A freeze on approvals for new property development projects in Kuala Lumpur could help stabilise the whole market and reduce property market overhang to some extent.
The freeze means there will be no new supply entering the market at least for a few years (except for projects already given approvals prior to November 1), until the ban is lifted or when the market has balanced itself.
The freeze is on approvals for four types of developments, namely shopping malls, offices, serviced apartments and luxury condominiums priced over RM1 million in the capital.
It comes following a study by Bank Negara Malaysia showing there was a glut in the property market.
Whether property developers like it or not, the feeze was a timely move by Cabinet.
Projects like Tun Razak Exchange, Merdeka PNB118 and Bukit Bintang City Centre (BBCC) are safe from the ban as they have all the necessary approvals in place to build.
Eco World Development Group Bhd president and chief executive officer (CEO) Datuk Chang Khim Wah said the halt in approvals should not affect the company or the BBCC development.
Freeze is necessary
Second Finance Minister Datuk Seri Johari Abdul Ghani said the freeze was necessary to control the oversupply from adversely affecting the economy.
The Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) said property developers were responsible for the cause of property market overhang in the country.
According to PEPS, there were now RM35 billion worth of unsold and unutilised buildings comprising residential development, purpose-built offices and shopping centres, which were a waste of financial resources.
There are 13 billion sq ft of purpose-built offices for next year and 2019, and 44 million sq ft of incoming supply in Greater Kuala Lumpur alone from this year.
“Every effort must be made to absorb the incoming supply (for projects already approved) before the freeze is to be lifted,” said PEPS last week.
Works Minister Datuk Seri Fadillah Yusof said approval for new luxury development projects would still be given, but on a case-by-case basis.
Housing Buyers’ Association secretary-general Chang Kim Loong said the Cabinet made a well-informed decision based on the accurate analysis from Bank Negara.
According to the Bank Negara report, total unsold residential properties were 130,6903 units in the first quarter, the highest in a decade. This is nearly double the historical average of 72,239 units per year between 2004 and last year.
Bank Negara said about 83 per cent of the total unsold units were properties priced from RM250,000. It said 61 per cent of the total unsold units were high-rise properties, out of which 89 per cent was priced above RM250,000.
The large number of unsold properties is due to the mismatch between the prices of new launches and households’ affordability.
From last year to the first quarter of this year, only 21 per cent of new launches were for houses priced below RM250,000.
Kim Loong said the growing imbalance was getting wider and could pose severe risk to the economy.
“For residential properties there is a big mismatch between what the public can afford, which are houses costing RM150,000 to RM300,000, and what developers think the public can buy, which is from RM500,000.”
He said developers should consider building what the public could afford rather than what they want to build to improve the situation.
Kim Loong also called for the government to set the right benchmark by classifying that the correct definition of “affordable” category was not more than RM300,000.
For houses which have been completed but not sold, he suggested National Mortgage Corp Cagamas Bhd take a look at the overhang of completed housing units by invoking the concept of RTO (rent-to-own).
“The RTO concept allows one to rent the property for a duration of five years and then convert to purchase,” he said.
Zerin Properties chief executive officer Previndran Singhe believes in a situation with more supply than demand, it is better to gazette the draft Kuala Lumpur City Plan 2020 and follow sustainable development as per the plan.
According to Previndran, residential overhang in Kuala Lumpur accounted for less than 10 per cent of the country’s total overhang.
“For the whole of the country, however, only 35 per cent of property overhang is of high-rise properties. The rest is of bungalows and semi-detached homes. This is based on total value of overhang,” he said.