The Good Sign Of Growing Rental Market in Klang Valley
The property consultancy CBRE research estimated that out of the two million households in the Klang Valley, around 70% are owner-occupiers while the rest are renters. Nowadays, more people are willing to rent rather than buy property due to inferior purchasing sentiment and low confidence in extravagant things like residential property.
To analyze whether a property is worth paying or buying for, it requires capital appreciation to come into play. Capital appreciation is the key element to analyze whether renting or buying a property is worth your while. For instance, a 10-year-old condominium located in Kelana Jaya is going for RM600,000. A buyer gets a 90% bank loan for RM540,000. If the interest rate is 4.5% for 25 years, the loan repayment would be around RM3,000 per month. Assuming the capital appreciation is 20% over the 25 years, the property would have earned RM120,000 and presumably valued at RM720,000.
Nevertheless, the loan repayment amounted to RM900,000 ([RM3,000 x 12] x 25 = RM900,000). Thus mathematically you paid RM960,000, including RM60,000 as initial 10% down payment for a property which is probably worth only RM720,000. In this case, it is comparatively cheaper to rent rather than to purchase a property. Most of the people especially young working adults find it difficult to own a property as their current household income does not align with the property rates. However, difficulties in getting bank loans and personal choices are also the reason why people rent. Some people prefer renting a house in order to economize the home-ownership associated expenditure, including assessment fee, maintenance, insurance and others.
Formerly tenants were keen on buying homes due to inexpensive bank loans and lower capital value. Nowadays the market has changed and renting a property would be a better solution as many rooms and units are offered at a lower rental rates in the market.
Research shown that currently there is about 60% to 70% of tenants are from younger generation as they tend to spend more money on lifestyle or travelling. Also, some fresh graduates prefer living on their own once they get employed. Others would be locals or expatriates who ought to move closer to good amenities like schools.
In addition to more people renting rather than buying properties, the location of rental property has reoriented towards public transport hubs. Transit-oriented developments (TODs) are currently the hot spot for potential tenants. Younger generation are more willing to compromise on space for convenience nowadays.
Moving forward, traditional rental markets will remain popular with tenants while properties along MRT lines and integrated development environment will be in higher demand, resulting in rental appreciation. The Klang Valley residential rental market can be a stable and sustainable industry in the long run.
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