Headline

 



The true state of the Malaysia property market: Imbalances in certain segments

The true state of the Malaysia property market. The true state of the Malaysia property market.

In its annual report 2015, Bank Negara highlighted in a boxed article the uneven growth in key sub-segments of the Malaysian property market in recent times.

The 10-page article underscores the serious issues facing the residential, office and retail markets, which, if left unchecked, could impact the overall economy.

It dealt with the crux of the issues, their challenges and made suggestions. Some of these resolutions are not entirely new, they have been brought up by different quarters over the years, but have yet to be seriously studied by the relevant parties, much less acted on.

Against the broad issues facing the local property market today, experiences from other economies and how Malaysia may benefit from these were highlighted. The report delved at length on key locations like Kuala Lumpur, Selangor, Johor and Penang.

The key takeaway is demand exceeding supply in the residential market, with acute shortage of affordable housing in urban areas, pricing out low- and middle-income urban households.

In contrast, there is overbuilding of office space and retail malls, particularly in major cities, which could potentially adversely impact the real estate market and have potential spillover impact on other sectors.

Against this backdrop, the market must be underpinned by macro-prudential and fiscal measures. The prohibition of developers interest-bearing scheme (DIBS) and higher real property gains tax remain instrumental in maintaining the long-term market sustainability and mitigating potential risks to financial stability.

 

The access to quality affordable housing falls on both the government and private sector, the report says. There is a need to consolidate multiple providers of affordable housing at both federal and state government levels and agencies like Syarikat Perumahan Negara Bhd and Perumahan Rakyat 1Malaysia (PR1MA).

Establishing a single entity focused on affordable housing alleviated the demand/supply mismatch in other countries. South Korea’s Land and Housing Corp and Singapore’s Housing and Development Board (HDB) spearheaded and centralised national and state initiatives.

Consolidating various affordable housing entities under one agency resulted in effective resource planning and lowered development costs through economies of scale.

Singapore also reduced its overall construction costs when it adopted the use of industrialised building systems (IBS) in public housing. IBS is a modern construction process that utilises techniques, products, prefabricated components and on-site installation.

The use of IBS in about 80% of HDB buildings resulted in labour cost savings of more than 45% compared to conventional methods, with a significant drop in construction time and improved quality of buildings.

But building more public housing is only part of the solution. An equal focus on the rental market is needed. Switzerland, Germany and Australia have vibrant private rental markets. This has helped to ensure sufficient housing supply to meet diverse income levels, preferences and shifting demographics.

The conversion and re-purposing of under-utilised commercial space should also be part of that overall strategy, with the cost being borne by property owners rather than tax payers.

More than 17 million sq ft of commercial buildings constructed before 1975 in Lower Manhattan, New York City were converted into residential rentals, hotels and restaurants, underpinned by tax incentives to developers.

Office occupancy improved with a more diverse tenant base, a transition from its traditional pool of financial, insurance and real estate companies to media, technology and non-profit and education sectors. Commercial to residential property conversions were implemented in London, Toronto, Tokyo and Sydney.

There are reasons for Bank Negara’s concern. A sharp increase in commercial vacancies may result in tighter cash-flow among developers, who are typically owners of these properties. This may adversely affect other sub-sectors within the construction sector and other industries, impacting employment and households to service their loans.

The disorderly unravelling of commercial property booms in Sweden, Finland, Norway and Japan in the early 1990s resulted in considerable bank loan losses. During the 2008/2009 global financial crisis, commercial property was a major driver of loan losses in Australia, France, Ireland and New Zealand, although this sub-segment accounted for a smaller share of banks’ loan books compared to housing.

A comprehensive and carefully-designed national planning policy is needed for the property market and will help support the government’s aim to deliver more housing, while managing oversupply of commercial properties, the report concludes.

 

Housing stock

Malaysia’s housing stock increased by 35% since 2005. Despite this substantial growth, a shortage persists at the national level.

The gap between the number of houses and the number of households widened to 2.5 million units in 2015 from 2.1 million units in 2005. A mismatch exists between the pace of growth in new housing supply and the net increase in households, especially in the last five years.

Between 2005 and 2008, an average 166,876 units of new houses were completed annually versus a 117,250 rise in households, implying a surplus of 49,626 houses a year.

Between 2011 and 2015, however, the number of houses completed declined by more than half to 80,089 units, far below the 166,000 average net rise in the number of households annually. This suggests an average shortfall of 85,911 housing units a year between 2011 and 2015.

This shortage is acute for affordable houses in 2014, when half of Malaysian households earned a monthly income of RM4,585 and below.

According to the “Median Multiple” methodology developed by Demographia International, recommended by the World Bank and the United Nations to evaluate urban housing markets, a house is affordable if a household can finance it with less than three times its annual household income. Houses priced up to RM165,060 are affordable to a median Malaysian household earning RM4,585 (4,585x12x3=165,060).

However, only 21% of new house launches were priced below RM250,000 in 2014.

There is, however, an oversupply of higher-end properties (evident in key states and in selected sub-segments like luxury condominiums) priced above RM500,000. Property launches in this price category account for 36% of total new launches in Malaysia but are only within reach of 5.4% of the population.

While the federal and state governments, Syarikat Perumahan Negara and PR1MA have some affordable housing initiatives, the current level of house-building is insufficient to meet demand. Nonetheless, these initiatives are currently under various stages of construction.

