The National Property Information Centre recently released statistics on the performance of the Malaysian property market for 2021 (reported by Pankaj C. Kumar, Starbiz, 16 April 2022).
While the headline numbers showed the number of transactions surpassed the 300,000 unit threshold level, up by 1.5% year-on-year(y-o-y), the data is still below the pre-pandemic level when the number of transactions hit 328,647 units in 2019.
The 2021 total transacted units were also lower than the 2017 and 2018 data points when total transactions were well above 300,000 units. However, transaction value in 2021 was significantly higher at RM144.87bil, up 21.7% y-o-y and the at the highest level since the 2016 total value of RM145.41bil.
Compared with a year ago, the number of overhang units increased by 11.0% in units and 7.2% in value.
What is more compelling is to look at the data at the end of 2017 and 2021 for comparison.
It is rather concerning that even as far as early 2018, market watchers were out with the red flags, and today, from the level we were four years ago, the market’s overhang in terms of volume has doubled, while in terms of value it is up by almost 120%.
An interesting point from this data is that the overhang within the high rise segment (which includes residential high rise, commercial service apartments, and Soho units) is now at a new record high of 44,800 units worth some RM33.32bil. Overall, this translates to 70.6% of the overall market overhang in volume and almost three-quarters of the total value. Imagine, seven in ten properties in Malaysia that are unsold today are high-rise units.
For the residential segment by state, the key overhang is in Selangor, Johor, and Penang as they account for 48% of total overhang units, worth some RM10bil or 43.9% of total overhang value in the residential segment.
Despite the massive amount of overhang, developers remain optimistic to build even more and future supply is expected to be more than the current inventory. In terms of states, the key states with massive future supply especially within the Soho and service apartments sub-segment are Selangor (for the expected increase in the number of Soho units), Kuala Lumpur (for the expected increase in the percentage of Soho units and the expected increase in service apartment in the number of units) and Penang (for the expected increase in the percentage of service apartments units) as seen in figure 4.
From Sydney to Singapore, from New York to New Zealand, the property market is booming across the globe but not in Malaysia.
The sheer overhang that the market is experiencing plus the avalanche of new product launches that we see in Malaysia has resulted in those wanting to buy only looking at new products and thus leaving stale products unsold for a considerable period.
It took just four years for the overhang to double in the market and with the value of those under construction at 150% of overhang, simple arithmetic seems to suggest that we may see the market experiencing an unprecedented amount of unsold properties by 2030.
As the pace of overhang and unsold properties remains on an upward trajectory and if the increase remains at about 10% a year in the number of units and 8% in value, we will see total overhang and unsold under construction hitting 436,000 units by 2030 and valued at about RM222bil, more than double than where we are today.
Shouldn’t we be concerned? Are bankers not worried? Have they provided fully? Is pricing, location or quality the issue? Or, is it sheer volume in the wrong segment the issue – when there are so many looking for affordable housing? Or, are we targeting foreigners when they are restricted by the new MM2H?
Reference:
A bubble that never pops, Pankaj C. Kumar, The Star, 16 April 2022
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