Property overhang is ‘worrying.’ Easing over next two years.

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My personal thoughts about unsold properties in the market is to ask two questions. #1 – Are these unsold properties because of the economic situation or because of the mismatch of properties? If it’s due to the economic situation, then I think the issue will be prolonged. If it is due to the mismatch of properties versus the demand, then it will just need some time to heal itself. #2 – Is it because people could not afford or because people prefer to wait. First one is a bigger issue and will take time because household incomes do not rise in a few months or suddenly. If people could afford to buy they prefer to wait,then this is sentiment related. If it’s sentiment related, we will need something positive to happen and the rest will just follow. The question is are we moving towards a more positive sentiment in the near future?

According to the National Property Information Centre, current overhang residential units in Malaysia as at first half of 2018 is 29,227 units valued at RM17.24 billion. Article in TheStar here.  According to Rahim & Co executive chairman Tan Sri Abdul Rahim Abdul Rahman, the level of overhang in the country was “worrying.” However, Rahim & Co expects the property overhang in Malaysia to ease over the next two years as market forces and various prudent measures are expected to stabilise the situation. He also pointed out that the property market eventually recovered in the last two recessions. He added, “The current situation is not a recession, it’s just an oversupply situation. In this case, the developer needs to be prudent in what they are offering. It must be something that is sellable given the current market situation.”

This is Rahim & Co’s real estate agency director Robert Ang’s views about the current restrictions from “Our economy is fairly matured and you should let market forces decide its direction, not impose restrictions on developers and investors. Let developers sort themselves out. This can be done in the way of lowering rates or offering special packages. In business, you need to be smart.” He added that in line with the current market glut, developers need to slow down or postpone launches so that demand can eventually catch up with supply. The article in TheStar here.

Letting the property market takes care of itself will depend on which party is more powerful. This is why I still favour government intervention favouring the potential first-time home buyers. Budget 2019 seeks to address some of these issues with first-time home buyers but I am not so sure if it is also able to put a more positive sentiment into the market, something I think we are lacking at this moment. Remember, if the road ahead is not clearly lit, travellers along the road will move very slowly. Happy understanding the property market of Malaysia. By the way, it’s doing okay.

written on 17 Nov 2018

Next suggested article:  When sentiment turns positive and good fundamental

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