This article first appeared in The Edge Financial Daily on January 17, 2020

KUALA LUMPUR: Should prices not correct substantially, it will take the next five years to clear unsold stocks of serviced apartments, small office home offices (SOHOs) and small office virtual offices (SOVOs) in the Klang Valley, according to CBRE|WTW managing director Foo Gee Jen.

Reducing property prices is the only way to clear overhang properties across Malaysia, Bernama reported Foo as saying at a media conference yesterday to launch CBRE|WTW’s Malaysia real estate market outlook 2020 report.

“In the Klang Valley, if there is no major correction of prices of serviced apartments, SOHOs and SOVOs, it (inventory) will take over the next five years to be cleared,” he said.

He was more optimistic about price increases of residential units as they could act as a hedge against inflation over the longer term, but observed even then the glut in these units would probably take two years to clear.

Across Malaysia, he estimated a glut of about 20,000 units of serviced apartments, SOHOs and SOVOs as at end-2019, and about 35,000 units of residential properties in total.

In its report, CBRE/WTW said Malaysia’s property market regained some strength in 2019 based on the latest reported quarterly numbers although the industry contended with oversupply and weaker prices.

“On the broader front, oversupply, down-trending transactions, weaker prices are symptoms of market uncertainty, which may be due to inconsistency of government policies and lack of comprehensive and timely market information.

“While oversupply is currently found in almost all sectors, this could be addressed in the mid term if the economy turns around to prospects of high sustainable growth from its current outlook of uncertainty and doldrums.

“Bottom line, we want carefully-crafted government policies, which are then implemented consistently long term,” Foo said in the report, which found that Malaysia’s property market gained traction as transaction volume in the third quarter of 2019 rose 5.6% to 83,186 transactions on a higher value of RM34.7 billion, 4.7% higher than a year earlier.

The Klang Valley, which constitutes about a quarter of the nation’s property market, saw transaction volume expand 7.7% to 20,626 transactions while value increased 13.7% to RM15.8 billion.

“Residential transactions increased, but overhang (was) also up,” CBRE|WTW said.

The Klang Valley residential sector, which reported 8.7% growth in transactions at 15,973 units, registered a 4.2% rise in value at RM8.33 billion.

The Klang Valley residential property overhang involving unsold units, increased 5.1% year-on-year in the third quarter to 12,007 units. In quarterly terms, the increase was 2.4%.

“Close to one-third of the overhang in the Klang Valley was made up of residential properties priced between RM200,000 and RM500,000,” the property consultancy said.