This article first appeared in The Edge Malaysia Weekly on July 31, 2017 - August 6, 2017

IT’s very quiet these days, I hardly have any clients now,” says a lawyer who specialises in real estate transactions. He and property agents now have time on their hands. The empty commercial blocks and unlit units in high-rise condominiums — which have mushroomed in recent years, especially in the Klang Valley — confirm their negative sentiment.

Looking back at the property boom that peaked in 2011 to 2012, some blame the slowdown on macro prudential measures imposed on the market. Yet, there is no denying that property prices have risen above what the average Malaysian can comfortably afford.

Property transaction volume fell 11.5% year on year last year and contracted 4.8% y-o-y in the first quarter of 2017, data from the National Property Information Centre show.  The number of unsold units had gone up by 43.8% to 14,792 in 2016. The office sector in Kuala Lumpur and Selangor also saw a 16% increase in vacant space in 2016, while there was 11.9% more untenanted retail space compared with the previous year. The current glut is mainly in the high-end residential segment and commercial units — reflecting a mismatch in supply and demand.

“The market is still coping with excess supply of medium to high-end residential properties, and though new supply has probably wavered, it will still take time for the market and prices to adjust. The current situation warrants better regulatory oversight and urban development planning. There is talk of setting up a regulatory body to oversee the property industry,” says UOB Malaysia economist Julia Goh.

Second Finance Minister Datuk Seri Johari Abdul Ghani said last Tuesday that the government is looking into establishing a single authority to “supervise” the local property market and resolve the supply and demand mismatch for affordable housing.

Just as banks are required to be more prudent in lending, would this new single authority mean property developers, too, would need to be more responsible in building and selling?

In Singapore, where home prices have fallen for 15 consecutive quarters following cooling measures, there is a rule that requires land to be developed within five years of purchase and all units built on it must be sold within two years. Those who do not fulfil this Qualifying Certificate rule — which applies to foreign property developers and Singapore-listed property companies with non-Singaporean directors and shareholders — would be fined.

In addition, the Additional Buyer Stamp Duty rule, which was implemented in 2011, requires developers to sell residential units within five years or face a levy of 10% of the land purchase price (15% for sites bought after January 2013).

Experts are lukewarm about whether similar measures would induce more responsible building in Malaysia.

“It is important not to go overboard with the good intention of regulating the property market. One must take cognisance of the fact that the property market has a typical cycle and will normally play out according to market forces.

“As it is, steps are already in place to ensure there are appropriate cooling measures. To overdo it would not only cause major and probably unnecessary disruptions to the market, but also the supply chain, affecting over 140 related industries,” says KGV International Property Consultants executive director Samuel Tan.

However, he reckons that the authorities should know the market well and is in favour of a mechanism being put in place to prevent overbuilding.

UOB’s Goh points out that the situation in Singapore is different from Malaysia. “The regulations introduced in Singapore were partly to prevent hoarding because land is scarce there. Can such a rule be imposed in Malaysia where there is still an ample supply of land?

“Also, private developers accumulate land in areas where they see development potential with no immediate plans to build. Developers buying in a softer cycle can help to cushion a slowdown, which acts as a counter-cyclical measure. Will such rules change the demand and supply dynamics?” she questions.

Knight Frank Malaysia managing director Sarkunan Subramaniam also thinks there are enough “cooling” rules as it is, and expresses his concern about affordability.

“Any additional measures would only exacerbate the current market situation. It is worrying that the government has approved developer financing to assist property buyers ... to cover the gap between bank financing and limited equity. This would go against the very purpose of reducing household debt,” he says.

The issue of affordability needs to be fixed, but not by making loans easier to obtain. As Johari recently pointed out, the private sector puts the affordable home threshold at RM500,000 when real affordability — according to Bank Negara Malaysia — is in the region of RM200,000.

“Structurally, the property market looks good in Malaysia. Some 70% of the population is below 40 years old and that should drive demand for property. I believe the demand is there, but affordability is an issue,” says Affin Hwang Capital senior associate director Loong Chee Wei.

Developers are already “moving to more affordable units these days — those below RM500,000” says Loong, who sees sentiment possibly picking up early next year or after the general election.

To be sure, it will take time for the current oversupply situation to unwind but the direction is clear.

“It is a needful adjustment for the market to match real demand and bring prices to a more realistic level,” says Tan.

The new single authority would be worth its salt only if it can get developers to build homes that people want and can actually afford.

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