, this may be more pronounced in the industrial space.
Nevertheless, even for cash-rich purchasers, some investors may choose to opt out of current purchases as the market sentiment continues its decline, losing their deposits and down payments.
What Can I, As An Investor, Do If I Still Want To Continue?
Given that Malaysia is still at the early stage of economic recovery from COVID-19, both buyers and sellers should closely evaluate force majeure clauses in legal agreements.
You would also do well to perform the research that’s necessary to determine which area and property type you should be targeting.
Based on data that’s taken from the National Property Information Centre (Napic), terrace homes in city fringe areas have shown the least volatility since 2000.
However, undervalued high-rise projects that are located closer to the city seem to perform better, immediately following the crisis years.
This may be due to investors wanting to reshuffle their portfolios, and those who are venturing into property investment for the first time.
At the end of the day, we strongly advocate for a holistic approach to investing in properties.
This means that you shouldn’t just be looking at the initial costs involved with acquiring an asset, you should also take into consideration the instalments and whether you can manage your daily living expenses as well!
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