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Considering the current pressure on the economy, is it the right time now to invest
in property? You may ask what are the potential risks if I choose to invest now?
What is the outlook for the local property market in the near future?
No doubt, property is a popular form of investing amongst many people in Malaysia.
There are ample reasons why people buy property. For those working in the congested
Klang Valley, owning an apartment in the city centre may be convenient both in terms
of proximity and time saved in going to work.
Property can deliver attractive regular returns to investors in terms of rental income
in addition to capital appreciation or profits from potential increase in the value
of property.
In the first part of this article, we will take a brief insight into the property
sector in terms of the overall growth of the country.
The construction sector as a whole in Malaysia has been accelerating over the past
few years mainly due to a continued high economic growth. Table 1 depicts the country's
GDP growth since 1990. The high growth rates achieved have been underpinned by a
relatively stable inflation trend.
While the country as a whole was growing strongly at around 8%, growth for the Klang
Valley, the premier urban centre in the country where some of the country's most
expensive property is located has been growing at even higher rates (refer to Table
2).
Manufacturing, construction and service sectors have been contributing significantly
to the growth of the country. Continued expansion in both the residential and non-residential
construction activities plus implementation of large infrastructure projects have
been the main force behind the strong growth of the construction sector. The property
sector is a significant contributor to the economic well-being of the country.
Specifically, residential construction has been very active, driven by on-going housing
projects particularly in prime locations such as the Klang Valley for example. Demand
for residential homes has been strong over the recent last few years.
The increased demand for residential sector was fueled by higher income levels, relatively
easy access to financing and strong general expectations for capital appreciation.
Property buyers were everywhere. Some speculators reaped almost "instant"
rewards as property prices shot up in a very short-time. The increase in house prices
was most evident in major areas such as Johor Bahru, Penang, Kuala Lumpur, Petaling
Jaya and Penang. Table 3 and 4 further supports this point. Both tables reflect a
buoyant property market. The relatively high exposure of the property sector to the
economy has led Bank Negara to move in March 1997 when it imposed new guidelines
on lending to the property sector. The move was seen as a necessary positive step
to curb excessive property lending.
| Table 1. Economic growth of Malaysia |
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Source: Economic Reports
Due to the recent currency crisis, the government has indicated a slowdown in growth
for 1997 |
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| Table 2. Economic growth of Selangor and Wilayah Persekutuan |
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| Source: Economic Planning Unit |
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| Table 3. Direction of Lending |
|
|
Year
|
Total Outstanding Loans
|
Real Estate
|
(%)
|
Construction
|
(%)
|
Housing Loans
|
(%)
|
Property Sector
|
(%)
|
|
1992
|
156,217
|
14,932
|
9.6
|
12,450
|
8.0
|
20,973
|
13.4
|
48,355
|
31.0
|
|
1993
|
174,498
|
15,267
|
8.7
|
13,917
|
8.0
|
24,325
|
13.9
|
53,508
|
30.7
|
|
1994
|
203,286
|
14,624
|
7.2
|
15,722
|
7.7
|
28,019
|
13.8
|
58,364
|
28.7
|
|
1995
|
260,892
|
20,572
|
7.9
|
20,233
|
7.8
|
32,753
|
12.6
|
73,557
|
28.2
|
|
1996
|
332,752
|
27,952
|
8.4
|
27,804
|
8.4
|
39,616
|
11.9
|
95,371
|
28.7
|
|
Source: Bank Negara Malaysia Annual Report 1996
Amounts in RM million |
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