Moving in line with economic forces at play, property market prices take a dip – bringing a price correction with more affordable housing launched in the first half of 2020 (1H2020).
Grasping the price dip
Just how big was this dip? Speaking on the Overview of the Malaysian Property Outlook at the 13th Malaysian Property Summit, National Property Information Centre (NAPIC) director Aina Edayu Ahmad provided insights during her attendance to represent Napic director-general A’zmi Abdul Latif.
She confirmed the property market has undergone a price correction, as the majority of the new launches in 1H2020 were categorized in the higher range but now more launches are moving the range of RM300,000 and below.
Before this correction took effect, half of the new launches in 1H2020 comprised of houses priced at RM300,000 and below at 6,657 units, while the RM300,001-RM500,000 houses at 4,476 units and houses priced over RM500,000 at 2,161 units.
This market correction also impacted the decline in launches of the residential properties resulting to a drop of nearly half (43.6%) from the 23,591 units in 1H2019 to 13,294 units in the 1H2020. To this, she adds that there is a downturn in all areas of the property market activities spells the current major slump in the overall property market.
Taking a Seat
The result? An overhang in the largest sector of the property market – the residential sector which takes in over 65% of the volume and nearly 55% in terms of value. This sector recorded a continued increase of 6% in value of unsold residential properties from RM18.82 billion in 2H 2019 consisting of 30,664 units to RM20.03 billion in 1H2020 spread across 31,661 units. This data marks a continued upward trend of the overhang in serviced apartments over the years.
These overhang residential units mainly comprised of high-rise residential properties. Sitting in this, serviced apartments dominate the overhang residential units taking a share of three thirds (75.2%). From this, serviced apartments at less than RM 1 million accounted for 47% whilst serviced apartments priced over RM1 million accounted for nearly one third (28.2%) of the overhang units.
As among the top concentrated areas of residential units, Selangor holds 2,400 unsold units whilst Johor holds 16,000 units. In this, a majority of the units in Selangor (40.8%) are priced between RM500,001 and RM600,000. Whereas in Johor, nearly one-third of these units (34.3%) are priced over RM 1 million. All in all, properties over the RM500,000 price range accounted for about 69% of the overhang service apartment units.
To add, developers also need to adjust lending policy to customers and avoid credit support, enabling the credit system on a conservative stream to avoid artificially supporting a boom.
Ready, Set, Go?
The above being said, Aina Edayu does not expect a significant drop as says that the prices were holding up and showed a gradual upward movement in the price for the past five years based on the Malaysian House Price Index.
Future prospects spell levels of uncertainty as the country deals with the pace of the economic recovery, political stability and Covid-19. As it happens, the major share of market demand of the residential segment is held by properties priced RM300,000 and below. These matters, according to Aina Edayu, because it drives a targeted focus on having more houses catering to this price range, and realizing this, charts a path for the national aspiration to be achieved.
The overhang and unsold property issue are not to be taken lightly. Developers will be getting the short end of the stick with this overhang, coupled with the current economic downturn spurred from covid-19 which derailed the recovery momentum of the industry. Developers are advised to reduce prices, sell properties in unpopular locales at a loss or renting them out as transit homes as seen in many developed countries. This can buffer the impact of the oversupply in affordable houses.
Navigating the property market is tricky, but it doesn’t have to be hard.
Moving forward, the growth of the residential market in Malaysia can be broadly categorised into three scenarios. Referring to the diagram above:
Scenario 1: Prolonged recession and pessimistic consumer sentiment, lead to slow growth in the transaction of property. The transaction value takes a long period to reach back the average level before the crisis. In this, we have assumed 5 years.
Scenario 2: Stabilise and grow at a rate similar to pre-crisis level, where the transaction value reached the pre-crisis average transaction value within a medium timeframe of about 2 years, by H2 2021.
Scenario 3: Speedy recovery to the original level before the crisis. This is the best case where the transaction value rebound greatly right after the recovery kicks in and eventually surpassed the pre-crisis level.
Both Scenario 1 and Scenario 3 are very extreme and relatively less likely to happen.
A preliminary observation and assessment of the Malaysian’s sentiment reveal that there are two main groups of buyers with different attributes:
- Those who affected heavily from the COVID-19, having the lesser financial capacity to purchase a property in the near term. This group of buyers will then take a more cautious approach when considering to purchase a property and it is likely that they will delay their plan to buy a house for more than 12 months until they are more financially stable. However, this will also subject to how long the COVID-19 will affect economic activities.
- Those who affected relatively less severe from the COVID-19, still manage to purchase a property in the near term, should a suitable option with acceptable price level arise. This group of buyers would take the advantages of lower interest rate, lesser demand for a house, and the sellers’ pressure of holding the house (in the case of sub-sales), and thus more likely to buy a property in the near term.
In view of the blended buyers’ sentiment due to the COVID-19 situation, Scenario 2 would be the most likely case, where the property market is still supported by those buyers who are financially capable or have strong holding power and wish to take advantages of circumstances during COVID-19 crisis. Hence, it is safe to say that Malaysia’s property market should remain stable in the short- to mid-term and shall rise and roar again after 12 to 24 months when the COVID-19 is finally over.
The property developers could better prepare themselves by taking a step back and review the changes in market demand, buyers’ preference, holding power, population growth and rising demand of added facilities before deciding the new developments. Integrated developments with a hub and spoke model seem to gaining higher traction in recent years and dominating the market. Government, on the other hand, can consider prolonging the exemption of housing-related tax and subsidy to facilitate the real estate transaction and growth. Affordable housing is a crucial aspect that would help lighten the burden of the working population especially those working in Greater Kuala Lumpur due to its relatively high housing price.
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