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Cheap prices don’t last forever

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More than a year has passed since the abolishment of Goods and Services Tax (GST) in June 2018 and the reintroduction of Sales and Services Tax (SST) three months later.

From the very first day of its implementation, GST has been accused as the culprit in driving prices up, especially essential consumer items like food and non-alcoholic beverages.

So, most Malaysians expected prices would at least be stabilized after GST was no longer enforced.

Yes, the prices on a great number of products were cheaper when the GST rate was set to zero from June to August 2018 though the same situation was virtually nonexistent for services.

But, good things don’t last forever, especially when it comes to cheap prices.

The usual suspects

That was evident in the Consumer Price Index (CPI) Malaysia November 2019 report released by the Department of Statistics, Malaysia on 20 December 2019.

CPI (read: inflation) has increased by 0.9% within a span of one year from November 2018 (121.0) to November 2019 (122.1).

prices

Well, the usual suspects in driving the overall index up were Miscellaneous Goods & Services (2.5%), Housing, Water, Electricity, Gas & Other Fuels (1.7%), Education (1.6%), Food & Non-Alcoholic Beverages (1.5%), Communication (1.5%), and Furnishings, Household Equipment & Routine Household Maintenance (1.5%).

Besides, the CPI has also increased slightly by 0.1% within a month since October 2019.

The spike was contributed by the increase in the index of Housing, Water, Electricity, Gas & Other Fuels by 0.4%, Miscellaneous Goods & Services (0.4%), and Health (0.2%).

In the same manner, the first 11 months of 2019 witnessed an increase in price index at the rate of 0.7% compared to the same period a year before.

For Food & Non-Alcoholic Beverages, the index has increased by 1.5% in November 2019 in comparison with November 2018.

To be more specific, the hike was caused by the food sub-group of Vegetables (2.0%), Food Products not elsewhere classified (1.6%), Milk & Eggs (1.4%), Fish & Seafood (1.3%), and Fruits (1.1%).

Costs more to eat out

Since prices of food items are generally up, the cost of eating out was a bit higher in November 2019 when compared to the same month in 2018.

The increase of the price index of this sub-group was caused by the rise in the prices of Rice with Side Dishes, Food Made from Noodles, and Fried Chicken.

prices

Absolutely, cooking at home will always be the cheaper alternative for those who are not willing to fork out extra money for dining out.

The expensive states

Meanwhile, two federal territories and two states had CPI higher than the national rate of 0.9% in November 2019 and the winners were Kuala Lumpur (1.4%), Selangor & Putrajaya (1.3&), and Pulau Pinang (1.1%).

While all 14 states experienced an increase in the index of Food & Non-Alcoholic Beverages, six states and two federal territories registered rates higher than the national index for that category in November 2019.

The highest rate was recorded in Selangor and Putrajaya (2.0%), trailed by Kuala Lumpur and Pulau Pinang (1.9%), Perak and Johor (1.8%), and Kedah and Perlis (1.6%).

Core index

For core index, the rate climbed by 1.4% from November 2018 to November 2019 and three groups which contributed significantly to the increase were Miscellaneous Goods & Services (2.5%), Housing, Water, Electricity, Gas & Other Fuels (2.1%) and Food & Non-Alcoholic Beverages (1.8%).

Please take note that the Department of Statistics, Malaysia excludes the most volatile items of fresh food and administered prices of goods and services from the calculation of core index.

prices
Up, down, or stay the same?

What lies await for us in 2020? Will the first year of the new decade see the utopian dream of zero inflation rate finally come true?

With the introduction of sugar tax last year and digital tax this month, let us all pray the dream won’t turn to a nightmare.

Don’t miss reading these articles:

Slow climb out of the housing property market doldrums in 2020

Condominium Near Train Stations

Categories
Analysis Finance House Lifestyle Malaysian Mortgage Property

Slow climb out of the housing property market doldrums in 2020

An article published in Star Property recently discussed some interesting points of view by experts on, among others, the outlook of Malaysia’s residential property market in 2020.

Despite the downward trend in this market segment, all of them agreed that there will be some slow and significant improvement during the next 12 months.

