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The General Election 2018 & the Malaysian Property Market

As the country gears up for the general election, questions abound on its impact on the housing market.

What’s the post-election outlook for the Malaysian property market? 

With Malaysia’s General Election 2018 (GE14) looming just around the corner, house-buyers and investors will undoubtedly ask the question: “What is the post-election outlook for the Malaysian property market?

Bank Negara had announced in November 2017 that the property glut in Malaysia reached its highest level recorded in the past 10 years. At the same time, Deputy Finance Minister Lee Chee Leong announced that the amount of unsold residential units had risen by 40% during the first half of 2017.

During Q1 2017, unsold residential units climbed to 130,690, the highest in the decade.

Over the past few years, the trend in new housing supply has been skewed towards the higher-end property segment. Developers favour the higher-end property segment due to the higher margins it is able to generate, and tend to neglect affordable housing, with it not being as profitable.

Thus, right now, the Malaysian property market is characterised by an oversupply of non-affordable housing. Houses remain out of reach for many households due to the failure of the market to produce a sufficient quantity of affordable housing for the masses.

The maximum affordable house price in Malaysia is estimated by Bank Negara to be RM282,000. However, in 2016 the actual median house price was RM313,000, beyond the means of many households. From 2007 to 2016, house prices grew by 9.8%, while household income only increased by 8.3%.

Housing affordability by income levels in Malaysia, in 2016

Bank Negara reports that out of the almost 150,000 unsold properties (146,497) nationwide in 2017, 83% were priced above RM250,000. 61% of the total unsold units were high-rise properties, 89% of which were priced above RM250,000.

By state, Johor had the largest share of unsold residential units, having more than a quarter of the total units (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%).

83% of unsold units in Malaysia in 2017 were above RM 250,000.

Bank Negara governor Tan Sri Muhammad Ibrahim said the government’s efforts in affordable housing are very much needed, and cites the failure of the property market to provide supply in the affordable range.

“If you look at the numbers in 2014 and 2015, the numbers of affordable houses were quite good, accounting for 75% of the supply of residential properties. But in 2016 and 2017, the numbers were reversed, as only 25% of residential properties were in the affordable range.

“Obviously, there was a market failure. If the government did not come in and provide the additional supply of affordable houses, the problem would have been acute,” he said after releasing Bank Negara Malaysia’s 2017 annual report and the Financial Stability and Payment Systems Report 2017.

The Government had, in November, frozen approvals of luxury property developments indefinitely and temporarily halted the development of shopping malls, commercial complexes and condominiums priced above RM1mil to address the oversupply; it is quite clear that the market is on a decline. Works Minister Datuk Fadillah Yusof has since clarified that this freeze would be applied on a case-by-case basis.

Malaysian property market in 2018 and the impact of GE14

There has been much concern that the Malaysian property market is in a bubble. Fears are that the current glut together with the increasing supply pipeline of properties still in construction, will lead to a market crash soon.

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Real estate expert Ernest Cheong warned that developers were aggressively marketing their properties because they were in danger of losing their bridging finance from banks. The bridging finance is used by developers to support their construction.

“This is where the danger starts. I predict if this continues, markets will crash within 24 to 30 months because consumers do not have the financial capacity to buy properties any more. Furthermore, developers who started building two years ago are expected to flood the market further with their units.” he said.

Institute for Democracy and Economic Affairs’ (IDEAS) senior fellow Carmelo Ferlito stated, “Malaysia is undoubtedly experiencing a housing bubble and the unsold properties are a natural consequence of this bubble.”

Ferlito said it would be crucial for Bank Negara to refrain from supporting the property industry by lowering interest rates or the government bailing out developers. “Intervention will only result in a longer and more painful crisis with prices kept artificially high by the central bank when the market is demanding for lower prices.”

IQI Global chief economist, Shan Saeed opined that the property market in the country is merely undergoing some ‘sector changes’, and that there was no danger of a bubble.

“In some areas, property prices are going up, but there are also areas where the price is going down. The property market moves with GDP (gross domestic product) growth, and the growth is currently very solid and on the upsurge. Customers are still buying (property) because income levels are rising. So I believe these concerns concerning the property market are unfounded,” he said.

