Most Malaysians cannot afford the properties build by developers.

THE residential overhang in Malaysia is a direct result of the supply-demand imbalance in the market, as developers continue to build properties which buyers cannot afford to purchase, says property experts.

The overhang was most recently estimated at 52,666 units in the second quarter of 2019. This includes 32,810 residential units, 18,186 serviced apartment units and 1,670 SoHo (small office home office) units, based on statistics by property consulting firm, Nawawi Tie Leung Property Consultants Sdn Bhd.

PropertyGuru Malaysia country manager Sheldon Fernandez said, the amount of overhang residential properties is because of affordability and loan financing challenges for Malaysians.

Fernandez said, there is also the demand-supply imbalance in the market, as developers gravitate towards the higher margins for luxury and high-end launches.

Home seekers cannot afford properties or the loans required to purchase them, he said, adding that the ongoing issues facing the domestic property market are set to continue into 2020.

"The pressures driving these issues are complex and interrelated and have been building for decades, leading to calls from some quarters for a fundamental restructure of the property industry in Malaysia," Fernandez said at the PropertyGuru 2020 Market Outlook Forum here yesterday.

Fernandez pointed out that Budget 2020 has taken several steps towards addressing this, through both interim and long-term measures.

Short-term measures aimed at easing home ownership challenges among Malaysians include the Home Ownership Campaign (HOC) and Bank Simpanan Nasional’s (BSN’s) Youth Housing Scheme (YHS), both of which have been extended from their original time frames.

Fernandez hoped that these measures, along with the current emphasis on rent-to-own (RTO) schemes, are able to address home ownership among younger and first-time purchasers.

The HOC, as well as provisions for lowered purchasing thresholds for international purchasers, should reduce the ongoing residential property overhang, he said.

"With regard to loan financing, Bank Negara Malaysia (BNM) has seen an uptick in defaults from 2018 through 2019, particularly among those with variable income and those with properties worth more than RM500,000.

“These issues are not limited to the Malaysian property market, and are a product of increasing population pressure and decreasing land availability in urban hot spots. As more purchasers compete for fewer properties, prices are driven up, with developers catering to segments with higher profit margins,” says Fernandez.

Fernandez said that in Malaysia, these trends are underscored by perceptions of income stagnation and rising costs of living.

(L-R): CCO & Associates director Chan Wai Seen, Jones Lang Wootton executive director Prem Kumar, PropertyGuru Malaysia country manager Sheldon Fernandez, Cagamas corporate strategy & communications senior vice president Leong See Meng, and Malaysian Institute of Estate Agents chief executive officer Soma Sundram Krishnasamy at the PropertyGuru 2020 Market Outlook Forum.

The Department of Statistics Malaysia’s (DOSM’s) most recent Household Income and Basic Amenities Survey reported the median monthly income in the country as RM5,228 in 2016, growing at a rate of 6.6 per cent per annum.

The Consumer Price Index (CPI), meanwhile, has grown at an average of 2.5 per cent year-on-year (YoY), with an increase of 1.1 per cent YoY in October.

"The disconnect between real and perceived inflation is explained by BNM as a function of frequency and memory bias. Regardless, with the benchmark for affordability set by US-based consultancy Demographia International as three times the annual household income, this means that the price ceiling for affordable housing was about RM188,208 in 2016. Today, this figure has been reported at RM282,000, while the average price for newly launched houses was RM417,262," said Fernandez.

Lacklustre year ahead

Fernandez said, the mixed macroeconomic indicators point towards a lacklustre year ahead for property.

"The US Federal Reserve cut interest rates three times this year, with BNM following suit in May and analysts projecting another potential cut mid-2020. These moves have the effect of creating positive interest rate environments at home, and abroad," he said.

Fernandez said this is conducive to home purchases in the short term, with prospects for capital appreciation in the long run, as cheaper loans drive property prices up.

He also believes that an influx of interest from regional purchasers may cause an upswing in sentiment for the near future, driven by unrest in other markets such as Hong Kong as well as relaxed foreign ownership guidelines laid out in Budget 2020.

However, Malaysian Institute of Estate Agents (MIEA) chief executive officer Soma Sundram Krishnaswamy said during the forum that the number of Hong Kong property buyers purchasing properties here has slowed compared to the earlier days of protest.

“Based on the feedback from MIEA members, there was a big influx of Hong Kong buyers into Malaysia...right now after a few months, it has slowed down,” he said.

Soma also said the government’s move to lower the house price threshold for foreign buyers to RM600,000 from RM1 million won’t have any major impact on the domestic property market.

He said foreign buyers would look at areas like Kuala Lumpur to purchase a property and it would be impossible to get one there that cost RM600,000.