Based on a survey of its real estate agents, Juwai IQI’s CEO says a recovery is imminent in the next 12 months. Elsewhere, Knight Frank Malaysia also expects prices of residential properties to rise. Ceteris paribus, I expect real estate professionals to be optimistic about the property market. Otherwise who will buy property?
But are the prospects for a broad based market rally really there ? If Bolehland follows the US into recession next year, perhaps the property market might NOT see a rally but a dead cat bounce?
Based on anecdotal evidence from lackluster auctions of 5* luxury condominiums, high end property investors are still waiting for prices to fall further. Many 5* condominium auctions have no bidders at 2nd and 3rd outings.
The Triple Whammy
Buying interest has returned for the affordable landed terrace houses market. But as anecdotal evidence from property auctions of 5* condominiums in KL indicate , sentiment towards the high end property segment is still fragile: Just Google “Lelong KLCC condo “
Foreign property investors from China and Red Dot Island that used to account for the bulk of sales of Branded Residences in the range of RM1,500 to RM3,000 psf are staying away, spooked by the fall in the Ringgit and lacklustre rentals in areas like KLCC that are dependent on a dwindling expat pool of tenants.
Some high end property developers of Branded Residences and 5* luxury condominiums without deep financial pockets will face strong headwinds due to a “Perfect Storm” in 2023 :
1. rising interest rates (resulting in greater financing costs),
2.higher building materials costs (due to inflationary pressures worldwide) and
3.a drop in housing mortgage demand for luxury apartments (leading to dwindling buyers for their unsold inventory).
BURSA Malaysia Securities Bhd has just placed Penang based Ivory Properties Group Bhd under the Practice Note No 17 (PN17) category of financially troubled companies. Will there be more developers joining the list of PN17 group of listed companies in 2023?
Will any nascent property market recovery be snuffed out if the economy turns south, ie turn out to be a dead cat bounce? The US looks like it's already in a recession by some yardsticks , e.g. two consecutive quarters of negative GDP growth. See Bloomberg's "Is the US in a recession?”
Will Chinese property investors turn towards Malaysia because of growing woes in the China property market? Many Chinese home buyers are not paying their loan installments because developers have stopped construction. There are reports that home buyers in 86 cities are defaulting on their loans.
In a previous post at my property blog 360 KLCC I looked at the EverGrande crisis in China and it's possible impact on China's economy should the world's most indebted developer be allowed to be liquidated. See also Financial Times's infographics driven YouTube explanation of the EverGrande crisis's origins in “EverGrande: The end of China's property boom”.
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Is The Property Market Really Recovering?, "Market Rally" Or "Dead Cat Bounce' ?