How property prices are determined?

Factors affecting prices - It is not easy to predict trend as the property market involves all kinds of players

THE year 2015 will always be considered one of the more challenging years for the property sector, with several factors coming into play and leaving potential buyers and investors cautious.

Looking back, Jordan Lee & Jaafar executive director Yap Kian Ann says there were many factors – be it microeconomic or macroeconomic, political, social, among others, that affected the property market performance and its pricing either directly, indirectly and/or jointly.

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“These factors are inter-related and influence each other. Individually, they give direct and indirect impact to the property market, property transaction volume and property prices at a different direction and degree.

“As the property market involves players (buyers and sellers) with all kinds of behaviour and is subject to a combination of factors that affect its performance at a given point in time, it is not an easy task to predict its trend and degree accurately.”

Looking ahead, property consultancy VPC Alliance (KL) Sdn Bhd managing director James Wong expects 2016 to be more subdued than this year.

Wong says most developers have launched their products aggressively in 2014.

"They knew the market this year would be soft and this softening would be carried forward to 2016. The full impact of the expiry of the developers’ interest bearing schemes (DIBS) will be felt next year.

Under DIBS, property buyers need not service the loan until the property is completed. Introduced in 2009 as an incentive, speculators purchased multiple units under DIBS because of the initial low outlay.

He expects to see softening demand in the high-rise high-end residential sector in the central region of the Klang Valley in 2016. Landed residential property demand is still resilient, especially with the gated and guarded community concept. House prices are expected to “self-correct”, he says.

Wong says foreign investors are actively monitoring residential properties in Kuala Lumpur due to weak ringgit but they remain cautious.

The increase in interest rates by the Federal Reserve after nearly a decade is also keenly watched. Already, reports are filtering out that Federal Reserve’s sway on global interest rates is causing a sharp jump in Singapore’s benchmark borrowing cost, squeezing growth in the small Asian city-state.

On a state by state basis, MIDF Research said earlier this month that Johor’s house price index showed the slowest growth year-on-year at 3%, Penang (3.5%) while Selangor fared better at 6.2%, followed by Kuala Lumpur’s 5.3%.

“We believe that the outlook for property price is better in Greater KL (Selangor and KL) due to support from the urbanisation factor.”

Citing Bank Negara statistics, the research house also noted that demand for property loans declined 13% year-on-year in October 2015 to RM25.19bil.

“This was weaker than September 2015, which declined 9% year-on-year. On a monthly sequential basis, the data was 1% lower. We are negative on the data as the number was showing nine consecutive year-on-year declines since February 2015.

“Year-to-date October 2015, loans were lower by 7% year-on-year to RM253.88bil. In our view, consumer appetite for big ticket items such as property remains low due to the rising cost of living and the weakening ringgit.”

By Eugene Mahalingam The Star/Asia News Network

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