BWFF 3193 SEMINAR IN FINANCE

GROUP B
CURRENT ISSUE:
IMPACTS ON SHRINKING RINGGIT IN MALAYSIA
REAL ESTATE MARKET

LECTURER NAME :
DR. FAIZAH ISMAIL

PREPARED BY :
FARHANIE BINTI NORDIN
233940

Submission Date: 12 NOVEMBER 2017

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Shrinking in Ringgit Malaysia

Based on BMI Research, over the past year, Malaysias ringgit can be said as one of
the worst-performing currencies in Asia region. Ringgit start depreciated about 6%
against dollar when Donald Trumps win in the US election as the new President last
year. This shrinking ringgit will make things challenging for Malaysian employers when
their foreign workers easily can earn similar salary in their home countries after
converting the ringgit to their own currency . This phenomenon had given huge impact to
all residence in Malaysia as well as in the real estate sector.

Malaysia Real Estate Market

Based on the article, we had seen things have not been great in Malaysia property
real estate sector. The most concern event is regarding the price of property market in
Malaysia is going down and this phenomenon happened when there is surplus in market
supply and the speculators failed to get bank loans or buyers or tenants for their
properties. To overcome the surplus, they need to sell their property at cheaper price.

Impacts on Real Estate Market

As the other sector in Malaysia, property market also using Ringgit as the
currency base. When our currency is depreciate it had give huge impact to local and
foreign investor. From the view point of local investor, decrease in value shows they had
low purchasing power on property and it will affect their property value in long or short
term. Because of this event, many investors will prefer to take their investment outside
the country. From the side of foreign investor, this event had open opportunity for them
due to weak ringgit but they remain careful. Because of this reason many project
developers come up with more eye-catching packages or marketing strategies in targeting
foreign investors.

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 Besides, the ringgit depreciation also waves on the construction industry. This
can be seen through the increasing cost of material where the imported raw materials
become more expensive. Plus, domestic consumption rose also because of spending in
transportation, F&B and communication that could negatively result in the long term if
the currency continues to falling down. But this can be avoided if developers use local
product only.

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Impact of the Ringgits Slump on Property Prices within
the Malaysian Real Estate Marketplace
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By homefinder on January 19, 2016 Property

As the value of the ringgit slides further, are we able to afford a home?

With Malaysias economy heavy dependence upon oil export, the recent plunge in
exchange rate was a stark reflection of the collapse in crude oil prices. The depreciating
ringgit is deemed a silver lining or a blessing in disguise for the Malaysian property
industry, as local real estate would be priced more competitively against global markets.
A weaker ringgit will not directly affect developers costs, as long as they did not use
imported goods. Chances are people will come to Malaysia to buy properties, because it
will become cheaper. The ringgits weakness came against a spectre of slower economic
growth, as income registered record-high deficits.

Developments such as an emerging middle class society, low oil prices, and the impact
of the goods & services tax (GST) are likely to have intriguing effects on the property
market. Investors should thus prepare to exploit such developments, which could overturn
their investments in their favour. The depreciation of our local currency would cause most
local residential and commercial properties to be more affordable than usual or normal to
many foreign investors. Given the importance of attracting international talent as well as
foreign direct investment (FDI) into Malaysia to spark and spur economic growth,
investment-friendly measures should be introduced to attract such resources into the
country. The downturn of the Malaysian ringgit and the implementation of GST may be a
justifiable cause for concern, as they are widely expected to result in inflationary
pressures. However, lower oil prices may have the benefit of lowering the general cost of
transportation, which would filter down to logistics, utilities, commodities, and raw
materials; all of which should lead to a lower cost of construction.

The property market has either gone flat or is showing gradual signs of decline, as
indicated by rentals and capital values for prime areas. Local markets, especially the
high-end segment, appears to be feeling the pinch of over-supply and the tightening
measures on investment. Rental rates for commercial property were on a downward trend
last year dropping from RM6 psf (per square foot) in the second quarter to RM5.97 in the
fourth quarter. Office occupancy rates also fell from 87.9 per cent in the second quarter to
86.4 per cent in the fourth quarter. The commercial property sector is expected to remain
soft in the next couple of years as it will take time to increase demand with new
initiatives while there is a substantial amount of new supply, most of which is of a
speculative nature. Meanwhile, the average capital value of prime condos declined
slightly from RM600 psf in the third quarter to RM599 during the fourth quad.

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 Bank Negara had also mandated a 70 per cent cap on the loan-to-value ratio (LVR) for
the purchase of a third residential property, down from 80-90 per cent and this could
drastically affect the high-end property market in the immediate future. It will probably
have a substantial negative impact on the high-end or luxury segment whereby buying
has been largely targeted or focused. Affordable properties within the price range of
RM300,000 to RM400,000 would not likely be affected by the capitalisation exercise
itself. The LVR cap also does not affect first-time and new home-buyers. Government is
certainly working to hard curb speculation in the higher end segment of the market and
such luxury properties might eventually witness an inevitable or eventual slowdown. The
value of properties there are stable although rental rates may have been hit by a glut or
over-supply of units. The supply of condominiums have gone up so, rental wise, the
market is more competitive, although there could be a slight dip in property prices due to
Bank Negaras 70% LVR to curb excessive or unscrupulous property speculation.

