KUALA LUMPUR — Dec. 21, 2017: The local property market continued to face a tough time in 2017, with a growing number of property oversupply resulting from higher-than-affordable properties flooding the market.
Affordable housing remained the key issue hogging the market, whereby most first-time buyers seemingly could not afford to buy properties priced above RM250,000.
Bank Negara Malaysia (BNM) recently raised the alarm that unsold residential properties were at their highest level in a decade, with the largest oversupply being in Johor.
“Supply-demand imbalances in the property market have increased since 2015. Unsold residential properties are at a decade high, with the majority of unsold units being in the above RM250,000 price category,” the central bank reported.
The bank revealed at its website in June that there were 130,690 unsold units as of end-March, with 83 per cent priced above RM250,000 and 61 per cent being high-rise apartments.
The issue of high house prices was also not lost on Prime Minister Datuk Seri Najib Razak who during the 2018 Budget announced a RM2.2 billion allocation to build 248,000 affordable houses.
The government has continuously focused on addressing this issue to ensure that Malaysians will be able to own a house, while preventing a property glut, particularly in the high-end market.
One of the key measures taken by the government was to indefinitely freeze approvals for luxury property development beginning last November 1, with the main objective of controlling the oversupply from adversely affecting the economy.
Second Finance Minister Datuk Seri Johari Abdul Ghani said the Cabinet had decided on this after scrutinising a BNM report published in June on the real estate glut.
He said there was an overflow of luxury projects which had outstripped the market demand for affordable homes.
“The Bank Negara report takes into account high-rise condominiums, shopping malls and commercial units, including those worth more than RM1 million each,” said Johari.
However he said the move to stop the development of such properties was only temporary until the market can clear all the excess supply, while adding that the government would continue to drive the development of affordable housing, specifically those priced below RM300,000.
“In this sector, there is a disparity between the 48 per cent demand and the supply that only meets 28 per cent of that. This is the area that needs to be addressed swiftly,” he pointed out.
As for the overall property market performance, the National Property Information Centre (NAPIC) announced that there were 153,000 transactions worth RM67.82 billion in the first half of this year, which was a decline of 6.0 per cent in terms of volume but a 5.0 per cent increase in value, when compared to the same period in 2016.
Nevertheless, the rate of contraction has reduced, indicating that the property market is gradually adjusting to the changing market landscape.
It said the residential sub-sector continued to drive the overall market, constituting a 61.8 per cent market share and 48.4 per cent in value, while affordable houses continued to be in demand with more than 83 per cent of residential transactions within RM300,000 and below.
Due to the challenging market condition, the centre said the number of new residential launches fell to 28,397 units, down 9.1 per cent compared with 31,257 units in first half 2016, with sales at 23.9 per cent or 6,775 units.
PPC International Sdn. Bhd. Managing Director, Datuk Siders Sittampalam, said the lower volume despite the higher transaction value signalled that some buyers had started to adapt to purchasing properties at higher prices.
“It has also shown that the market sentiment is starting to recover. If we compare with 2015 and 2016, this year showed that the decline in volume of transaction for residential properties has reduced to a single digit as compared to double-digit.
“It not only indicates that market sentiment has improved but buyers have also been adapting the new market environment,” he told Bernama.
He also reasoned that the government’s RM2.2 billion initiative to boost development of affordable houses would not give major support to the market next year.
“The initiative, as we know, could be fully implemented by next year. In my opinion, the initiative would not have a bigger impact for the short period,” he added.
According to NAPIC, the slow market absorption has led to the increase in residential overhang in the first half of this year to 20,867 units worth RM12.26 billion.
It said the overhang volume and value increased by 40 per cent against the corresponding half of 2016, predominantly priced between RM500,000 and RM1 million, the bulk of which comprised condominiums and apartments.
For the office and retail sectors, despite having an occupancy rate of above 80 per cent for the period under review, NAPIC said unoccupied space remained high with that of private office at 3.40 million square metres, led by Kuala Lumpur with more than 1.62 million sq. m and followed by Selangor with 870,000 sq.m.
The retail sector recorded more than 2.79 million sq.m in unoccupied space, up slightly by 2.6 per cent against the same period in 2016, with Selangor and Penang recording higher unoccupied space of more than 500,000 sq.m.
“Both issues – residential overhang and commercial space vacancy — are pertinent issues that must be addressed by all parties, particularly the local authorities and property developers. Both must exercise due diligence before arriving at development decision to avoid oversupply situation,” according to NAPIC.
Similarly, the central bank has also suggested for a single agency to be set up to handle “affordable housing” of which such homes are usually priced at RM150,000 and below, and built by several agencies under both the federal government and various Malaysian states.
Moving into 2018, Siders said the retail and office segment was expected to see some changes in terms of volume and prices for new projects, in order to fit into the current market demand while the residential sector was forecast to remain stagnant.
“The market sentiment is expected to be fully stable beginning the second half of next year,” he said.
For the construction industry, data from the Construction Industry Development Board saw a decline in the volume of projects as of June 2017, to 2,133 projects valued at RM40.36 billion from 3,556 projects worth RM67.64 billion in the same period last year.
Of these, 488 projects worth RM6.05 billion were from the government by local contractors while the remaining 1,567 projects worth RM29.80 billion were private projects by local contractors.
Foreign contractors handled 48 private projects worth RM4.51 billion and none from the government.
Malaysia’s construction industry growth is expected to be among the fastest in the world from 2016 to 2020, supported by the government’s plan to improve the country’s transportation network and tourism infrastructure, as well as increase the volume of renewable projects.