Property developers should launch new and fashionable housing projects, albeit cautiously to boost the market, says Knight Frank Malaysia managing director Sarkunan Subramaniam.
Developers are in the business of developing and selling properties including residential, said Subramaniam.
"There is no such thing they should stop launching just because there are overhang properties in the market. If developers have unsold stock then they should offer discounts and incentives to offload them as they launch new projects and many are already doing that," he told NST Property.
Zerin Properties managing director and chief executive officer Previndran Singhe recently commented that developers in Malaysia should not launch small office home offices (sohos), small office virtual offices (sovos) and serviced apartments in Klang Valley this year.
Singhe said the focus should be on clearing up the existing stocks.
There are about 3,000 units of sohos, sovos and serviced apartments worth RM3 billion in Klang Valley and the existing stocks, which account for 20 per cent of the total property overhang in the country, could be cleared in a year if there are no new launches, he claimed.
Singhe was commenting on a report by CBRE|WTW managing director Foo Gee Jen who said it may take more than five years for unsold high-rise residential units in Klang Valley that include serviced residences, sohos, and sovos to be absorbed into the market, should prices not correct substantially.
Speaking at a media briefing recently on CBRE|WTW's 2020 real estate market outlook, Foo said the stock for unsold landed residential units may take two years to clear, provided the market trade upwards.
"We would like to make it clear that this is misleading and untrue," Singhe said in a statement last week.
"The value of the said overhang, although a considerable RM3 billion, is about 20 per cent of the actual overhang. Kuala Lumpur has been the main driving force of the recovery of the property market and based on simple extrapolation of sales of 2,500 units a year, if (there are) no new launches this would be absorbed in a year."
Introduce new homeownership campaigns
Subramaniam said developers should carry out their own ownership campaign and with the incentive scheme that they have individually structured to carry on clearing out their stock.
"The 2019 Home Ownership Campaign (HOC) has been successful and it shows the overhang issue is not alarming and can be corrected. We are not in a situation of calamity. There will always be a situation of overhang. We are shouting absolute numbers here," he said.
Subramaniam said a survey by Knight Frank with some members of the Real Estate & Housing Developers' Association (REHDA) Malaysia show that 30-40 per cent of them have about 20 per cent of overhang stock.
He said, there was also a group of developers who do not have overhang stock.
"Some do have overhang stock and said they would take time to sell. No one can say it will take one year or five years to solve the country's overhang issue. It is impossible to predict how long it could take. If developers decide to cut loss, the numbers will reduce," he said.
Subramaniam said the key is to launch products that are required in the market, easy to sell and not speculative.
Developers' right to launch
Developers are questioning the assessment by Zerin Properties on how is it that existing stock would clear up within a year if they stop launching in the next 12 months.
"As developers, our business is to sell. What do we do in the next 12 months? There are a lot of people looking for new homes. Bear in mind that not all developers have high numbers of overhang properties. Some developers have less than 10 per cent of unsold units and this is normal given that there are Bumi units to sell," said the listed developer who didn't want to be named.
"We believe developers with over 40 per cent overhang simply did not do enough research. Their projects could be located too far from KL City and the pricing may be off. The concept and design may also be unappealing to buyers. The way forward is to offer huge discounts and throw in more goodies. Otherwise, the stock could remain unsold and if they don't launch new projects, they could go bust anytime as there are no income-generating assets," said the developer.
Another developer with projects in Klang Valley said it would be ridiculous not to launch new housing projects that contribute to the country's economy.
"It is about demand and supply, and willing buyer willing seller. In any industry, you must create a product that people want and are willing to pay for, and they see the value in the boom or bust cycle. It's the same in property development. Developers should deliver products that appeal to genuine homebuyers," he said.
Nawawi Tie Leung Property Consultants Sdn Bhd executive director Brian Koh said the current property market is dynamic with new supply constantly coming in albeit at a slower pace.
He said, even if existing oversupply perfectly meets the requirements of new buyers, it will definitely take longer than one year to absorb.
"The assumption that all other new launches will make way for this is ridiculous to happen," he told NST Property.
Koh said any oversupply is a concern as financial assets are tied to no or lower returns and can have an adverse effect on the corporate and financial sector besides personal level.