Against the gloomy backdrop of a global pandemic, a stuttering global economy and the uncertainty surrounding the local economic impact of the Movement Control Order (MCO), it is worth noting that Malaysia has experienced and bounced back from similar “black swan” events before.
On the back of the Asian Financial Crisis of 1997, Malaysia was struck by the Nipah virus outbreak the following year. This was followed by the SARS outbreak in 2002. While Malaysia emerged relatively unscathed from the ravages of the virus by comparison, the economic consequences proved far reaching.
The SARS-CoV-1 outbreak, a predecessor to the new COVID-19, saw Bank Negara Malaysia cut interest rates while the Government increased fiscal spending in a bid to cushion the outbreak’s economic impact.
In 2003, tourism receipts fell to 4.7% as a percentage of GDP from 6.3% in 2002, before rebounding to 5.8% in 2004. With China’s share of tourism receipts in 2019 being 4.75 times that in 2003 the impact from COVID-19 is expected to be significantly higher.
While it’s still too early to ascertain the full economic impact this perfect storm of events has brought, we are able to look to the past to gauge the potential impact on the property market at the very least.
Uncertainty Spooks the Property Market
Unsurprisingly, Malaysians generally hold back on purchases in the year of a crisis.
The following chart depicts a 32% decline in transaction volume in 1998, the inflection point of the Nipah virus and the Asian Financial Crisis from 1997.
Similarly, in 2002 transaction volumes fell 4.6% from the year before as the economy unraveled following the outbreak of SARS. The Global Financial Crisis of 2008 and subsequent outbreak of the H1N1 virus similarly resulted in a decline albeit by a marginal 1%.
When The Dust Settles..
What is also very clear from the chart above is that Malaysians return to the market in droves in the year immediately proceeding the crisis.
1999 saw a 21% increase in transaction volume while the SARS outbreak saw transaction volumes increase 5% and 21% in 2003 and 2004 respectively. This was again repeated in 2009 as the market rallied up 12%.
BNM’s Monetary and Fiscal Developments 2003 report notes that the impact of SARS was primarily on the services sub-sectors of tourism, transport and retail services. This persuaded the Government, in addition to interest rate cuts implemented by BNM, to provide a Special Relief Guarantee Facility of RM1 billion and special relief for housing loan repayments to workers in these sectors.
The report also mentioned that the lower interest rates led to stronger demand for credit. Loan applications and approvals, both soared in 2003 and 2004 as a result.
Opportunity on the Horizon?
Cheap credit aside, limited activity and uncertain economic conditions have traditionally resulted in discounts alongside the emergence on the market of high-quality assets which may have contributed to the significant market activity in 1999, 2003 – 2004 and 2010.
Interestingly, all three periods were characterized by strong transaction volumes albeit at declining rates in the year preceding the crisis. Transaction volumes in 1997 peaked at about 275,000 transactions and would not be surpassed till 2004 where total transaction volumes were in excess of 293,000.
Transaction volumes continued on an upward trajectory, peaking at over 430,000 in 2011. Since then, transaction volumes have steadily declined, averaging approximately 320,000/ year for the past 5 years.
Whilst demand has largely stagnated over the past 5 years, according to NAPIC, Malaysia has seen an approximate increase of 3.7 million square metres or 20% of new floor space since 2012. All while Malaysia’s population is expected to breach the 30 million mark in 2021.
Could falling interest rates, a largely stagnant property market, increasing population and coupled with uncertain economic times be the catalyst for a brighter future?
Whilst we have yet to find a crystal ball that works, the indicators do appear to lean towards it as more market sectors wade into price levels below their long term historical averages.
Is this really the time to pick up quality properties at more attractive prices together with cheaper credit?
All depends on what’s for sale and at what price – It’s probably a good time to speak to your trusted real estate consultant and to do some market research.
One thing for certain, Malaysians will likely emerge from this Movement Control Order to face a vastly different landscape from the one left on 18 March 2020.
Perhaps it’s time to stock up on some real estate assets now that we’re done stocking up on toilet rolls.
Next up, we will dive into an analysis of prices for specific property categories and markets to provide you with insights on what’s hot and what’s not. Stick around for the next release!
Stay tuned as we attempt to analyse the property segments likely to perform in times of uncertainty. To find out more about pricing information on specific areas and property types visit www.propertyadvisor.my
The above analysis was made possible by PropertyAdvisor PRO, the most comprehensive database comprising over 6 million actual transaction data, rental data, auction data, demographic data and new development information.