Effective Solution Needed To Resolve Property Overhang - Experts
KUALA LUMPUR, June 2 (Bernama) -- An effective solution is needed to resolve Malaysia’s residential property overhang, lest it will take a toll on the nation’s economy, experts said.
According to the National Property Information Centre (NAPIC), unsold properties refer to completed residential, commercial and industrial units which have received certificates of completion and compliance (CCC) but remained unsold for more than nine months from the launch date or after Jan 1, 1997.
On Feb 14, Deputy Finance Minister Ahmad Maslan was quoted as saying by Bernama, the number of unsold completed residential properties declined to 27,746 units valued at RM18.41 billion as at end-December last year compared with 36,863 units worth RM22.79 billion at the end of 2021.
Ahmad said Johor maintained its position of having the highest number and value of unsold properties with 5,258 units worth RM4.33 billion, followed by Selangor (3,698 units: RM2.74 billion) and Penang (3,593 units: RM2.74 billion).
Despite the decline, the residential property overhang remains a major concern unless efforts are being made by the relevant authorities to resolve the issue over the long term, experts said.
MARKET MISMATCH
Giving his insights on the issue, property analyst Prof Dr Noor Rosly Hanif said the property overhang could be dated back to 2016, cutting across various types of property.
“The property overhang came about from the frenzy of building among developers during the property market boom, which was buoyed by Malaysia’s strong economic growth. Unfortunately, average salary increases and household income were not at par with the rise in property prices, particularly housing.
“In this respect, there was a mismatch between the value of properties built (supply) and the people’s affordability (demand), causing the housing market to face a glut,” he told Bernama recently.
Noor Rosly, who is also Professor of the Real Estate Management and Auction Programme, Faculty of Business, University of Malaya-Wales, said while there was demand for residential properties, the prices offered by developers were mostly beyond the reach of the average Malaysians, with potential buyers failing to obtain bank loans as their income criteria was not met. (A bank determines credit approval based on the borrowers’ repayment capability).
“The types of houses built by developers were not what the market needed, for example, the people had expected property developers to provide affordable terrace houses (landed) but most of the properties built were condominiums/apartments, which according to the Property Market 2022, Valuation and Property Services Department (JPPH), accounted for 61.9 per cent of unsold completed units.
“Housing taste and preference factor also has an impact, especially among the younger generation who are not interested in buying a house as they prefer to rent. Perhaps they are forced to face the reality of renting or wait longer to buy their first home. Even if they do get to buy one, it will be an apartment that is within their means,” he said, adding that the trend now is for the millennials to choose rental housing.
A HOUSE IS NOT A COMMODITY
According to the Property Market Report 2022, by price range, those between RM500,001 to RM1 million accounted for the highest number of unsold properties, with 9,323 units or 33.6 per cent, higher than 30.2 per cent in 2021.
Houses priced between RM300,001 and RM500,001 took the second spot, making up 29.3 per cent (8,128 units) while affordable homes below RM300,000 accounted for 23.5 per cent (6, 509 units) out of the total followed by houses worth over RM1 million which made up 13.6 per cent (3.786 units).
The average Malaysian can only afford to buy a house of between RM250,000 to RM300,000 said Noor Rosly, adding the reality is, most houses above that level are beyond the reach of most Malaysians.
“Besides the price, the second factor is location, which many expect to be situated at the central business district near their workplace, with accessibility to public transport facilities such as LRT, MRT, etc as well as public health and security facilities and schools that are near their homes.
“As a result, many of those who are working in Kuala Lumpur are willing to buy a house in Seremban as prices of residential units outside the city are far lower and they can still get a single-storey terrace house for around RM250,000,” he said.
Describing the current property market as stable, Noor Rosly however said that prices are unlikely to rise further given that most houses that are being sold today are out of reach for many.
The government through the Ministry of Housing and Local Government (KPKT), he said should monitor closely the situation, noting that approvals should not be given to new developments, especially luxury condominium projects or based on economic incentives alone.
“In the past we could expect foreign investors to buy houses here, but the government needs to monitor and should not indiscriminately approve such developments as the real demand is towards housing for the people, and not for (purposes of) investment (by foreign investors).
“The National Housing Policy should be reviewed, perhaps making it compulsory for developers or the government to provide affordable homes for the people.
“Housing is not a commodity for investment but a basic necessity for the people,” said Noor Rosly, who also questioned the rationale for local authorities (PBT) to approve new commercial projects such as office space and shopping centres despite the subsector experiencing a glut.
