Property? Houses? Are you trying to decide whether to invest in the property market? Look no further!

Property, one of the most talked about topics in Malaysia. Is it doing well or bad? Are properties too expensive? These are the main questions that you probably have talked about with your family and friends.

However, do you know what to expect for 2021 from the property market? Read more about them below.

#1: Weak House Prices

Due to the Covid-19 pandemic, the property market suffered a downturn as consumers shun purchasing houses in favour of saving for a rainy day. You would have surely tighten your belt as you feared losing your job as businesses struggle.

According to the latest data by NAPIC, the Malaysian House Price Index went down by 0.9% in the third quarter of 2020, marking the first time house prices have gone down in a decade. High-rise properties was a major contributor to the decline in house prices with a growth rate of -2.7% in the third quarter of 2020.

Broken down by the various states in Malaysia, Selangor experienced 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 are likely to still be weak now. In terms of timing, the first half of 2021 might be a good time to purchase and invest in properties.

#2: Low Interest Rates

Bank Negara Malaysia’s overnight policy rate are now at its lowest ever in two decades of 1.75%. This was even lower than the 2.0% during the Great Financial Crisis of 2008/2009.

What does low interest rates mean? The loan interest rates normally follows the movement of Bank Negara’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 of 2.4%. This makes it extremely attractive to borrow now from banks.

However, you need to be aware that most housing loans now operate under floating interest rate arrangement, meaning that the interest rate on your loan will change according to how the overnight policy rates change. 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 program (PENJANA), stamp duty was exempted for properties priced between RM300k to RM2.5m from Jun 2020 to 31 May 2021. This has the condition that it only applies to the first RM1m of the property.

Aside from that, stamp duty is also exempted for the Memorandum of Transfer (MOT) and Loan Agreements (LA) for house buyers purchasing their first first properties priced below RM500k until Dec 2025. This is a substantial amount of cost savings for property buyers, as National House Buyers Association estimate that there is a total of RM11,250 in cost savings.

For first time homebuyers, this is a great time to buy your first home and secure your future. For investors, this will be great to reduce the cost of investments and gain a higher yield from your properties.

#4: Property Discount

Due to the high number of unsold properties in the market before the Covid-19 pandemic struck, property developers have moved to introducing discounts on their existing properties. This practice has since been extended to when the Covid-19 pandemic hit and is still in effect now.

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

However, some developers are even offering more as they struggle to clear their inventories of unsold houses. Take this opportunity to shop around for the best deals currently in the market.

However, you need to be careful with the location and conditions of these properties. One, they probably have been left vacant and unsold for a substantial amount of time, which means their condition might not be the best. Two, the location might not be the most ideal hence, they are struggling to sell them.

Determine whether these properties are worth the price considering also the location and condition.

#5: Changes in Real Property Gains Tax

This will matter more for some of you who are treating properties as investments. Under the PENJANA program, real property gains tax (RPGT) has been exempted for any transfers or purchase of properties from 1 Jun 2020 to 31 Dec 2021.

Before this, you were charged up to 30% on your profits from selling your properties. For some of you who are looking to sell your properties, this might be the best time to do it as you won’t have to incur any RPGT from your transactions during this period.

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.

#6: Bank Negara’s Rule on 3rd Loan

From 1 Jun 2020 to 31 Dec 2021, Bank Negara Malaysia removed the 70% loan-to-value (LTV) restriction on third home loans onwards above RM600k. Before this, it introduced a maximum 70% of loan-to-value on loans for third house and onwards to curb the speculative activities in the housing market during the early 2010s.

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, it is important to consider whether you can afford the investments into properties 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.

Hence, in terms of affordability, it might be worth it to consider the next point if you want to invest in properties.

#7: REITs as a More Affordable Option

When you buy or invest in properties, you are inevitably putting in almost a big lump sum of money into them. These properties could cost from RM300k to upwards of millions and require a huge amount of capital. Normally, you will have to borrow from the bank which means you will be going into debt.

REIT stands for real estate investment trust, which is a dedicated company that invest 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 were well diversified. You do not need to borrow from the bank also, 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 will only need to spend a minimum of RM200.

Investing in REITs such as KLCC Holdings allow you to place smaller, more manageable investments into the property market, without breaking the bank.

Conclusion

The property market in 2021 has undergone a big change with the Covid-19 pandemic. And as such, there are many things that you can consider if you want to get involved in properties. Firstly, you need to consider that the current property market is relatively weak with house prices declining. Secondly, there are many incentives for the property market such as low interest rates, stamp duty exemption, property discount, RPGT exemption and relaxation of loan-to-value for third loan and onwards. Finally, you can consider investing in REITs as the more affordable option compared to investing in physical properties.

 

How are you planning to invest in the property? Let us know in the comments below!

 

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