Property overhang
Photo: Pexels

Knight Frank Malaysia Managing Director, Sarkunan Subramaniam believed that pricing is the only cause for property overhang in this country right now.

He mentioned several other contributing factors such as mismatch of products, expected yield, unfavorable location in regards to accessibility, distance, lack of amenities and product type.

Photo: Greater Kuala Lumpur Development Facebook Page

On a different note, Sarkunan viewed that several areas like Desa Park City, Taman Tun Dr. Ismail, and Damansara Heights are capable of luring the upper-income group, high-net-worth people, and foreigners.

Besides, the spillover effect of Tun Razak Exchange is expected to benefit the Imbi and Pudu area once the financial district is open for business.

Secondary property market

For 2019, Sarkunan explained that the secondary property market experienced a higher level of productivity in 2018 due to the shift of the base year for real property gain tax from 1 January 2000 to 1 January 2013.

He added, among other factors that stimulated that market are the improved processing procedure for the Malaysia My Second Home application and the revision of price threshold for foreign buyers for unsold high-rise properties in urban areas.

Steady demand
Statistics provided by NAPIC as of the second quarter of 2019.

Meanwhile, Royal Institution of Surveyors Malaysia Deputy Chairman, Aziah Mohd Yusoff said, reasonable price and good location are among the factors which will ensure the steady demand for residential properties especially terraced units and condominiums.

She also believed the secondary property market, mostly in the residential segment, is experiencing a correction period due to poor market sentiment and strict lending rules imposed by Bank Negara Malaysia and the impact would likely to continue next year.

Affordable houses

Malaysian Institute of Estate Agents President, Lim Boon Ping forecasted, the residential property market will continue to be driven by affordable houses, mainly units sold under RM400,000.

For the past few years, he said, more than 60% of the total transactions were made up of residential properties.

Laissez-fare approach
Photo: Pexels

Finally, the Association for Abandoned Building Owners Malaysia Chairman, Dr. Mohamed Rafick Khan implied that the government should take a laissez-fare approach toward the residential property market.

He believed, the housing market must be free from the hands of the government because market forces will correct itself.

What the government should focus on, then? Mohamed Rafick said the government can spend more time on town planning and public transport systems which in turn will stimulate the demand for property.

He also forecasted the property market will not see an oversupply in affordable homes for the next three to five years despite the government has been consistently pushing developers to build more houses in that category.

Lower profit margins and risk are said to be the reasons behind developers’ indifferent response to that call.

Mohamed Rafick concluded prices for new properties will be expected to stay high although the price will be slightly reduced in the secondary market.

Points to ponder

Although things look a little bit promising in the near future, prospective homebuyers should exercise caution before deciding to purchase new homes.

Maybe the worst is yet to come for the residential property market in Malaysia if the domestic and global economies don’t show any sign of improvement next year.

Categories
Analysis Property

Use Data for Your Portfolio

This is gross rental yield vs transaction price for condominium and serviced residence property in Malaysia.

For real estate investors, using rental yield as yardstick to assess investment quality is the safest bet – especially for high-rise dwellings where capital appreciation is very hard to find in the current market.

It’s all about income – As a real estate investor, you must ascertain what is the realistic rental income of a target property can generate sustainability. The income figures are what matter the most.

The key to finding the best opportunity lies in the data. Data can tell you the best location, the sweet spot in-term built up size, the distance to to best amenities, the supply of units in the neighborhoods and, to avoid auction hotspots and places with negative sentiments.

By using KDE (Kernel Density Estimation) the chart below, we can see clearer the concentration of data points which in this case is gross rental yields% against price. In data science world, KDE provides vital display of information on data which include:

  • How the data is distributed around the measures of central tendency like mean and median
  • How the distribution is skewed
  • How the distribution is peaked

What other factors that influence gross rental yield? There are many variables that influences yield with wide variation in degree of significance. What we in the chart below is how main variables influences yield and does not mean it is the most significant variables.

Gross rental yield vs. Price vs. Built up size vs. (PSF) price per square feet.

Histograms show the density of each variables while scatter plots show individual data points. As you can see, Price and PSF have very clear inverse relationship with gross rental yield. The yield is lower for higher price and PSF. Lower rental yield indicates market excess and where supply is greater than demand.

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