This article first appeared in The Edge Financial Daily on October 11, 2018

KUALA LUMPUR: An increasing number of developers are launching more affordable homes priced below RM500,000 to meet housing demands and to attract more purchasers amid a slower take-up rate.

A survey by Real Estate and Housing Developers’ Association (Rehda) in Peninsular Malaysia showed that 65% of the residential properties launched by its 152 members in the first half of 2018 (1H2018) were priced at RM500,000 and below compared to 52% in the second half of 2017 and 44% in the first half of 2017.

“We are aligning our businesses to what the buyers want and can afford. As you can see a [majority] of the [residential] launches (in 1H2018) were RM500,000 [and below], so we hope the worst is over [for the property sector],” association president Datuk Soam Heng Choon told reporters in conjunction with the release of the survey results yesterday.

The REHDA Property Industry Survey 1H2018 showed that the respondents in 1H2018 launched 13,233 units, 45% more compared to 9,089 units in 1H2017.

In comparison 51% were sold in the first half against 48% in 1H2017.

Of the 13,233 units, 4,484 were apartments/condominiums, 3,874 two- to three-storey terrace homes and 2,387 serviced apartments.

The survey also revealed that three in four have unsold units as at 1H2018 with a majority of them holding up to 30% of the stock, compared to 72% in 1H2017 and 66% in 2H2017.

The unsold stock is properties unsold three years after completion.

“If they are not able to sell due to government restrictions, for example [unreleased] bumiputera units with a good location, then we are not too concerned as it can be sold easily once the government releases them. What concerns us are projects that are completed, but can’t be sold at all.

“Definitely holding 30% [unsold stock] is not comfortable as a developer’s margins are low, so it is a very risky business and holding this [level of] stock is definitely a no-no,” Soam said.

The top three factors that contributed to the increase in unsold units were end-financing loan rejection (inability to obtain a right margin of financing), unreleased bumiputera units and low demand.

The three largest types of unsold residential units were semi-detached homes and bungalows (33%), terraced houses (31%) followed by apartments and condominiums (24%). Most of the unsold units were priced between RM500,000 and RM2.5 million and are located in Johor Baru.

Soam said that it was up to all stakeholders, and not just developers, to play their parts in providing affordable housing - priced between RM100,000 and RM500,000 – according to Rehda’s definition.

“Currently, compliance costs, such as land conversion premium and utility costs (capital contribution) are up to 20% of development costs, so everyone should play their role in reducing home prices, with the government taking the lead,” he said.

According to the survey, 55% of respondents were neutral on the property industry outlook in 2H2018, while 18% were optimistic and 27% pessimistic.

However, the outlook for the first half of 2019 it was better, with 39% optimistic, 44% neutral and 17% pessimistic.

About 47% of the respondents plan to launch 15,852 property units in the second half. However 66% of them anticipate their sales performance for the first six months after launching to be 50% and below.

Most of the coming home launches will be priced between RM100,001and RM500,000 in Peninsular Malaysia, but between RM500,001 and RM700,000 in Penang and Selangor.