Is the Property Overhang Clearing Up?

 

The recent statistics released by the National Property Information Centre (Napic) exhibits a positive trend for the industry as far as the overhang is concerned as both volume and value of transactions surged to an all-time high of over 399,000 units, worth a staggering RM196.8bil, transacted in 2023. The pick-up in activities was evident in states like Johor, where transactions jumped by more than 44% y-o-y, accounting for 16.2% of volume and 18% of the value nationwide. Nevertheless, Selangor remains Malaysia’s favourite property hot spot, accounting for 22% and 30% of the nation’s total transaction volume and value, respectively. In addition, according to the Napic report, some 21.5% of market transactions were purchases made directly from developers while the balance was sub-sale volume.

The biggest positive from Napic’s annual data was the significant reduction in overhang properties. The total overhang volume fell by 9.8% y-o-y to 46,641 units while in terms of value, there was an 11.1% decline to RM34.3bil. This is the lowest overhang volume since the 47,806 units that were observed at the end of 2019, and in terms of value, it is just RM4.5bil above the level seen in the same year.

Serviced apartment overhang fell sharply with the number of units and value dropping by 13.1% and 17.7% y-o-y to 20,825 units and RM23.8bil, respectively. Geographically, serviced apartment overhang saw a significant reduction in Johor as there was a 17.1% and 20.6% drop in volume and value to 14,132 units and RM9.7bil, respectively. Selangor and Kuala Lumpur too saw steep declines, with both witnessing 29.4% and 20.1% fall in the number of units and 33.9% and 16.5% decline in terms of value, respectively.

In the residential segment, as seen in Chart 1, the total overhang has dropped 30% from the peak of 36,863 units two years ago while in terms of value, some RM5.1bil worth of overhang has been removed. In the serviced apartment segment, overhang units have been reduced by 14.1% or 3,470 units while in terms of value, some RM4.1bil was cleared.

As the market seems to be “tighter” with less overhang, developers too have seen a good pick-up in sales last year and at the same time, the increase in transaction volume has caused prices to increase across the board.

Overall, the Malaysian house price index (HPI) rose by 3.2% y-o-y, slightly ahead of the increase in the Malaysian consumer price index, which rose by 2.5% in 2023, as can be seen in Chart 2.

In the fourth quarter of 2023 period alone, HPI rose by 3.9% quarter-on-quarter (q-o-q) and 3.7% y-o-y.

As prices rise and supply tightens due to lower overhangs, it will be interesting to see how 2024 will pan out. But this is a positive development for the property sector and hopefully developers and local authorities remain selective and cautious in their projects.

Reference:

Property overhang clearing up, Pankaj C. Kumar, The Star, 16 March 2024