Bullish or bearish? Is there a turning point in our property market?
Bullish or bearish? Is there a turning point in our property market?
– Short-term vs. Long-term Property Market Outlook
The Outlook of the Malaysian Property Market
Based on the latest NAPIC’s publication – Property Market Repot 2023 – the country’s property transaction value soared to RM196.83 billion in 2023, a 9.9% surge from the previous record set in 2022 at RM179.07 billion. This growth is driven by a higher increase in transaction values in all sub-sectors: residential (7.1%), commercial (17.5%), industrial (13.1%), agriculture (4.6%), and development land and others (13.8%). In terms of the volume of transactions, a slight increase of 2.5% is observed from 389,107 units in 2022 to 399,008 units in 2023, where the bulk of 62.8% or 250,586 units of the transaction volume is derived from the residential sub-sector, followed by agriculture (19%), commercial (10.1%), development land and others (6.1%), and industrial (2%) (Figure 1).
Figure 1: Volume and value of property transaction, 1990 – 2023
Meanwhile, the KL Property Index, which is made up of listed shares of property companies in Malaysia, has outperformed FBM KLCI since the second half of 2023, and even recorded all-time high starting 2024 (Figure 2). Looking ahead, the Malaysian property market is expected to maintain a more stable growth trajectory, due to the revival of major infrastructure projects, favorable monetary and government policies, as well as resilient economic growth supported by increased domestic demand and improved labor market conditions.
However, it is uncertain if the record-breaking transaction value recorded in 2023 and the recent spike in the KL Property Index are an indication of the start of a new upcycle for the property market since 2009 or merely a bear market trap that will soon loss its momentum of growth. This is because a contrasting outlook is painted by the MIER’s Consumer Sentiment Index (CSI), where the survey respondents generally displayed greater pessimism towards their future finances, incomes, jobs, and inflation levels (Figure 3). In fact, since 2014, the index has been scoring below 100 for most of the time with an average score of 87.0 throughout the period of 2014 – 2023; compared to the period of 1997 – 2013 with an average score of 107.8. The lack in optimism in 2014 – 2022 is due mainly to the implementation of goods and services tax (GST) in 2015, global economic downturn brought by the US-China trade tensions in early 2018, and the pandemic-induced recession in 2020.
Figure 2: KL Property Index vs. FBM KLCI performance
Figure 3: Consumer Sentiment Index (CSI), 1997 – 2023
While analysts generally reckon a positive outlook for the property development sector as a result of the recovery in sales and construction progress in 2022 and 2023; looking ahead to 2024, it is anticipated the momentum in the property market to gradually diminished owning to the rising cost of living, weakening ringgit, the removal of the blanket subsidy for petrol, and the service tax scope expansion and rate hike that came into effect on 1st March 2024, which could significantly dampen the private spending.
Moreover, based on the authors’ article published in The Edge on 12th June 2023 entitled – Using Elliott Wave Principle to predict the outlook for Malaysian housing market – the Malaysian property market, adjusted for inflation, is likely to experience a stagflation mode for at least 14 years until 2034. By applying the Elliott Wave Principle, the authors demonstrated that there will be a long-term sideway consolidation in the residential property market (Figure 4). Though one may see some growth in the absolute price of residential property, the appreciation will be miniscule or negated after inflation is taken into consideration. This immediately, rises the questions if the recent uptrend in property market is sustainable, and for those still sitting on the sidelines, should they chase this rally.
Figure 4: Real residential property prices index for Malaysia (2010=100), quarterly
(Note: Link for bigger view is available at https://www.tradingview.com/x/prY2tYJv/)
The present study aims to identify if there is a turning point in our housing market through observing the divergence between the volume and value transaction of residential properties. To note, “divergence” between volume and price trends is a common concept in stock market technical analysis. It occurs when the volume of transaction (the number of shares or contracts traded) and the price movement of an asset (such as a stock, commodity, and currency) are moving in opposite directions or showing conflicting signals. Divergences can provide valuable information to investors about potential trend reversals or weaknesses in the current trend.
There are two main types of divergence. The Bullish Divergence occurs when the price of an asset is making lower lows, but the volume is decreasing or stabilising. It suggests that the selling pressure is diminishing, even though the price is still falling. This can be a sign that a potential trend reversal to the upside is brewing, and investors might look for buying opportunities.
On the other hand, the Bearish Divergence happens when the price is making higher highs and trending upward, but the volume is decreasing or flattening out. This indicates that the buying interest is waning, even though the price continues to rise. Bearish divergence can signal a potential trend reversal to the downside, and investors might consider taking defensive positions.
As shown in areas A and B in Figure 5, volume increased during the rally, confirming the uptrend and calling for higher prices ahead. In areas C and D, the volume flashed warning signs for the bulls. Volume shrank during each rally attempt. Notice the inability to breakout over previous top. This is a sign of bearish divergence. The bearish divergence is confirmed when the stock price broke a new low with rising volume (area E) which show the power of bears.
Figure 5: The relationship of price and volume, and the identified important divergences
By applying this concept when interpreting NAPIC’s annual volume and value of transactions in residential sector, one can see that from 2001 to 2012, the value of transactions increased in tandem with the volume of transactions, indicating strong market momentum (Figure 6). The first symptom of danger appeared in 2012, when the volume peaked while the price diverged to continue rising to an all-time high in 2014 (Point H). This is the first hint of bearish divergence with waning purchasing momentum. As a result, prices fall for the following 2 years, reaching their first bottom in 2016 (Point I).
Figure 6: Volume and value of property transaction in residential sector, 2001 – 2023
Then, the market tried to rally but failed. It came back to retest the bottom during the pandemic in year 2020 (Point J). The retest was successful as the market did not create a new low. The bottom of Point I and Point J held strongly indicating buying interest in the market, supported by flat volume. While prices were going nowhere from Point I to Point J, volume began to stabilise in 2016 and remained virtually steady for 5 years until 2021. Overall, it is an indication of potential trend change.
From the low of 2020 (Point J), the value of residential transaction rallied strongly with rising volume and broke out over its prior top (Point K) in 2022. In 2022, value increased 22.6% and volume jumped 22.3% as compared to 2021. Then, the value of transaction tapped another new high in 2023, crossing RM 100 billion mark for the first time. However, the sharp rally in prices is not confirmed by strong volume of transaction. In fact, volume in both 2022 and 2023 failed to recapture the highest volume registered in 2012. Reaching a new high in the value of transaction without the high in volume is a sign of bearish divergence. This shows that the momentum of the rally is possibly waning.
A short-term of two-year positive market rebound seems promising, but investors should be suspicious of this rally and wait for the volume of transaction to confirm the trend. All in all, a sustained economic growth coupled with a persistently strong underlying fundamentals of the overall property sector – balance in supply-demand and housing affordability – are required to enable a long-term growth trend.
Disclaimer: Any opinions expressed are entirely the author’s own and do not necessarily reflect the views of PropertyGuru and its entities.
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