Buy now or wait?
In the past few weeks, our team and Agents at Bumbung have been asked by friends and clients if they should continue to buy their home now (right after MCO) or wait until the market further drops? Seeing that many buyers and sellers are worried about transacting now, which puts us in the question of asking if the market has come to a complete halt or slowed down in a huge way?
The TLDR answer to this is yes, you should buy a home now- if you can afford it, but it depends on what you’re buying. You should know that buying a home/property should fit your purpose whether be it for own stay or for investment. Read on to find out how you can benefit the most during these recessionary times and what lies ahead after MCO and COVID 19.
All about timing
Buying a property especially for investors, they know that timing is everything. For long term investors and short-medium term investors, buying a home now during this period may be interesting for you especially if have the financial means. The results from the past economical impact show us fascinating trends that made a lot of people very rich during similar recessional times with a similar pandemic/virus outbreak.
Data sourced from http://napic.jpph.gov.my/portal
In the 1990s, we’ve seen how the Asian Financial Crisis and the Nipah virus have caused the massive drop that you see between 1997-1998 period that affected the market trends. As a result, people were afraid to spend as there were a lot of uncertainties, some even had to let go of their real estate assets at a weaker price to consolidate funds. If you look closely at both charts, there’s a silver lining here.
The 1998 crash has reversed property prices back by a few years to 1993-1994 prices. The truth is whether you may agree with it or disagree, the fear and climate have set the perfect window of opportunity for investors to swoop in and fiercely negotiate a better deal. This is where we believe it would be one of the most important points to decide if you’re able to ride the opportunity post COVID19. As the famous Warren Buffet investment saying goes;
“Widespread fear is your friend as an investor because it serves up bargain purchases.”
“We should be fearful when others are greedy and be greedy only when others are fearful.”
– Warren Buffet
Lowered Bank Rates
The current pandemic has set a massive opportunity for buyers; Bank Negara Malaysia (BNM) has lowered their Overnight Policy Rates (OPRs) allowing lenders to adjust their rates and tariffs, making room for lower interest rates borrowing that serves as a major catalyst for buyers to borrow more while keeping repayments lower than it was.
So, we are looking to buy a home now, but which one?
Another interesting debate that goes on for buyers, as advised to our friends and clients, I sincerely believe that there may be gold on either side of the pot, in this scenario, how much gold would your property be worth over a period of time post COVID19?
This being said, if you’re buying-to-stay, then you should prioritise convenience and accessibility while considering what the place has to offer. If you’re looking at a short-mid term exit or if you plan to keep the property for long term, making clear of your financial goals as a short-mid term investor or long term would help you decide better. Once you’re certain, let’s look at both New Projects and Subsale Properties to help you decide on what to buy after COVID 19.
New Projects (Primary Market)
If you’re thinking of buying a new home now (Sell-then-build), many developers are desperately marketing their latest concepts, so you’re in the best position to be selective. Selecting the right property highly depends on a good developer with a sound record, in an area that they are familiar with, building products that compliments one another, that organically brings in good foot traffic, and if the end product would be delivered with the quality and fittings they promised.
Read more: New vs Old homes – Decide which to buy
After checking through all of those items, of course, the main things like the location and price would matter a lot, because it ties back to your Rental yields. And as far as rental yields go, new projects, which are often condominiums or mixed developments, would come with hundreds or if not thousands of other owners who will be competing with you once you have received vacant possession. A rush to get the first few good tenants may drive the rental yield down further, and to wait for new tenants may take months, if not, slightly longer than a year. Making this not a viable choice for investors who are looking for short-mid term holding.
The long term strategy is to select a place that you know would have a high potential for foot traffic or a building/area of interest, school/university, office centres or a mall nearby. Places with this strategic organic mix of the community will increase in its value over time as people would always value convenience when it comes to projects.
Our recommendation is that if you’re unsure of the potential of new projects, and that you’re making this your main investment vehicle, it’s best to hold off first unless you’re absolutely sure or if there are some special features that would pre-determined its demand, eg. the only condo apartment with a golf course access, or a confirmed development of a new university building in the next town. Our advice is to buy your home within an area that you are already familiar with to be safe.
Subsale (Secondary Market)
Buying a Subsale (existing home) in a matured neighbourhood would make a better house purchase choice for the post-MCO COVID19 market.
There’re a few reasons for this conclusion. When you buy a Subsale home:
- These neighbourhoods are working efficiently, where demand is healthy. Meaning there are always transactions as people are upgrading from a smaller home, downsizing from a bigger home, or holding on for investment.
- Subsale homes make better, stable Rental yield as you can control the prices in the area especially when supply is limited.
- We are predicting a small slide in prices (10-15% change) as we expect more Owners to enter the market as Sellers. Their needs and priorities would have changed especially if jobs were affected amidst COVID19 recession.
- Unfortunately, those who have succumbed to the Coronavirus would have their wealth passed on to the next of kin, and without any inheritance tax, the property may be put on the market and would like to be sold quick especially if there are more than a few recipients.
Apart from the reasons above, the Subsale market would make complete sense for those who have money and are looking for a short-term 4-5 years\ investment play and also for their own stay.
These secondary houses come in all shapes and sizes, with extensions built-in together with bells and whistles or as basic as it gets. The latter being the more appealing factor for the 4-5 year investment play as many see it as an adventurous project to make it work for them as either a BnB (Bed and Breakfast – short stay), flipping the house or for own stay.
Of course, this requires a further influx of cash injection for the renovations and interior works, but with the mortgage and loan refinancing options becoming more appealing to borrowers, this may work out as a viable option. As the market tries to recover back to where it last was in the next few years, your property would’ve already made a good chunk of cash plus change, thanks to better margins when you bought it at a dilapidated state.
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