BNM Annual Report 2019: Relative to income, Malaysian house prices remain seriously unaffordable

BNM Annual Report 2019: Relative to income, Malaysian house prices remain seriously unaffordable
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KUALA LUMPUR (April 3): Bank Negara Malaysia (BNM) said today that relative to income, Malaysian house prices remain seriously unaffordable due to a pronounced and prolonged mismatch between demand and supply of residential property.

This was despite lower average transacted house prices in 2019, consistent with higher activity in the affordable housing segment, according to the Central Bank’s Financial Stability Review for Second Half 2019.

"Nevertheless, risks of a sharp correction in house prices will continue to be mitigated by firm demand for housing, particularly for properties priced below RM500,000. For the first nine months of 2019, these properties accounted for 83% of total transactions.

"Initiatives to support home ownership have led to improvements in housing market activity and lowered the stock of unsold properties. Still, the number of unsold housing units remains elevated with house prices remaining seriously unaffordable and demand for affordable housing units continuing to outstrip supply by a wide margin.

"In the non-residential property market, oversupply conditions in the office space and shopping complex (OSSC) segment have not improved,” BNM said.

BNM said that while conditions are likely to have deteriorated further in the wake of recent developments, the amount of debt-at-risk from bank exposures to the property sector is expected to be manageable with potential losses comfortably within banks’ excess capital buffers.

According to BNM, developments in the property market are important from a financial stability perspective given that banks’ total exposures to the property sector account for 33% and 51% of total banking system assets and loans, respectively, above the long-term average of 28% and 45%, respectively.

"Loans for the purchase of residential properties, account for about two-thirds of banks’ total exposures, and remained the prime driver of growth in property exposures. As discussed in the assessment on households, while risks from bank exposures to housing loans have increased slightly, they remain low.

"In the non-residential property segment, banks’ exposures to OSSC account for less than 4% of banking system loans. New loans in the non- residential property segment have also continued to shift away from the higher risk OSSC segment to loans for the purchase of shoplots, industrial buildings and factories.

"This in turn has sustained the quality of bank lending to the property sector, with low and stable impairment ratios recorded across all segments.

"Debt-at-risk or the property sector remained at a manageable level of 5.5%, with banks’ excess capital buffers sufficient to cover three times the estimated potential losses.

"More than half (56%) of these potential losses stem from loans extended to small and medium enterprises (SMEs) and small corporates for the construction and purchase of non-residential properties.

"Given their lower financial buffers, these borrowers are more likely to be affected by the soft property market conditions and slower retail and trade activity in recent periods," BNM said.

For more stories on BNM's annual report, click here.