Residential Property is considered as the backbone of economy. For most households, properties are the major assets and source of wealth.

 

It has been nearly a decade since the downturn of Property Sector. Is this the moment for the sector to stage a comeback, or is just a delusion?

 

House Price

In the latest BI (Central Bank) quarterly report, house price growth has dropped to 0,9% YoY. As a matter of fact, the number of house sales contracted by -3,8% YoY.

 

Interest Rates

Aligned with most Central Banks overseas, the local Central Bank has decided for the fifth time this year to trim the Interest Rate again.

 

Unfortunately for some mortgage borrowers, their Lenders (Banks) do not necessarily pass on full rate cuts. Some even claim that their (floating) mortgage rates have not gone down at all this year.

 

House Price to Disposable Income

One key metric to measure housing affordability is Price to Disposable Income.

 

Although there is no direct data available, it is reasonable to compare the minimum wage (UMR) growth to the property price growth. 

If this data holds true, it suggests that the annual house price increase in the past (1-2%) has trailed behind the annual wage increase (3-9%). A good sign for housing affordability.

 

Rental Cost < Interest Payment

Consider an average household looking for a house to live in, they can either rent or buy.

At the current environment in which the house price growth is less than the bank deposit rate, it is more financially viable to rent than to buy. 

 

 

It is premature to assume that the Property sector is anywhere near its inflection point.

 

However, the outlook might not be as dim as before, since the loosening of monetary policy (i.e. lower Interest Rates) will provide more support for the Property sector.

 

The challenge is how to enforce the Banks to lower their mortgage rates in line with the Central Bank’s interest rate cuts.

 

 

 

 

Disclaimer: NOT FINANCIAL / INVESTMENT ADVICE. This article is of writer’s personal opinion ONLY. Any information contained here is for education and informational purpose only. Readers should seek other sources or professional advice for further clarification as deemed necessary.