Noor Rosly also proposed that developers shorten the property leasehold which typically has a lease tenure of 30, 60 or 99 years, adding that this could directly help reduce the prices of houses.
“This is probably a more effective approach although eventually the property could not be inherited by the next generation.
“The government can re-empower the wakaf (endowment) concept to help the bumiputera community own property. The land development and wakaf fund concept for property ownership has proven successful in Turkiye and several other nations, to help Muslims own properties in the heart of the city,” he added.
SYNERGY BETWEEN POLICYMAKERS, STAKEHOLDERS
Meanwhile, senior lecturer of the School of Economic, Finance and Banking, Universiti Utara Malaysia (UUM) Muhammad Ridhuan Bos Abdullah said the construction industry contributed 8.7 per cent to the Gross Domestic Product (GDP) in 2022 with unsold houses having an impact on 120 related industries.
“Without exception, the COVID-19 pandemic has had a significant impact on the construction sector, which is now on a recovery path while the labour market has yet to stabilise, hence limiting the buyers’ purchasing power to own high priced residential units.
“Labour market recovery is still slow, so are household and producers’ income. As such, developers should formulate strategies to boost sales,” he said, adding that most developers in Malaysia are listed on Bursa Malaysia with diversified business to sustain their operations.
He also said that the consecutive hikes in overnight policy rate (OPR) since last year gave potential buyers the signals that this is not the right time to own property, especially through bank loans, as the OPR hike means a rise in base lending rate by banks.
This situation will also cause industry players to raise the prices of properties offered to cover their development costs, he added.
“Besides that, banks will be cautious in approving loans to potential buyers to avoid the risks of non-performing loans (NPL).
"In short, sales will be slow for developers as buyers have stalled their purchases. As a result, the market will continue to be saddled with an overhang of unsold residential units,” he added.
Due to the overhang units, developers’ return on investment (ROI) and profit will also be hit while assessment rate, which is a main source of income for local authorities, will be affected.
Creditors and banks may also tighten their loans for properties and shift their portfolio to other sectors, and this could cause foreign investors to lose confidence as business sentiment is a key indicator of a nation’s economic stability, he explained.
“The implications from the property overhang especially unsold residential units should be viewed from the harmonious aspect with synergy to be forged between policymakers, stakeholders and city planners.
“Various aspects can be identified among others, the affordability of households or buyers, besides land to be developed should also be seen from the economic aspects such as the opportunity cost of the developed land,” he added.
BUMIPUTERA HOME OWNERSHIP
On bumiputera home ownership, President of Muslim Real Estate Consultants Association (PEHAM) Ishak Ismail said more affordable residential homes should be built especially for B40 and M40 groups.
He also said the Rent to Own (RTO) housing scheme should be expanded to provide opportunities for tenants to own property after completing their tenancy tenure over a certain period as agreed by both the developer and tenant.
“While this concept is rather new in the local property market, it can help potential buyers to own residential units through the lease approach as they will not be burdened by high deposits such as during the normal process of buying a house.
“This way, the cost of paying monthly rentals will be changed to ownership status (once the date that is agreed upon between the buyer and developer is reached), while the developer will be able to sell his property at a faster pace, encouraging the younger generation to make home buying their priority,” he added.
Ishak who is also Managing Director of IM Global Property Consultants Sdn Bhd also said the government should also set a target of creating a ‘First Home Savings Fund’ such as Tabung Haji’s savings mechanism for haj pilgrimage to Makkah.
Through this mechanism, potential buyers can make monthly salary deductions, such as deductions to the Employees Provident Fund (EPF), with yearly dividends to be credited into members’ accounts.
“Syarikat Perumahan Negara Berhad (SPNB) can be entrusted with the responsibility of building houses under the ‘My First Home’ initiative and withdrawals will only be allowed for purposes of buying the first house,” he said.
He said a comprehensive study on ‘affordability versus affordable homes’ should be undertaken to gauge the housing affordability among the bumiputera community to own residential property, hence helping the developer and the relevant government agency to set its target for housing development.
At the same time, he also advised potential buyers to consider several aspects before buying property, among others the developer’s performance and location in addition to purchasing for own stay or for investment.
“A developer with good track record and financial performance, strategic location to attract tenants as well as a safe and conducive environment can attract buyers,” he said, adding that the relevant parties should also monitor rising building material costs which will eventually have a trickle-down effect on housing prices.
-- BERNAMA
