Property Overhang: What Is The True Picture?

On 25 October 2018, the Minister of Housing and Local Government mentioned that the property overhang is valued at RM22.5 billion and 73% comprised affordable houses priced at RM250,000 and below.

Earlier (early October 2018) the National Property Information Centre (NAPIC) in a press conference mentioned that as of June 2018, there were 29,227 units worth RM17.24 billion of unsold homes. This Preliminary Property Market Brief 2018 was by NAPIC and covered the first six months of 2018.

According to Bank Negara Malaysia (BNM) the total unsold residential properties stood at 130,690 units for end first quarter 2017. According to BNM, 83% of total unsold units were in the above RM250,000 category. In a press release on 26 September 2018, BNM stated the number of unsold housing units increased to 146,196 units as at end of first quarter 2018. And more than 80% of unsold units are priced above RM250,000. Please see Charts 1 and 2 below:

So is it 29,227 units or 130,690 units or RM22.5 billion overhang with 73% priced at RM250,000 and below as the Housing Minister says? What is the true picture? What is affordability?

BNM is a credible source while NAPIC is only reflecting a first-half 2018 position. And the Minister (of Housing) has got her numbers from a source that gives us a really contrary picture – if the overhang is for houses below RM250,000 then we are in dire straits!

Following BNM, the total number of unsold units by Q2 2017 was 146,497. This is an increase of 15,807 units from Q1 2017. The historical average of unsold units is 72,239 units (between 2004-2016). Why are there so many unsold units? The short answer is: Mismatch between house prices and affordability! Median house prices in Malaysia are 5 times the annual median household income in 2016. International affordability standard is 3 times. The median household income is RM5,228 and maximum affordable price in Malaysia should be no more than RM282,000. Prices have increased faster than household incomes!

What do we do? BNM suggested centralised affordable housing initiatives, registry of housing database amongst others. Meanwhile, what happens to the existing excess stock of 146,500 units? Developers have to take a “cut loss” approach and sell the units at 50% of current value to a central agency (“Danarumah”) that then re-sells to prospective purchasers. Who owns Danarumah? It is a new subsidiary of BNM which is best placed to fund and channel existing housing stock to buyers. This may require some form of legislation and persuasion to implement.

Good luck!

References:

1. BNM Quarterly Bulletin (3^rd Quarter 2017)

2. BNM Press Release, September 26, 2018

3. New Straits Times, October 25, 2018