Buying and Selling of Properties post MCO

Think it might be time to start shopping for a home?

Since the implementation of the Movement Control Order (MCO) on 18th March 2020, the real estate market seized up almost overnight. Now, with the recovery MCO well underway, the market is slowly coming back to life in various parts of the country. But buyers and agents will find that real estate hunting might look different than before the pandemic with stricter rules currently in place to minimise physical contact and prevent Covid-19 transmission.  The rules about how showings and closings can take place and what agents can do will vary depending on local public health regulations, real estate association guidelines and individual comfort levels.

Masks, sanitizing wipes and temperature recordings are the new norms, which also includes personal data forms for contact tracing and limited viewing times to reduce contact hours between buyers and agents. These are the new realities of many industries, including real estate, and are likely to stick around while the virus remains a threat and a vaccine or cure is not found.

Maintaining the Buyers’ Market

The recent launch of the PENJANA Economic Recovery Plan included the revival of the Home Ownership Campaign (HOC) which included stamp duty and RPGT exemptions that are targeted to benefit both homeowners and investors. Moreover, many industry experts continue to predict that the market will continue to be skewed towards the buyers in the coming years before stabilising itself and swing to benefit the sellers.

As summarised by iProperty, by the end of last year, the number of unsold completed residential properties had soared above 45,000 units valued at over RM30 billion. According to the National Property Information Centre (NAPIC), this supply overhang has been growing in the last four years. This has created the current buyers’ market condition where those looking to invest in properties have the advantage. According to CBRE WTW’s Managing Director Foo Gee Jen, it may take more than five years for unsold residential units to be absorbed into the market.

As a buyer, you should also take into account whether you are buying a house to make it your home or for investment. These are very different reasons and will have different impacts on how you plan your finances. The best time to buy is when you are financially ready, regardless of how the property market is performingWe have listed several key points to boost buyers’ confidence that now is the right time to buy if they have the available resources.

  1. Buyers get to leverage on a lower interest rate for a home loan
    With a 2% Overnight Policy Rate (OPR) announced by Bank Negara Malaysia, the rate is the lowest it has been since 2009. The low bank lending rate works as a large advantage for buyers who are looking to obtain a home loan to purchase a property, significantly reducing monthly loan repayment amounts for bigger loans.
  1. Minimal to zero stamp duty fees upon the purchase of new residential properties
    The above benefit is applicable to buyers who purchase residential properties priced between RM300,000 to RM2.5 million. A stamp duty exemption will be provided by the government on the Instruments of Transfer and Loan Agreement that is applicable to the first RM1 million of a home purchase price. For those who purchase properties priced above RM1 million, only the Loan Agreement bit is fully exempted while stamp duty on the Instrument of Transfer will be calculated on a tiered basis. Additionally, to qualify for the HOC campaign, the property developers are required to offer a 10% discount on the selling price of their properties for as long as the HOC period is active.
  1. Purchase of second property priced above RM 600,000 will qualify for up to 90% financing limit
    Buyers can now get a loan of up to 90% of the price of a property for homes priced above RM600,000. Previously, property buyers were limited to 70% financing for their third property onwards. This makes a huge difference in the upfront cash you need to fork out.
  1. Keep track of your credit score
    Given the challenging economic outlook, buyers are advised to maintain a good credit score where possible. Sectors that are severely impacted by the pandemic will incur stricter bank scrutiny as financial facilities will be more cautious in approving loans.

Relooking at sales tactics post-MCO

The best way to sell a house is by creating a perception of value as commented by Mr Ikhram Merican, the Director of a property consulting firm, Living Space Ventures Sdn Bhd. Despite the low demand for available housing and high volume of property overhang, there are still buyers and investors who will be looking to capitalise on the soft market.

Charles Tan, founder of independent property blog kopiandproperty.com, opined that it is important to understand the reason to sell in the first place. Several key considerations need to happen before putting a house for sale such as the reason for selling which may be due to the need to settle some financial difficulties given the rate of job and salary cuts in recent times. Sellers will also need to consider that the property price would have undergone some form of readjustments to become lower than the median transacted prices if there is an oversupply in the area.

However, if the sellers are selling solely because the sentiment is negative, then it is best to just hold on and rent it out instead, he noted. Despite the current downtrend in market price, historical figures indicate that the property market will eventually climb again the economy recovers and buyers gain more confidence in their financial standings. Several considerations can be taken for sellers who are keen on putting their properties up for sale.

  1. Saving cost via the Real Property Gains Tax (RPGT) exemption
    As part of the PENJANA package, the government will lift the RPGT charged upon the disposal of properties, allowing more room for price negotiations with potential home buyers until December 2021.
  1. The sudden influx of properties for sale upon the end of the loan moratorium in September 2020
    Unfortunately, once the loan moratorium ends, many industry experts are anticipating that there will be a category of property owners who will no longer be able to afford their home mortgages. With the pressure of having to resume loan repayments, Bank Negara Malaysia (BNM) is already projecting that non-performing loans (NPL) will rise once the loan moratorium ends. Sellers may be faced with stiffer competition as more properties become available for home buyers to pick and choose.
  1. Lowered monthly loan repayments due to reduced interest rates by financial facilities
    With the recent OPR cut, current property owners will also be able to enjoy a reduction in their monthly loan repayments. This may drive more buyers to consider capitalising on the current low interest rate and opt to buy properties to move into or for investments.

    While it is still too early to conclude the long term repercussions that the pandemic has brought upon the property market, experts are confident that the market crash that occurred during the Asian Financial Crisis will not likely repeat itself given the difference in root cause. Back then in 1997, the financial sector had to be bailed out by the government due to severely depleted liquidity from the weakened financial system. The current economic downturn can be attributed to weak economy activities, poor property market sentiment, and tightening guidelines for banks, which have significantly contributed to the reduction of seller and buyer traffic in the market.