This demand/supply imbalance, particularly in the affordable housing segment, has contributed to the rapid rise in prices. Other contributing factors include low real property gains tax and marketing tools like DIBS which artificially inflated prices and encouraged speculators with small outlays.

These factors compounded affordability issues, particularly among the low- and middle-income population.

Average annual growth rate of house prices rose by 7.9% between 2009 and 2014, exceeding average household income growth of 7.3% over the same period, a sharp contrast between 2004 and 2007 when incomes rose more than house prices.

 

 

A measure of the health of commercial properties is vacancy rate. Klang Valley recorded a vacancy rate of 20.4% in 2015, a contrast to the regional average of 6.6% and the national 16.3% level. In tandem with high vacancies, monthly rentals are the lowest among regional cities, at US$2.60 per sq ft (psf).

Despite the low rentals, recently completed top grade offices in Kuala Lumpur have not achieved satisfactory occupancy rates. Quoting Savills Research: May 2015 Property Market Overview Report, the central bank says several top grade office buildings completed between 2011 and 2014 recorded occupancy rates of between 50% and 75%.

Over the next few years, the significant incoming supply of large projects could aggravate over supply in the Klang Valley. According Jones Lang Wootton, 63 new buildings are scheduled to be completed in the Klang Valley over the next three years, adding an average 4.9 million sq ft of new space to the market each year. This is significantly higher than the historical average of 2.8 million sq ft added annually between 2001 and 2015.

The oil and gas sector is the largest private sector office-occupier, filling up to 16% of total Klang Valley office space (Jones Lang Wootton, 2015). A prolonged period of low global prices would dampen demand further.

 

 

 

Retail segment

Signs of oversupply are emerging in Penang, Johor and the Klang Valley. Although the vacancy rates in some of these areas have been improving in recent years, the vacancy rates of between 12.4% in the Klang Valley and 28.2% in Penang are relatively higher than regional economies. The high vacancy is symptomatic of a mismatch between demand and supply.

Johor Baru, Penang and the Klang Valley have among the lowest household income and population levels compared to these regional cities but prime space per capita in Malaysia is notably higher than more populous Shanghai and Beijing, and higher-income Singapore and Hong Kong.

National Property Information Centre (NAPIC) data shows there are now 55 malls under construction in Malaysia, with 35 in the Klang Valley, Penang and Johor. An additional 30.9 million sq ft will be completed between 2016 and 2018, equivalent to about 40% of existing space.

By 2018, prime retail space per capital in the Klang Valley and Johor Baru is projected to increase by about 43% and 119% respectively from their already high levels. The emergence of new malls means competition for tenants, high vacancies, lower rentals and increased risk of dilapidation.

Retailers’ ability to attract mall visitors and to spend could become more challenging amid weak consumer sentiments.

 

News Source: The Star BizWeek, 26 March 2016

Rate this item
(1 Vote)

13 comments

  • RobertNib
    RobertNib Monday, 14 August 2017 23:39 Comment Link

    online blackjack echeck
    roulette
    download casino titan
    roulette
    online casino for iphone real money

    Report
  • ThomasDar
    ThomasDar Saturday, 12 August 2017 21:17 Comment Link

    what are the top ten best online casinos
    online casino roulette australia
    online jackpot australia
    online roulette casino games
    online casino for us residents

    Report
  • HaroldNix
    HaroldNix Saturday, 12 August 2017 14:10 Comment Link

    casino empire pc game download
    virtual casino real money
    top online casino canada
    trusted live casino online
    888 online casino download

    Report
  • HaroldNix
    HaroldNix Saturday, 12 August 2017 11:41 Comment Link

    play blackjack tournaments online
    the best online casino for us players
    play black jack online
    top 10 rated online casinos
    usa black jack casino

    Report
  • Logangog
    Logangog Friday, 11 August 2017 17:09 Comment Link

    what are cialis pills for
    generic cialis
    buy cheap cialis no prescription
    generic cialis
    buy generic cialis europe

    Report
  • RobertHoine
    RobertHoine Wednesday, 09 August 2017 22:58 Comment Link

    safe place to buy cialis
    order cialis online
    buy cialis for cheap
    order cialis
    cialis c5 pill

    Report
  • Stantondiara
    Stantondiara Friday, 04 August 2017 18:34 Comment Link

    cialis pills for sale uk
    cialis 20
    buy cialis money order
    generic cialis 20mg
    cheap cialis pills online

    Report
  • JasonEmisy
    JasonEmisy Monday, 24 July 2017 01:03 Comment Link

    difference between generic viagra real viagra
    cheap viagra online
    viagra pillen te koop
    cheap viagra
    street value 100 mg viagra

    Report
  • Bookerutest
    Bookerutest Sunday, 23 July 2017 08:00 Comment Link

    siti sicuri per acquistare viagra generico
    buy cheap viagra
    where can i buy viagra in abu dhabi
    viagra without a doctor prescription
    cheap genuine pfizer viagra

    Report
  • cheapest cialis in australia Slups
    cheapest cialis in australia Slups Sunday, 09 July 2017 15:36 Comment Link

    generic cialis buy
    cialis online
    buy cheap cialis today
    cialis buy
    buy cheap viagra cialis

    Report

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.

xxxlogo

At PTLM, everything we do is with integrity, commitment and innovation as to facilitate information dissemination so that you could make well-informed decision.

 

Subscribe With Us


Invalid Input

Most Popular

Recent News

Our Gallery