Affordability is a Key Issue!

Affordability continues to remain a key issue among home buyers. The residential market has become more polarised, i.e. not to assume affordable properties will sell. It is still quality and location. (This article is based on research by Sulaiman Akhmady Mohd Saheh, Rahim & Co International Property Consultants Sdn Bhd).

For the first nine months of 2023 (9M23), the total transaction volume in the local property market was unchanged at 0% year-on-year (y-o-y). On the other hand, the total transaction value in the local property market increased by almost 9% y-o-y.

The residential sector continues to dominate the local property market, especially in areas bolstered by existing infrastructure, strategic locations and areas with sufficient population and amenities such as schools and workplaces.

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For residential launches below RM300,000, new supply share averaged at 42% between 2019 to 2022. However, for the first half of 2023 (1H23), launches below RM300,000 posted a much smaller share at 21%. Meanwhile, newly launched residential units between RM300,000 and RM500,000 and above RM500,000 showed an upward trajectory.

Residential units priced between RM300,000 and RM500,000 rose 37.3% in 1H23 from 30.9% in 2022, and those priced above RM500,000 went up to 42% in 1H23 from 24.7% in 2022.

In 2023, there was a slight increase where prices in Kuala Lumpur, Petaling Jaya, Penang and Johor Bahru improved by about 2% to 5%, on average.

Looking at the median price multiple index (an index of affordability comparing median household income against the median house prices), the median terraced house price to annual household median income in Kuala Lumpur is at a multiple of 7.1, whereas in Selangor and Johor, the figure is 4.7, and in Penang it is 6.4. Bearing in mind, less than 3.0 is classified as affordable, from 3.1 to 4.0 is moderately unaffordable, 4.1 to 5.0 is seriously unaffordable, and more than 5.0 is severely unaffordable.

In Singapore, the median multiple for the housing development board category stands at 5.3, while the median multiple for Singapore’s general market for privately owned properties is at 13.7. Jakarta stands at 9.4, Bangkok at 10.2, London at 8.7, Sydney at 13.3, and Hong Kong at 18.8.

There is room for improving transaction value and volume. Overhang could be tackled with incentives and promoting sales to MM2H holders. In new developments, planners and developers need to work-out pricing and location that meets market demand. Median price multiples are a gauge and we need to find ways of raising income levels, so that young people could afford to purchase TOD units. Government agencies involved in the property sector are far less agile or nimble to develop affordable units. It is the private sector that can deliver volume and value.

Reference:

Affordability still a thorny issue, Elim Poon, The Star, 31 January 2024