Light at the end of tunnel for serviced apartment investors?

 

From John Tan

Residential properties experienced a surge in prices from 2009 to 2013 and then tapered off due to the government’s cooling measures in 2014, such as stopping the Developer Interest Bearing Scheme (DIBS) to weed out speculation.

Apart from DIBS being banned, property buyers were restricted to borrowing 90% loan to value (LTV) only for their first two residential units. Thereafter, LTV was reduced to 70% for the third property and beyond.

Since then, prices have stabilised and, in fact, have dipped during the current Covid-19 pandemic.

In the Klang Valley, there will hardly be any new condominium launches as strategic land sites are getting scarce. New launches will mainly be of serviced apartments developed on commercial land with high plot ratios.

With the high influx of serviced apartments into the market, will there be light at the end of the tunnel for service apartment investors?

There are two ways of looking at this:

The negatives which will cause property prices to stagnate or plunge

This can be attributed to:

1. The pandemic which is causing businesses to close and people to lose their jobs;
2. Uncertainty in the political front; and
3. Oversupply of serviced apartments.

The positives

These include:

1. Malaysia’s population is still growing and that means houses will be needed. A 0.90% growth of 33 million people will, for instance, translate to an additional population of 297,000 people a year.

2. The pandemic is only a short-term setback. Many believe that mass vaccination will render Covid-19 an endemic disease and that we can live side by side with the virus. Hopefully, the country’s borders will be opened in the first half of 2022, more jobs will return and the property market sentiment will improve.

3. The government is encouraging people to buy properties by extending the home ownership campaign. Interest rate remains low with the overnight policy rate at 1.75%. Some commercial banks are offering mortgage interest rates at only 2.90% per annum.

4. Malaysia remains a favourite destination for foreign direct investment (FDI). China’s trade war with the US and Australia will benefit Malaysia. With more FDIs, more jobs will be created and there will be more demand for properties in the areas where the jobs are created.

5. Improvements in the transport system, such as the MRT3 rail transit system and completion of MRT2 and LRT3 will help boost the prices of serviced apartments within these transit oriented development project areas. Also, the Johor Bahru-Singapore rapid transit system will hopefully attract more Singaporeans to purchase more Johor Bahru serviced apartments.

6. New launches have slowed down during these past 12 months and have constricted supply to the market but there will be a surge in demand after the disease is classified as endemic.

7. There is the argument that affordability will be an issue for first-time homeowners due to the difficulty in obtaining bank loans with a suitable LTV. This inability of getting bank loans gives existing investors in serviced apartments a bigger tenant pool and they can adopt a “buy and wait strategy” while waiting for capital appreciation to set in.

8. The Tun Razak Exchange (TRX), a green and intelligent city located in Kuala Lumpur’s business-friendly environment, will stand to attract FDI in the financial and insurance industry. The project, when managed well, will be a catalyst to spark investment in serviced apartments in the financial district.

9. To further boost the residential property market, the government can consider abolishing real property gains tax (RPGT) for those who have held on to their properties for more than five years from the date of the sales and purchase agreement. This should be on a permanent basis instead of just being a temporary waiver.

The government can also consider exempting rental income from taxation. This will encourage investors to invest their money in property instead of putting their excess cash into fixed deposits which is earning a paltry 2% pa, way below the inflation rate. Investment in the volatile stock market is not for the faint-hearted; and

10. Malaysia remains a favourite retirement home for many wealthy foreigners. If Malaysia My Second Home (MM2H) is brought back, it will help to spur buying interest in serviced apartments among foreigners who choose to stay in this lower-living cost multicultural country on a long-term basis. - FMT

John Tan is an FMT reader and a property market commentator.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT/