There has been plenty of confusion regarding the impact that the Covid-19 virus outbreak has on the Malaysian economic landscape. Some reports state that the effects may be limited, yet there are talks about the government issuing an economic stimulus package soon partially due to the virus outbreak.
Amidst this confusion, many property investors are understandably worried about their property investments. Let’s shed some light on this subject matter to provide some clarity on how the property market will perform under such circumstances.
Bear in mind that statistical data on the property market amidst the outbreak is scarce and limited. It will take some time before the National Property Information Centre (NAPIC) is able to issue statistics on the property market. Nevertheless, there are several indicators that we can look forward to in the meantime.
There is no doubt that the property market is affected by the outbreak. The critical question to ask is whether it is headed towards a bullish or bearish direction, and to what extent? The answers that we have collected so far may surprise you.
A slowing tourism industry
A slowing tourism industry does not bode well for Airbnb operators and property investors that rely on Airbnb to drive rental income. Airbnb has publicly stated that China is one of its key focus and drivers in 2019, while the latest statistics have shown that Malaysian Airbnb accepted 3.25 million guests in Malaysia in 2019.
Chinese tourists represent a huge market share within the Airbnb market, and by proxy, property investors. With the Covid-19 outbreak, many operators have definitely felt the squeeze in their bookings and reservation cancellations.
In a company statement, Airbnb has also urged its community to “take necessary precautions to protect yourself when travelling or hosting,” and they will update their policies in accordance with the official guidance as the situation evolves.
Domestic tourists should be taken into account as well, as they are less inclined to venture outdoors to shopping malls, visit public parks or participate in outdoor leisure activities in fear of contracting the deadly virus, which further puts downward pressure on the tourism and retail segment, indirectly affecting commercial property owners as well.
There are plenty of local and foreign tourists looking to take advantage of the situation, in light of the added workplace flexibility, changes to the sick leave policies, cheaper airfare and hotel rates caused by the outbreak, to have a short holiday getaway.
The tourism market may be suppressed, but there is a market for Airbnb, or similar services nonetheless. It poses an excellent opportunity for Airbnb operators and property investors to tap into a larger market share, by offering cheaper rates and value-added service.
Investors are recommended to actively revise their rates to stay ahead of those who did not, and to hold a steady cash reserve in anticipation of fewer and cheaper bookings. However, it is still entirely possible to minimise your losses, or even profit, during these worrying times.
Slowing GDP, but healthy property demand
It pays to be reminded that the health of the property sector is built on top of a country’s economic strength. A strong economy produces tenants that can afford stable rent and homebuyers with greater purchasing capabilities.
No better metric indicates a country’s economic strength than the gross domestic product (GDP), but the outlook for 2020 may not be as optimistic.
It is reported that Malaysia’s annual GDP has moderated to 4.3% in 2019, the lowest level since the Global Financial Crisis in 2009. The country’s fourth quarter of 2019’s GDP growth has slowed to 3.6%, the slowest in the 41 quarters since 2009.
Whilst data for 2020 has yet to be announced, Bank Negara Malaysia’s (BNM) Governor, Datuk Nor Shamsiah Mohd Yunus, was quoted saying that Malaysia’s economic growth will further be affected by the Covid-19 outbreak.
More specifically, she says that it is too hard to predict the impact of the virus outbreak on the country’s economic growth, but the first quarter of 2020 will be affected depending on the duration and spread of the outbreak, as well as policy responses by authorities.
Considering the fact that Christmas, Chinese New Year and the virus outbreak all happened within the span of three months, it is likely we will see property transactions slowing during this period.
Viruses and holidays aside, the fundamental demand for affordable housing is still present and strong. Latest data collected by NAPIC shows that residential units priced between RM250,000 and RM300,000 saw their transaction value rise 6% year-on-year in 2019, suggesting that there is more demand for affordable properties.
Hence, rather than divesting their investments amidst the slowing conditions, property investors could possibly rebalance their portfolio, and shift their focus towards the affordable property segment, due to the present healthy demand for it.
For investors who are looking to get the best bang for the buck within the affordable housing segment, why not check out Ohmyhome’s property listings?
However, not all is gloomy within the property sector. There are definitely pockets of opportunities within this market climate, and there are ways for property investors to stay on top of the market, and here are some of the factors that you should take into consideration.
This is not the first time Malaysia is met with a virus outbreak, and we can use historical cases like Severe Acute Respiratory Syndrome (SARS) as case studies on how the property market will perform during an outbreak.
Credit Suisse, a financial service firm, stated in a research note that several industry sectors have performed better during the SARS outbreak in 2003. These sectors include rubber gloves, healthcare, telecommunication, technology, and of course, construction and property.
“By Nov 2003 – three months after the SARS concerns eased – the Kuala Lumpur Composite Index (KLCI) was up 19% from pre-SARS levels. The strongest performers were rubber gloves (+91-210%), technology (+47%), and property (+36%),” says Credit Suisse.
“Lower interest rates and the possibility of further monetary easing bodes well for grossly undervalued property stocks such as Sime Darby Property Bhd and S P Setia Bhd.”
The equities market is not the only oasis amidst the Covid-19 outbreak. Real estate investment trusts (REITs) have also climbed steadily in the few months after news broke regarding the Covid-19 outbreak.
In fact, Sunway REIT has announced steady profit growth in the second quarter of the financial year of 2020. The earnings growth is mainly driven by revenue from retail assets and the hotel segments, showing that retail rentals and hospitality demand remain strong despite the worrying landscape.
At the time of publication, there are no reports released in regards to the performance in sales within the primary and sub-sale market amidst the virus outbreak. However, the evidence so far has led to the belief that physical properties perform much better relative to many asset classes in times of worry.
This is justifiably understandable, because real estate has historically been the cornerstone of many people’s investments, and is grounded in tangible, physical assets. Real estate is viewed as long-term investments and has been proven to weather both financial crises and epidemics alike.
To summarise, early 2020 is a tentative period for those who are participating – or considering to participate – in the world of property investment. The Covid-19 virus may have thrown a wrench in the works for many investors, but that does not mean that opportunities are not abundant within this segment.
Smart investment strategies will always prevail within any market conditions, and Ohmyhome thrives on being the enabler for all property investors and homebuyers in any market circumstances.
If you are looking for excellent investment prospects, visit Ohmyhome’s extensive property listings to see if anything strikes your fancy, both from the sub-sale market and newly developed projects! Contant our friendly customer service team at +6016-299 1366 today!