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Worst over for the property market? Or getting worse?

Posted in Property, KL / Selangor

Just a few days ago, potential investors from Penang travelled all the way to KL to view a project in Sungai Besi. If you are not thinking about property investment, would you take a bus for nearly 10 hours just to view a potential property and listen to a 2 hour talk? Anyway, demand is there and the capacity to buy is there too. The only hard thing is whether the developer is able to convince these buyers to buy or not.

Let’s look at what’s happening with the property market Malaysia then? Focusing on 2018 perhaps? These are some of the points in a long article in TheStar quoting the Valuation and Property Services Department’s (JPPH) Property Market Report 2017. Here’s that article “Is the worst over for property?”  or read on for some important points as follow.

Transactions are actually up by 4 percent in the first two months of 2018 versus 2017. This is despite the current overhang situation.In fact the volume of overhang in the residential property segment grew by 67.2 percent. In brief, people seem to be buying slightly more units but generally the market is slow or the type of properties in the market are just not the ones favoured by the buyers. As per JPPH, overhang is defined as the unsold units that have been completed, yet remained unsold for more than nine months after its launch.

CBRE|WTW managing director Foo Gee Jen shared that Bank Negara estimates that the average Malaysians can afford houses priced RM250,000 or lower. Yet, nearly 80 percent of all new launches in the first half of 2017 were priced above RM250,000.  In other words, there is a mismatch of price, location and products. he also shared however that the number of units are actually way below than what is really needed. He said, “Based on the population growth rate of 1.3% of 32 million people as of 2016, the annual growth is around 390,000. Based on the average household of four people, we need about 97,500 units per year. But annual completions are only at 78,216 units.”

According to Khazanah Research Institute’s “Making Housing Affordable” report, as at 2014, overall house prices in Malaysia are 4.4 times the median income. Zeroing in on the states, the price of a house in Kuala Lumpur is 5.4 times the median income.  In Penang, it is 5.2 times, Johor 4.2 times and Selangor 4. In brief, all these numbers show that house prices are seriously unaffordable. Only Melaka’s properties are classified as affordable.  (Hmm… perhaps it is time to really think of Melaka for property investment? It cannot continue to be the only one in the affordable category while every other state continue rising…)

There were a total of 77,570 units of new launches in 2017 and this was higher than the 58,411 units in 2015 and 52,713 units in 2016.  Kuala Lumpur recorded the highest number of launches in the country with more than 22,000 units, followed by Selangor with 13,522 units and Johor, 7,926 units.  Please feel free to read on for more information on the commercial property part too. 

 

From the article, it does not show any strong indication that the worst is over for the property market. If there are any takeaways, it simply meant that most of the earlier launched units would remain unsold unless of course the developers are able to sell them at a lower level in 2018. This is because household income needs time to rise. It cannot happen overnight. What is seriously unaffordable today may be moderately unaffordable the next year if the incomes are rising while the property prices stay stagnant or even going down. In other words, we may even see the overhang situation continue to worsen unless most of the new launches this year are exactly what the buyers really want and could afford. Soon, we will get the numbers for Q1 2018. Perhaps we may get clearer signs then. For now, let’s just be happy that the situation does not seem to be worsening. Happy following.

written on 23 April 2018

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