Demand from first-time home owners have always been consistent and developers should
pay heed to build more affordable units to exploit or capitalise on market demands. The
property market itself could also be affected by expectations that Bank Negara would
raise the statutory reserve requirement for banks which could halt or paralyse loans
development. Residential loan approval contracted 3.8 per cent year-on-year in December
last year whilst non-residential loan approval slowed to 30.2 per cent from 47.3 per cent
in Nov 2014. Over the last couple of years especially, property market prices have
skyrocketed as investors, speculators and short-sellers took advantage of the weak ringgit
and market volatility. Prices have almost doubled in certain locations. In some countries,
the real estate bubble has long since burst. For how long more can we see property prices
going through the roof in Malaysia? Landed homes, condo units, as well as apartment
suites are being priced out-of-reach of most middle-class Malaysian citizens.

Despite the sliding ringgit and rising property prices, interest in overseas properties
among Malaysians continues. Special destinations of interest include Singapore among
others. The interest to buy abroad is unlikely to affect the Malaysian economy negatively
as collectively, the amount in question is not sufficient enough to pose a strain or stress
on the national economy as compared to other sentimental and sensational issues.
Investors from all the various races would want a strong currency to house their capital
pool money, as well as niche investments with capital gains or appreciation in mind. For
typical investors, properties offer a strong hedge against economic inflation. Some are
also organising and regrouping their investment baskets with greater emphasis on
overseas properties which could provide an income stream or revenue compared with
forex investments alone. They want diversification and higher returns, henceforth,
recovery will be faster, which gives investors peace of mind. Because of the steady rise in
property values, it has given investors some degree of comfort but there are still certain
unforeseen risks. One possible financial risk is the potential effect of over-valuation in
property.

In the case of Malaysia, the people are affected by the sharp fall in oil price, the goods
and services tax (GST), inflation which had led to currency depreciation and other
negative news. Is it all purely market sentiment at work or a fundamental loss of

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investors confidence from the publics eye whether it is a matter of perspective or
merely perception? In the long-run, investors will surely view this as a kind of prospect to
buy Malaysian assets and properties. There are abundant or bountiful opportunities for
Malaysians to put their money into foreign currency accounts which will help to stem
capital flight or even impede foreign investors from coming into the country to splash
their cash. Furthermore, Malaysia is going through some tough economic times and
politically-volatile market uncertainties which will have some bearings as well as
consequences on investment climate or atmosphere in the future. The following are
several pertinent questions with regard to the general property health in the local real
estate market in terms of the dramatic slump or downturn in the ringgits market value.

How will the current depreciation of the Malaysian currency affect property prices
in the local real estate market? Will the ringgits slide dampen the sale of property,
particularly in the housing and residential sector?

During the past 1 to 2 years, the general market sentiment in Malaysia was rather
bearish. Malaysians had been typically cautious with their spending. This fact became
more apparent in the purchase of big ticket items such as real estate. With the recent
depreciation of the ringgit, it had a compounding effect on the negative sentiment within
the property market. Until such time when local market sentiment recovers (or become
bullish again), sales and take-ups would remain slow, sluggish or even stagnating!

Since GST was implemented back in April 2015, local property markets have been
registering mixed reviews with many quarters delivering dismal sales. Will the GST
factor continue to remain a driving force in determining the outcome of property
price with respect to the dwindling or falling ringgit?

Though the GST (Goods & Services Tax) had been discussed way before its eventual
implementation in April 2015, many people were not mentally prepared for its impact. As
a result many went through a shock phase as things in general had become more costly.
As to whether the GST factor will continue to impact property prices, it is just a matter of
time before it no longer is an issue; once Malaysians get used to being charged GST on
their purchases. This had been the experience of countries which had implemented GST
or VAT (Value-Added Tax). There was an initial inflationary effect to the economy where
prices went up, followed by a contraction of the economy as people either held back their
purchases or due to a reduction of purchasing power. After a period of time, as people
began to accept the situation, purchasing power will return to the market (that is if wages
keeps up with the inflationary impact of GST). Unfortunately, before we can recover
from the shock impact of the GST implementation, we are being impacted by the
downturn of the ringgit among other things.

Should house buyers and property owners be overly concerned with the impact of
the ringgits drop in value on property price in Malaysia? What can the average
citizen do to compensate for the hike in property prices?

