How Does The Ringgit’s Fall Impact Local And Foreign Property Buyers?

“What I foresee is luxury project developers gearing up with more attractive packages or marketing campaigns aimed at attracting foreign investors in the coming months”

The Malaysian property market in general, particularly Iskandar, is going through a difficult cooling period right now. This is partly due to the launching of many luxury residential apartments, tightened bank borrowing, the introduction of the Goods and Services Tax (GST) in April this year, and political issues.

To make matters worse, the Ringgit has been in a freefall for the past few months, reaching historic lows against the US dollar.

I guess everyone knows these facts by now. The question is, how does it affect the property market in Iskandar?

The first impact I see would be on the property developers.  Up until recently, many new projects have been performing poorly especially the high rise property segment.

The timely depreciation of the ringgit has sparked a new wave of interest from foreign investors, especially Singaporeans.

What I foresee is luxury project developers gearing up with more attractive packages or marketing campaigns aimed at attracting foreign investors in the coming months. These may include lower down payments or even rebates to balance out the state consent fee.

Another change I expect to is in the sentiments of local property buyers. As the ringgit spending power gets weaker overseas, prices of imported goods are starting to be affected and locals are getting wary of spending the ringgit they do have. Many are opting for the ‘wait and see’ strategy when making big purchases, especially for property.

This situation doesn’t seem like it will get any better until the currency stabilizes in the market.

So due to the aforementioned mentality, some Malaysians are even keen on buying properties overseas during this period! Perhaps, they perceive these countries to have a more competitive economy and a stable currency so they can enjoy steady passive income from rental without worrying about the next change in currency.

Another possible outcome of all this is the cost of materials and overall inflation. IJM CEO Datuk Soam Heng Choon said in an interview that a weaker ringgit would not affect developers’ costs, as long as they did not use imported goods. This is true to a certain extent, as higher exchange rates do not directly impact developers who source materials only in Malaysia.

However, the developers I have talked to have expressed concern over this as one of the factors that will push up the construction cost in the mid to long run by as much as 15%, the other being the recent GST hike. Add that to the shrinking demand in a slow market, and we can see over the next few months to years, the prices of new property probably will not  stay at current levels regardless of demand.

So now that you have all this information, what are you going to do with it?

Well, the answer depends on who you are and what you’re buying the property for. 

FOR HOME BUYERS

We are definitely at a period where the developers’ profits are being slashed to razor-thin margins.

Knowing that prices of new properties are unlikely to drop over the next few years, now is a pretty good time for home buyers to look for a bargain. Since there is no pressure to secure good rental for your home, you can consider new projects in matured townships with convenient amenities just around you.

A landed property would be a better choice than a high rise apartment as the value of your landed property will increase at a relatively stable rate compared to other residential types. Go for it especially if the issue of inadequate rental to cover the instalment is not going to be an issue for you. 

FOR LOCAL INVESTORS

Take a look at local properties instead of foreign property investments. Firstly because the fluctuating ringgit may make it difficult to service a foreign property loan in the short term as it seems to be depreciating. Secondly, with the ringgit trading at a historic low, converting your ringgit to a foreign currency would be a bad investment if the ringgit goes up sharply again.

The only scenario where it makes sense is if you expect ringgit to keep falling for the next year or so. This is unlikely, given that many market analysts are already saying it is currently undervalued based on its economic fundamentals.

When looking for deals, consider looking for investments with sustainable rental and new infrastructure or amenities being completed in the next few years.

Now is the best time for the buyer market to get hold of really good deals. Real value investment property have been popping up in both sub-sale and developer projects.

FOR FOREIGN INVESTORS

Do your research independently to find attractive areas worth investing in. Even at the 1 million range, the projects you often hear about are what everyone else is buying but very few are staying.

Look instead into areas less well advertised but with a good mix of amenities nearby, and preferably near a mega-project to be completed in the next few years.

Landed property investments may be more suitable if you have sufficient cash flow and don’t mind inadequate rental. Firstly, the capital appreciation is more stable compared to high rise developments. Secondly, landed properties tend to have high initial valuations that easily go over a million at desirable locations, yet relatively easy to offload to rich locals or even expats.

On a final note, I’ll just like to remind everyone, this is a good time to pick up a bargain, but financing remains a concern and rental is still lower than normal. Remember to keep some cash in reserve to deal with unexpected emergencies, and don’t overleverage as you look for your ideal home or investment.

Resources: PROPERTY INSGIHT

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