OVERHANG, oversupply and glut. These are the buzzwords we have frequently heard in the last 12 months concerning the property market.
Whether you are looking to buy your first house or are a seasoned property investor, these terms would have impacted your decision.
In a recent report by RHB Research Institute, analyst Loong Kok Wen said there is a supply glut, with Bank Negara Malaysia recording the highest unsold residential properties in a decade for the first quarter of last year.
“Some 61 per cent of total unsold units were high-rise properties, of which 89 per cent were priced above RM250,000. Among the states, Johor has the highest number of unsold residential units (27 percent), followed by Selangor (21 percent), the Federal Territory (14 per cent) and Penang (eight per cent),” she said.
Loong added that the number of unsold units stood at 20,876 as at the second quarter of last year.
“We think the amount of unsold properties may continue to climb as more projects are completed. In view of the rising overhang, some buyers may hold back on their purchases in anticipation of a correction in property prices.”
Loong noted that even though the slowdown has stabilised, as shown by the strong gross domestic product growth last year (estimated at 5.6 per cent by RHB, from 4.2 per cent in 2016), it did not translate into higher property sales.
“The Kuala Lumpur Property Index fell by nearly 10 per cent from its recent peak in May. While the merger and acquisition/privatisation and restructuring theme had largely driven investor interest in the first half of last year, sentiment rapidly died down in the second half when property sales failed to pick up.”
The absence of goodies for the sector in the 2018 Budget also disappointed the market. Based on the nine-month data last year, property sales were largely flat.
Unsurprisingly, Loong said many developers also shifted their focus to overseas markets such as Australia and Singapore, as growth in the local market has become more challenging.
Ona positive note, RHB expects the real estate and business services sub-sector to remain resilient, on the back of the rent-to-ownscheme from a local financial institution which may prompt first-time house buyers to purchase real estate.
At the same time, the government has announced further construction of low-cost houses, alongside a proposed 50 per cent tax exemption on rental income not exceeding RM2,000 per month, to boost the rental market. Nevertheless, this would be partly offset by the government’s recent measures to curb further high-end property launches to reduce the oversupply situation.
RHB’s stance on the property market is “neutral” although the ringgit may have strengthened.
It said a stronger ringgit may have an indirect positive impact on the property market as buyers’sentiment may be boosted. However, this is offset by negative news on the sector.
“The impact of a stronger currency on developers with overseas projects should be insignificant, due to the small appreciation of the ringgit. Furthermore, earnings are recognised only upon the completion of the projects,” said RHB.
MIDF Amanah Investment Bank Bhd analyst Jessica Low said the overall performance of property companies was stable last year, outperforming the FTSE Bursa Malaysia KLCI (FBM KLCI).
“The Kuala Lumpur Property Index recorded a gain of 7.9 per cent in the 11 months of last year, outperforming the FBM KLCI’s gain of 4.6percent.
Gains in the Kuala Lumpur Property Index were mainly led by gains in heavyweight members. On the sales front, most of the property companies are on track to achieve their target, such as Mah Sing Group Bhd, UEM Sunrise Bhd and Eco World Development Bhd,” she told NST Property.
Low also opined that the property market has staged a marginal recovery last year, pointing to the total applied loan data released by Bank Negara, which recorded uninterrupted positive growth since February, indicating stronger buying interest from buyers compared with 2016.
Due to the glut, the government has directed the Kuala Lumpur City Hall to stop the approval for new shopping complexes, offices, serviced apartments and luxury condominiums priced above RM1 million in Kuala Lumpur effective November 1.
Existing applications, including variations made to building plans that have received development orders, must receive planning permission by this month.
While developers are still waiting for further clarification from the government, it appears that the freeze is to be imposed in Kuala Lumpur, at the very least.
Although the impact on developers is limited for now, the development of commercial properties would certainly be more difficult. It may be especially challenging for players that are planning to build shopping malls and office blocks within a big township development.
POTENTIAL RATE HIKE AND FURTHER CONSOLIDATION
The possibility of an Overnight Policy Rate hike in the first half of this year is another dampener to the property sector. Given Bank Negara’s hawkish stance in its recent monetary policy note, the market expects the central bank to raise interest rates.
While the impact on property demand should be manageable, buyers’ sentiment (which is already weak) is likely to turn more bearish.
The property market is expected to continue its consolidation mode, according to CH Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen.
He said the first half of last year was generally a continued consolidation period from 2016.
“This started from mid-2013 when the market was already sliding down, in terms of total value of transactions.”
Foo said for this year, the consolidation is expected to continue.
“The drop has tapered down to around five to eight per cent. Despite that, the average prices are still on the upward trend. But for 2016/2017, it was moderate at about five to seven per cent. Although the market is slowing down, prices have been moderate, or are at a more sustainable level.
“But the good thing is, if you look from year to year, such as the first half of 2016 and the first half of last year, the volume has improved, meaning to say that developers have strategised their products. I think this is in response to the government’s call to build more affordable houses or to price their products below RM500,000.
“This is already happening in the primary market where developers are pushing for more products in this range. That is why you see the market as active. So, that to me is a good sign.”
On analysts’negative views, Foo believes they are connected to the oversupply and overhang in high-end properties.
“I think this is just their perception. When we say overhang, we cannot generalise it as oversupply. Affordable housing, such as medium-cluster houses, are still undersupplied but nobody is saying anything about it.
Everybody is talking about overhang and oversupply.
“Yes, there is oversupply but in what category? It’s only in the high-end market. For houses ranging from RM300,000 to RM400,000 in Semenyih, Nilai or Kajang, new launches are sold out overnight.
“The real concern is there is a mismatch in demand and supply. In the last five years, everybody went crazy, buying any type of brick and mortar. Some didn’t even realise they were paying more than RM500,000 for a mere350 or 400sqftsmall office home office or small office virtual office unit.”