7 April 2021

Latest data by NAPIC shows that the Malaysian House Price Index fell 0.9% in the third quarter of 2020, the first time in a decade.

How is the property market faring in Malaysia? Is it doing well or bad? Are properties too expensive? What can you expect?

Read on to find out…

1. Weak house prices

Due to the Covid-19 pandemic, the property market suffered a downturn as many who lost their jobs or suffered pay cuts shunned purchasing houses.

According to the latest data by NAPIC, the Malaysian House Price Index fell 0.9% in the third quarter of 2020, the first time in a decade.

High-rise properties were a major contributor to the decline in house prices with a growth rate of -2.7% in the third quarter of 2020.

Selangor recorded the steepest fall in prices at 2.6%, followed by Pahang (-2.3%), Sabah (-2.0%), Kuala Lumpur (-1.5%), and Penang (-1.4%).

Decline in house prices are pretty rare as it is dependent on the overall economic activity.

Considering that the economy was still weak in the fourth quarter of 2020 and first quarter of 2021, house prices will likely still be weak.

In terms of timing, the first half of 2021 might be a good time to purchase and invest in properties.

Bank Negara Malaysia’s overnight policy rate is at its lowest in two decades, making it cheaper now to borrow from banks to purchase properties. (Rawpixel pic)

2. Low interest rates

Bank Negara Malaysia’s (BNM) overnight policy rate is at its lowest in two decades at 1.75%.

Loan interest rates normally follow the movement of BNM’s overnight policy rate. Hence, it is now cheaper to borrow from banks to purchase properties.

The Base Rate, which is the main reference rate for new retail loans used by banks, is now at its lowest point at 2.4%. This makes it extremely attractive to borrow from banks.

However, most housing loans now operate under a floating interest rate arrangement, meaning that the interest rate on your loan will change according to changes in overnight policy rates.

That said, considering that the economy is only now recovering, the overnight policy rate is expected to be relatively low for the time being.

3. Stamp duty exemption

As part of the Covid-19 recovery package programme (PENJANA), stamp duty is exempted for properties priced between RM300,000 to RM2.5 million from June to May 31. This only applies to the first RM1 million.

Stamp duty is also exempted for the Memorandum of Transfer (MoT) and Loan Agreements (LA) for house buyers purchasing their first property priced below RM500,000 until Dec 2025.

The National House Buyers Association estimates a total of RM11,250 in cost savings, making it a good time for first-time homebuyers to buy property.

For investors, they can reduce the cost of investments and gain a higher yield from their properties.

Due to the fallout of the pandemic, some developers are offering big discounts to clear inventory. (Rawpixel pic)

4. Property discount

Due to the high number of unsold properties in the market before the Covid-19 pandemic struck, property developers introduced discounts on existing properties, a practice that is ongoing.

This is part of the Home Ownership Campaign in operation since 2019 where developers offer a minimum 10% discount on properties.

However, some developers are offering more as they struggle to clear inventory, so shop around for the best deals but proceed with caution.

Why? These properties have likely been left vacant for a substantial amount of time, so check the condition it is in. Two, the location might not be the best. So, consider if these properties are worth the price after reviewing its condition and location.

5. Changes in Real Property Gains Tax (RPGT)

This matters more for those treating properties as investments. Under the PENJANA programme, the RPGT of 30% is exempted for transfers or property purchases from June 1 to Dec 31.

RPGT is a tax levied by the Inland Revenue Board on profit or gains from disposal of real property. Profit in this context is the difference between the disposal and acquisition price.

With the relaxation of the 70% LTV rule, investors can borrow more loans to purchase more properties. (Rawpixel pic)

6. Bank Negara’s rule on third loan

BNM has removed the 70% loan-to-value (LTV) restriction on third home loans onwards above RM600,000 from June 1 to Dec 31.

Before this, it had introduced a maximum 70% of loan-to-value on loans for third house and onwards to curb speculative activities in the housing market.

The relaxation of this rule during this period means that investors can borrow more loans to purchase more properties with a higher LTV ratio.

However, do consider whether you can afford this investment as it will significantly affect your credit scores if you can’t afford the interest repayments on your loans.

This will have a long-lasting effect as it will stay on your credit score for a long period of time.

7. REITs as a more affordable option

REIT stands for real estate investment trust, which is a dedicated company that invests in real estate and properties and distributes its dividends from the rents to investors.

It is listed in the stock market and is normally considered a proxy for investments into the property market.

REITs normally have numerous residential, commercial and industrial properties in its portfolio hence, they are well diversified.

You need not take a bank loan as you can purchase REITs like normal stocks from any trading platform. As a normal lot size is 100 stocks, if the REIT is worth RM2.00, you only need to spend RM200.