It has become a known fact that the stock market provides the foremost indicator of a nation’s economy. Preceding a recession, the stock market plunges about a half year before the recession actually hits the economy. Similarly, a recovery in the stock market also signals a turnaround in the months ahead for a nation’s economy.
In both scenarios, the property market almost always lags behind the stock market. In fact, it could even be said that a crash or a rebound in the property market comes slightly after a crash or a rebound in the economy. It has been 10 months since the Kuala Lumpur Stock Exchange (KLSE) rebounded off a low of 262 points. For the past fortnight, the KLSE Composite Index has been hovering around the 700-point level.
Regional Recovering Sign
The recovery in our stock market may not be as eye-popping as the recovery in regional stock markets such as Singapore, Jakarta, Hong Kong and Seoul, which have somewhat, reached pre-crisis levels. However, a thing to note is the increased number of business generated by all this optimism.
After a year in the doldrums, the Malaysian property market has witnessed increased number of transactions and increased transacted value. This translates into more downstream activities within the property industry which in turn provides increased business activities among all sectors of the economy. In short, the stock market, the property market and the overall economy feed on each other’s recovery.
Just how great and how real is this recovery in the local property scene? Most analysts conclude that a rebound is seen only within the residential segment especially for residential properties costing RM250,000 and below. According to them, this rebound in the local property scene is very significant and the sustainability of the rebound goes hand in hand with the recovery of the economy, which they feel can only get better.
Residential Subsector Still Resilient
The residential subsector is still resilient. Due to lower interest rates, demand for residential properties costing RM250,000 and below is still strong especially for properties in strategic locations. However, surprisingly, prices of residential properties costing above RM250,000 is still holding!
There is also an undeniable overhang in office space and hotel properties that needs to be cleared before significant recovery can be witnessed within this subsector. Although occupancy rates in prime areas are promising, the overwhelming glut remains a major problem for owners of commercial and hotel properties.
The current feel-good factor in the economy is aiding the rebound in the property market. Although a rebound is increasingly being felt within the property market, bid and asking prices are still wide. People are not desperate to sell down but neither are people desperate to buy up yet. A property rebound will move in tandem with the economic recovery.
Apartment projects around the Klang Valley costing around RM100,000 are gaining concrete inquiries as newly-weds and small families prefer high-rise living to conventional housing which is the norm nowadays in city dwelling. However, the same cannot be said for properties in Johor. Housing conditions are still sluggish there as the Johor market was developed with Singaporeans in mind. There is significant risk involved as there are not enough takers compared to previous years. Developers need to clear their existing stock before a real rebound can be justified.
Activities Picking Up
With low interest rates, genuine buyers especially first-time housebuyers and people looking to upgrade will keep the residential market moving. If the economic recovery continues which I believe will indeed continue and interest rates remain low, then the property market recovery will be more than sustainable,” Sime UEP recently launched a 20’x70′, 1300 square feet link house at about RM200,000 and the sensational response just makes a mockery out of the supposedly-depressed property market situation. Perhaps the property bandwagon has already moved into higher gear leaving some shadows behind.
KLSE year-end target of 1,000 points
Things are brighter now. Developers are more confident because they foresee the market is able to absorb
their projects. Even the 20% backlog from our 1997 launches is slowly being taken up. Though we may be in the high-end condominium and office space segment, we are not greatly affected by the downturn last year due to cash flow from our overseas projects. Coming from such a traumatic year, this year is definitely much brighter.
The reduction in property levy tax and an exit tax on foreign repatriation of stock market profits have actually helped increase sales from foreign buyers. The low interest rates were a further boost to the uptrend in both the stock and property markets. All said, real estate players may not be laughing all the way to the bank yet but the ball is definitely in their court and they sure ain’t letting it slip this time around.