What is the Real Property Overhang?

At the recently concluded 15th Malaysian Property Summit 2023, the Director of the National Property Information Centre (Napic) presented a paper on the status of the Malaysian property market up to the third quarter of 2021 (3Q22). The full market report is only expected to be released by the middle of March 2023.

The residential overhang at the end of 3Q22 stood at 29,535 units worth some RM19.95bil. Napic’s website also provided the details of where these overhang properties are located and the three key states – Johor, Selangor, and Penang – are the main hotspots, accounting for some 14,956 units or just over half of the country’s total overhang. In terms of the type of properties, the 3Q22 data showed that high-rises comprise 18,962 units or 64.2% of the total overhang.

In terms of price points, 23.8% of the total overhang was priced at RM300,000 and below, 29.5% was priced between RM300,001 and RM500,000, 31.6% was priced between RM500,001 and RM1mil and the balance was priced above RM1mil. In terms of the total value, the residential overhang is skewed towards the high-end segment with properties worth more than RM1mil accounting for 43.4% of the total overhang value, while those priced between RM500,001 and RM1mil accounted for 31.9% of the total overhang.

Most of these overhangs in the segment are properties priced between RM500,001 and RM1mil, which accounted for two-thirds of the total unit numbers and 58.9% in value of the total overhang.

The key underlying ageing profile of this overhang was as follows:

As seen in Table 1, the key overhang is properties (both residential and service apartments across the four key states) that have been part of the statistics for the last five years and they account for between 51% and 93% of the total overhang units. In total, these properties accounted for 75.7% of the market’s overhang status while properties that have been in the market for the last three years are just over 5% from the key states. Service apartments located in Johor, and those that are in the five to 10 years bucket, account for 26% of the total market overhang.

In terms of prices, most of the overhang is seen in the same five to 10 years category across the board and account for 71% of the total overhang properties in the market.

From Table 2, properties below three years account for less than 5% of the total market overhang. Service apartments that are in the RM500,001 to RM1mil bracket and are in the five to 10 years category as they account for 25% of the total market overhang.

Looking at the ageing profile of the property overhang, those above five years will likely remain unsold for a foreseeable future.  This is mainly due to either being wrongly located and without the proper or good infrastructure to support community living, or untouched by property buyers for being too expensive (especially those beyond the RM500,000 price threshold).

Having identified the issues, regulators and property developers would need to come out with strategies to address them and to attract buyers to these properties via a rehabilitation exercise and with a significant price reduction.

If the banks and developers have fully provided, then it is time to do a major discount (50% or more) for residential and service apartment above 3 years and priced above RM300,000. We could have a graduated discount – with the highest (70%) for those above 5 years and above RM0.5 million in value.

Reference:

Demystifying property market overhang, Pankaj C. Kumar, The Star, 11 Feb 2023