THE local property market is currently weak due to a combination of factors that includes political turbulence and relatively low-wage levels vis-a-vis inflation.
“Another reason is overdependence on property market activity to drive economic growth, rather than on economic fundamentals such as higher productivity and export earnings from industry and global services,” says CBRE | WTW managing director Foo Gee Jen.
Foo said while Malaysia’s economy registered 4.8 per cent growth for the first three quarters of last year, it did not trickle down to the property market.
Purchasing sentiment remains weak as Malaysians are more prudent in buying big items such as residential units.
This could be due to the lack of confidence in real wage growth, he added.
Job insecurity and house prices beyond the reach of prospective buyers further deters purchases.
“The business environment is still somewhat wobbly with Malaysia still recovering from the oil and gas slowdown which took place a few years back. In addition to that, 2018-2020 can be considered a crisis-prone period given the cyclical pattern of crisis hitting at 10-year intervals in the past since 1998.
“The recent change in government would likely lengthen such season of uncertainty as the market is still trying to grasp the government’s policy direction. All these point to cautious behaviour in the market,” Foo told NST Property.
THE BLAME GAME
Is it right to blame developers and bankers for not being able to own a house?
In the blame game, developers and bankers point fingers when property transactions are just a few. Buyers, on the other hand, blame developers for selling properties at prices beyond their affordability and supplying more than what the market requires.
National Property Information Centre statistics show for the first nine months of 2018, total new completions were about 68,700 units compared with about 74,000 units for the same period in 2017, down by 7.1 per cent.
Similarly, new launches for the period between January and September last year fell 47.5 per cent year-on-year to 25,810 from about 49,200 previously.
According to Foo, there is a lack of understanding on the market which has led to the mismatches in product supply and market demand, especially pricing.
On the high property price, he said it is due to the high costs of compliance to provide for infrastructure, public facilities, as well as quota and discount requirements.
“Consequently, developers have no option but to build high-end residences where profit margins are better and able to ‘subsidise’ the costs of compliance. This continues to persist even when the market for high-end residential becomes saturated.
“At these high prices, banks are only willing to extend housing loans to high-income households.
Again, this is basic banking prudence and banks cannot be blamed for lending only to financially capable borrowers. In fact, Bank Negara Malaysia may be obliged to step up its control over the credit market as household debts in Malaysia are high against the backdrop of a crisis season we are in now.”
On the buyers’ front, Foo said it is important to note that the context of affordability stretches beyond house price.
Aspects such as income growth, prospective buyers’ financial profile and market practices with regards to property transactions need to be looked into in order to address the affordability issue — all of which are “structural in nature and takes time to be rectified”, he said.
CBRE|WTW estimates more housing demand within the RM280,000-RM490,000 range, based on an average household income of RM6,000-RM10,000 per month (assuming both spouses are income-earners).
However, in economically poorer states where combined household income averages RM3,000 per month, the maximum house price could be about RM200,000.
“Transaction data in 2017 reveals that 82.6 per cent of residential units changed hands at below RM500,000 with the bulk of it actually having value less than RM300,000. This could serve as an indication of the price level that the market is looking at. Overall, this transaction trend reciprocates the consensus among various sources of Malaysians’ affordability not exceeding RM400,000,” he said.
DOES THE MARKET NEED MORE HOUSES?
In 2016, the total number of households in Malaysia was 7.7 million, of which about 24 per cent resided in rented premises or government quarters.
Foo said assuming all of this 24 per cent wish to purchase a house, Malaysia would need about 1.8 million new houses (landed and high-rise).
He said CBRE | WTW estimates that the numbers had not changed significantly over the past two years to 2018.
“However, we should also note that most Malaysian households do have a roof over their heads, whether it is owner-occupied or rented.
Looking at the rate of supply, our tabulation based on 2017 data shows that the annual supply of residential property fell slightly short of the estimated demand.
“The inference that can be drawn is that overhang of residential property should not have been as extensive as present. This reiterates the mismatches between supply and demand,” he added.