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Property prices are largely governed by the cost of the construction of the property,
including building materials. Therefore if we use a lot of imported building materials in
the construction of the property, then obviously the falling ringgit would increase the
overall cost. Steel is one such building material that is used extensively in the
construction industry. Though steel may be imported, the prices of steel on the world
market had fallen. As such the impact of the falling ringgit is minimal. The other main
component is cement, which is a controlled-price item in Malaysia. Just like everything
else, the price of property is largely dependent on the market forces, meaning the supply
and demand. Where supply outstrips demand, then naturally price would need to come
down and vice-versa. Based on recent data, the supply of residential units is more than
the demand. And that is the reason why properties prices had been stable or had fallen.
For home buyers and property investors, now is a great time to buy property. With so
many great offers from developers, you only need to buy from a reputable developer. This
is because by the time you get the keys to your new property, it would have been 2 years
for landed property and 3 years for strata-titles development, from the moment of
transaction or purchase. Surely the Malaysian economy would have turned for the better
by then hopefully.

What can property developers do to minimise the damage resulting from the rising
cost of construction & building material due to the ringgits slump? How do most
developers compensate for this inevitable increase in price?

While it is important to look at construction cost, developers should also look at ways to
increase their revenue. Not too long ago, developers had been launching niche projects
that often appealed to the upper class or higher echelons of society, and many are still in
possession of premium stocks of such exclusive development. These developers should
get together and promote their respective luxury development overseas. For new or entry-
level development, however, property developers should focus more on bread and
butter properties.

How will the government alleviate the concerns of investors, home buyers and
property owners with its business-friendly and people-centric policies?

Property buyers are generally divided into two primary categories. There are those who
are buying a property as their home, as well as property investors who are buying either
to flip (i.e. meaning buy-then-sell) or for rental income. Henceforth, different policies
would impact specific categories differently. However, there are several common causes
for concern. Firstly, many property buyers are having issues securing a bank loan to
finance the purchase of the property they want. Many have had their bank loan
application rejected. What would be helpful at this juncture is for the Government,
particularly Bank Negara to ease or relax some of the loan requirements and other
financial restrictions so as Malaysians could start purchasing their own homes. Secondly,
the Government should also lower or decrease the stamp duties for both the SPA (sales
and purchase agreement) and housing loan agreement, especially for those who are
buying a home for the first time. Thirdly, the Government should make full use of their
land banks to ensure that each and every Malaysian has equal and ample opportunity to

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buy a home at an affordable price. PR1MA is one such initiative and as such it should be
lauded; whereby homes are sold at an affordable price. Fourthly, the Government could
introduce a First Home Owner grant which in some countries like Australia has to do
with promoting home ownership. This specific grant is where the Government would
give a subsidy to assist first-time owners to purchase their new house, and to
subsequently alleviate their financial burden. Finally, is a policy review of the RPGT
(Real Property Gains Tax). If the RPGT is lowered then we could get more property
investors to be active in the market again, which would stimulate and hype up market
sentiment.

Will the secondary market, including business traders and entrepreneurs be

adversely affected by an under-performing currency amid poor market sentiment
caused by negative political sentiment and public perception?

The poor general market sentiment has had a negative impact on everything in Malaysia
with the exception of those dealing in exports & imports trade. However it is also at times
like this whereby certain opportunity actually presents itself. If we are able to take
advantage of the current situation or circumstance, our net worth can grow exponentially
when good times do return. While land and property prices may have stabilised, in other
locations, they taken a downward spiral. Should we invest now, prices would surely
increase when the market booms.

What are the key issues or core challenges for residential and commercial
properties locally within an uncertain market caused by unstable currency?

I believe the fundamental or key issue here is market sentiment as well as perception.
Once the market sentiment recovers, everything including the currency itself should
stabilise. As such the Government must put in more effort to ensure that this happen.
After all, market volatility in the property industry is quite commonplace, similarly with
the burse or stock exchange market.

What role can housing and real estate associations such as HBA, REHDA, and
FIABCI play in an increasingly competitive real estate market and property
environment, specifically with regard to owning a home or investing in property?
What are the future foreseeable impact to property investment & real estate
development in the Malaysian property context?

Housing associations, be it governmental or professional, do in fact play a major role in

the current market situation. They could act upon various fronts to mitigate the current
property buying situation. First and foremost, they must act to present their views to the
Government in order to protect home buyers and to encourage property investing
activities. Second of all, they could organise educational events for both house buyers and
property investors alike. House Buyers Association (HBA), for instance, should continue
in their effort to educate and guide the public on the various issues involved in owning a
property. Activities such as public forums, seminars and even online information portals
would definitely further their cause. REHDA had been doing a rather splendid job in

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bringing forth the supply & demand side of property together by regularly organising
events such as MAPEX. Due to the depreciating ringgit, FIABCI Malaysia is also well
positioned to bring in foreign property investors to Malaysia. After all Malaysian
properties had become relatively inexpensive in terms of USD, GBP, SGD, etc. In the
foreseeable future, it is extremely difficult to predict if the ringgit will still be at the
present level. This is due to various internal & external uncertainties, as well as market
volatility. However, as property investors and home buyers, it is times like these where it
is relatively easy & cheap to find good deals or bargains. As a matter of fact, you could
walk into any developers office and they would hand out all sorts of offers for you to
commit & buy property.

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Reference

http://homefinder.com.my/property/impact-of-the-ringgits-slump-on-property-
prices-within-the-malaysian-real-estate-marketplace/

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