Property Market in Malaysia : What To Expect
Almost 20 years ago, the property market in Malaysia was hit hard by the Asian financial crisis. House prices contracted between 8 to 9.5 per cent. The government’s stringent policies helped the market to recover. From 2006 onwards, the residential market experienced exponential growth.
The property market started weakening from 2009 when the base lending rate was increased and there was signs of an oversupply in office space and retail properties. Now, there is an oversupply in high-end properties and condominiums.
Property market in Malaysia looks bleak
Speculation is now rife that the property market is headed for a period of doom and gloom. Moody’s says the two main reasons for this are the cooling measures put in place in 2013 by central bank Bank Negara Malaysia and the April implementation of the six per cent Goods and Services Tax (GST). The research house says the lull in demand after GST could last six to nine months.
Affordability is a major issue. Sales volumes fell 8 per cent year-on-year in Q1-2014, the fifth consecutive quarter of a drop in transactions, according to Standard Chartered Research. This is primarily because housing prices rose 72 per cent in Q1-2014 versus 2005, or about 6.7 per cent on average annually.
Bank Negara came up with a string of cooling measures to curb rising household debt that stands at almost 87 per cent of gross domestic product. Loans for properties formed the bulk of household debt at almost 50 per cent. This is why one of the cooling measures was to tighten housing loan approvals. The housing loan application rejection rate dropped to 30 per cent. This affected the property market in Malaysia and 90 per cent of respondents in a Real Estate and Housing Developers Association Malaysia survey in 2014 said they experienced a slowdown in sales.
GST
Residential properties will be exempted from GST but there is much fear that developers will find a way to transfer the increase in production cost to the consumer. Cost of building properties will go up because GST will be imposed on building materials and services, and developers will have to absorb this additional cost.
Developers are already sending out the message that cost of building properties are likely to go up due to factors such as higher labour cost, citing shortage of workers as a result of an increase in construction projects and infrastructure works. If this is a way of camouflaging the GST on building materials and services and justifying an increase in residential property prices, then developers are shooting themselves in their foot.
Supply-demand mismatch
Developers are right, to an extent. There is a lot of construction work going on presently, and labour shortage has been a nagging problem for the construction industry. Does Malaysia need all this additional office, retail and residential space when there is already an oversupply?
The Rehda survey shows that 31 per cent of properties in the RM500,001 to RM1 million (US$139,000 – 178,000) range were unsold last year and they were mostly in hot property markets like Selangor and Johor. Properties in the price range of RM250,000 (US$70,000) to RM500,000 (US$139,000) had 34 per cent of the completed units unsold, mainly in Perak and Pahang.
There is a strong demand for residential properties, but in the less than RM500,000 (US$70,000) category in the hot areas. High cost of construction and land have prompted developers to focus on the higher end of the market. Developers need to re-strategise and address this supply-demand mismatch in the property market in Malaysia and the government may want to look into land acquisition rules and procedures.
In the long run, some say, the fundamentals are strong because of the expected growth in population and earning capacity, low unemployment and low non-performing loan rate are strong enough to sustain a growing property market in Malaysia.
The Rehda survey shows that 31 per cent of properties in the RM500,001 to RM1 million (US$139,000 – 178,000) range were unsold last year and they were mostly in hot property markets like Selangor and Johor. Properties in the price range of RM250,000 (US$70,000) to RM500,000 (US$139,000) had 34 per cent of the completed units unsold, mainly in Perak and Pahang.
There is a strong demand for residential properties, but in the less than RM500,000 (US$70,000) category in the hot areas. High cost of construction and land have prompted developers to focus on the higher end of the market. Developers need to re-strategise and address this supply-demand mismatch in the property market in Malaysia and the government may want to look into land acquisition rules and procedures.
In the long run, some say, the fundamentals are strong because of the expected growth in population and earning capacity, low unemployment and low non-performing loan rate are strong enough to sustain a growing property market in Malaysia.
Source (http://www.establishmentpost.com)