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Hi guys! As the world scrambles to get used to new “normals” during these strange times, many people are wondering what the new “normals” would be like for the property industry?
The rules of the game have definitely changed, and it’s paramount that we, as property investors, take a step back and think about what the near future will look like.
This coming recession will be different from any of the previous financial crises simply because it started as a health crisis, rather than an economic crisis. As a result, even conventionally resilient industries, like F&B, are badly hit, and who knows how long it will take until people are comfortable to dine in crowded places again.
And to top it off, our property market was already in an oversupply condition, especially in the commercial and office markets and to a certain extent, residential markets. We were just about showing signs of recovering. But no one ever imagined a pandemic causing lockdowns (or MCO, or CB (haha!)) on a global scale.
Rental market will stay strong. As people shy away from long term commitment, aka home mortgages, renting will be a shorter term more viable option.
Subsale market will continue to have downward pressure on pricing, especially from October 2020 onwards when the loan moratorium is over, and our economy has not yet recovered. Reality will hit when monthly installments resume, and income levels have not recovered.
Developers still have an upper hand against secondary subsale markets. This is primarily because they can offer low money-down packages to ease the cashflow burden of buyers. Subsale market will only start recovering after we solve our property overhang situation.
Further OPR cuts this year to spur our economy. Our current OPR is at 2.5%. During the last financial crisis back in 2008, BNM revised our OPR to 2%. They will likely do the same this time around, so there could be a potential 25 to 50 basis points reduction.
The demand for co-working spaces will increase. Not only because many companies now realize that people can actually get shit done remotely, but also because they realize the importance of BCPs (business continuity plans). This is especially true for this period when COVID19 is so contagious, there is a great risk for companies to house all of their team members in one single location. Until there is a vaccine, larger organizations will split up their organization into teams or business units in different physical locations, to ensure business continuity and reduce the risk of infections across the entire organization.
Of course, this will also mean that co-working spaces need to up their game by having strict procedures and guidelines too to combat the fear and sensitivities.
BNM may remove the 70% maximum LTV ratio for borrowers purchasing their 3rd home. This can help with the current overhang situation and will help our economy without sacrificing our properties by opening it up to foreign buyers. Fingers crossed!
The demand for fully furnished rental homes will remain strong. As people’s income becomes affected, people will opt for cheaper alternatives. Logically, people won’t downgrade from a fully furnished unit to a partial furnished unit, because it just doesn’t make sense when the priority is to preserve cash. Rather, people will downgrade from a RM4000 rent fully furnished home, to a RM2500 rent fully furnished home.
Partial furnished units actually cost a lot more for the tenant, because not only do they need to pay you 3.5 months rent upfront, they will also need to spend cash buying furniture and appliances. This can add up to a huge sum, and preserving cash is the key during hard times.
Many businesses suddenly realize working from home is possible. It may change the way people buy homes in the future, where proximity may not be as important anymore. Homes, with a flexible space, convertible into a home office might do well too. Oh and internet connectability and stability will take priority haha!
Owners will seek new ways to generate higher returns on their properties, and will likely resort to do room rentals. Of course this depends on your property class, but for properties in local markets, this option will become increasingly attractive, especially so now during this crisis when short term stay is no longer a viable option.
People now appreciate the importance of a great home even more, and also realize the impracticalities of their current homes, especially so during this MCO! I know I myself suddenly realize my own home is not conducive for work, nor is it inspiring enough for ideation and will definitely do something about it post MCO.
People will continue to be obsessed with cleanliness and sanitation. Businesses, especially in the real estate industry must implement strict processes and guidelines to put customers at ease. The Makeover Guys is no different, and we will have strict temperature checks, sanitization procedures, and protective gear guidelines for all our team members.
Virtual tours will finally see some light. In the past, no virtual tour can beat visiting the real actual unit or showroom, where you can touch and feel the actual space. Post COVID19, touching and feeling is a big nono, and people will resort to the next best thing, virtual tours. Don’t get me wrong, it will never replace visiting the actual space though, but now people will only make that visit when absolutely necessary, which means only when they are very close to finalising their decision.
Thankfully, we invested in the machineries, tools and talents to do virtual tours a year ago. You can see some of our sample tour here: https://www.themakeover.my/our-services#our-work
Well that’s mostly what’s on my mind now with regards to our property market here post COVID-19. Properties are not immune to recessions, but what’s more important is knowing what to do with the property, and that makes all the difference between loving properties, or hating properties.
Agree? Disagree? Let me know in the comments below! Please do share your thoughts and predictions as well! Would love to hear more views from the community :)
Till next time! Wash your hands often, stay safe, stay healthy, and stay strong in these tough times!
With much gratitude,
Gavin