December 3, 2017
It’s a popular topic these days. In fact I have been asked no less than 3 times by a few different Whatsapp group. Only one of those three groups are related to property investment. Haha. Well, we have another prediction, just a few days ago. This time from one of the top three international rating agencies in the world; Moody’s Investor Service. It shared that the problem of oversupply would be around for five years. That means the oversupply will last till 2022. One of the major project mentioned in the article is the Tun Razak Exchange which is said to worsen the current oversupply situation when it’s completed. The article in FreeMalaysiaToday here.
The article quoted the South China Morning Post (SCMP) saying, “The increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks’ asset quality.” Moody’s gave an example. The total retail space per capita for Malaysia had increased sharply in key states and now even surpassed regional markets such as Hong Kong and Shanghai. It added, “The large incoming supply of retail space will exacerbate the oversupply and raise vacancy rates across Kuala Lumpur, Penang and Johor from the current 13% to 30%.” (This means that Moody’s are saying that the Malaysian property market have yet to reach the lowest point (market prices) or highest point (oversupply numbers) depending on how we look at it)
This is its comment about the government’s recent approval freeze for new developments from 1st November 2017. This will not correct the oversupply situation over the next five years. This is because all those currently building will still be completed and will enter the market. All the oversupply developments will pressure Malaysian banks with high loan-to-value (LTV) ratios. (Now, do you know why some banks are reluctant to lend to certain developments? Many times, their exposure to the said development is already high and they do not wish to ‘put too many eggs in the same basket. Try different banks instead) SCMP also reported that the banking system’s total loan exposure to property segments which is suffering from the most acute oversupply – commercial properties and high-end high rise residentials are currently 8 percent of total bank lending and as of now, the non-performing ones are still low; 1.1% to 1.2%.
Moody’s estimated 20 to 30 percent of mortgages booked each year had LTV ratios of 90 percent. (This tells us that many first-time home buyers are already paying over 10 percent downpayment when they secured their loan approval. The reason I say this is because majority of housing loans were to first-time home buyers. Here’s that earlier article: 71 pct of loans to first-time home buyers. Positive. The few places where the unsold properties were highest include Kuala Lumpur, Penang and Johor. Johor has the largest share of unsold residential units in Malaysia (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%). The full article here again for your reading.
Remember to exercise the same caution every time we look at average numbers. Not everything should be lumped together. Some malls are dying, that’s for sure but there are malls where before noon, its car parks are already close to full. This is the same for condos. Just because both are priced at similar price levels do not mean both will be able to maintain their prices! Look at brickz.my for some information on prices. Happy anticipating.
written on 3 Dec 2017
Next suggested article: Dangerous, when property turns unaffordable