Real estate firm Rahim & Co stated that Malaysia is unlikely to face a property bubble with the several pre-emptive measures Bank Negara has already put in to stabilise the market, some of which include abolishing the Developers Benefits Under Liquidity Scheme (DIBS), and tightening of the conditions for financing.

CBRE WTW managing director Foo Gee Jen cites the country’s strong fundamentals and measures by Bank Negara as having moderated the impact from price growth in the last market boom.

“While housing prices in Malaysia have been on the rise, they have not reached an unjustifiable level where the price unreasonably exceeds its economic returns” he says.

Credit rating agency Moody’s expects a decline in property prices due to the supply overhang. “In our view, the increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks’ asset quality,” it said.

Savills Malaysia managing director, Datuk Paul Khong said that house buyers are currently adopting a wait-and-see attitude against subdued and lacklustre transaction activities in the property market.

“It is no surprise to the sector that 2018 is an election year, of which market sentiment is quite mixed. We, therefore, foresee the property market to be rather flattish this year with nominal excitement,”

“We do, however, expect some market movements in the later second half of 2018 (2H18) — especially if the GE14 goes well and the confidence factor returns,” he said.

Savills executive chairman Datuk Christopher Boyd adds that, regardless of increase in demand, “it will not cause a price explosion because it will be tempered by quite a considerable backlog that some developers need to clear as well as the increasing supply.”

Virata Thaivasigamony of property consultancy CSI Prop states that the upcoming General Elections is expected to give a boosting momentum and direction for the country’s property sector.

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“We expect GE14 to set the pace for the future, and go some way towards restoring the current lack of confidence in the local property market,”

“Currently the local property market is on a downward trend due to supply not meeting the demand for affordable housing, and demand not meeting the oversupply of higher-end properties. It will take some time till developers rebalance the available supply, and the market regains its footing,”

“The ringgit has strengthened so now would be a ideal time to invest in foreign property, in markets like the UK and Australia, with a potential for great returns,” he added, highlighting recent news reports that the ringgit had strengthened to a 2-year high this month.

Uncertainty still clouds the local market going into 2018, and the current glut of property, with more still in the pipeline, does not bode well for investment prospects in Malaysia at this time. With the ringgit currently at a 2-year high, property in overseas markets like the UK and Australia are more attractive than ever, offering investors an opportunity to take advantage of the currency rate and get on to the overseas investment bandwagon.

Article by Ian Choong

Sources:

  • http://www.freemalaysiatoday.com/category/nation/2017/11/18/bank-negara-property-glut-highest-level-in-a-decade/
  • http://www.freemalaysiatoday.com/category/nation/2017/11/13/unsold-residential-units-rise-40-in-first-6-months/
  • http://www.theedgemarkets.com/article/cover-story-higher-inventories-and-lower-margins-seen-among-developers
  • http://www.theedgemarkets.com/article/govts-housing-schemes-do-not-distort-market
  • http://www.freemalaysiatoday.com/category/nation/2017/11/14/property-market-will-be-badly-hit-in-2018-says-expert/
  • http://www.freemalaysiatoday.com/category/nation/2017/08/20/property-market-bubble-set-to-burst-says-think-tank/
  • http://english.astroawani.com/business-news/there-no-property-bubble-malaysia-160551
  • https://www.nst.com.my/business/2018/02/334879/malaysia-unlikely-face-property-bubble
  • https://dbv47yu57n5vf.cloudfront.net/s3fs-public/pullout/20180323_ep_2616_locked.pdf
  • https://www.thestar.com.my/business/business-news/2017/11/27/moodys-expects-decline-in-property-prices-due-to-supply-overhang/#zI4BuSEAHm0lxl7s.99
  • http://www.theedgemarkets.com/article/ringgit-strengthens-more-2-year-high
  • Charts from BNM Quarterly Bulletin, Third Quarter 2017
  • Featured Image from hazuism.blogspot.com
  • https://csiprop.com/malaysian-property-market-decline-2018/
  • https://themalaysianreserve.com/2018/04/02/property-market-on-wait-and-see-attitude-pre-ge14/

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