This article first appeared in The Edge Malaysia Weekly on May 6, 2019 - May 12, 2019

THE 2018 Property Market Report, released last week by the National Property Information Centre (Napic), revealed a number of significant points.

One of the most noticeable, amid a wealth of information, is that the streak of contractions in overall transaction volume and value, which has plagued the market in recent years, has finally been snapped.

Last year, the overall transaction volume rose 0.6% while transaction value inched up 0.3% after three consecutive years of contraction. Although the increase may be negligible, industry experts believe the property market is finally showing signs of stabilising, which may lead to a slight recovery this year.

“The increase in transaction volume and value is marginal but these are signs that the property market is stabilising after years of uncertainty,” says KGV International Property Consultants executive director Samuel Tan.

“As to whether the property market has finally reached the bottom, it depends on the macroeconomic situation locally and globally. Housing and financing policies will be the key factors that will affect the marke,” he says.

AmResearch property analyst Thong Pak Leng believes the worst is likely over, even though the issue of unsold units still needs to be dealt with. However, the recent first-quarter numbers from property developers show that inventories are on a downward trend, he points out. The deferment of new launches has helped to mitigate the problem.

The residential sector has the lion’s share of the market, accounting for 63% in terms of transaction volume and 49% by value. The number of new launches in the residential subsector last year contracted 14.9% to 66,040 units from 77,570 units in 2017, according to the Napic report.

Notable declines in new launches were seen in Kuala Lumpur and Selangor, which shrank 56.1% and 9.9% respectively.

Loan growth numbers in March could also have some bearing on the property market as the residential subsector continued to expand by over 7% year on year.

“This signals that there is firm underlying demand [in the property market] with continued growth in household formation and favourable labour market conditions,” says United Overseas Bank (M) Bhd economist Julia Goh. “With the government’s measures under the Home Ownership Campaign underway, the property market should continue to stabilise.”

That said, there is still the nagging problem of a serious glut of unsold units.

Persistent overhang

Over the past few years, one word that has been commonly used to describe the state of the property market has been “overhang”.

Last year, the glut in the residential subsector rose 30.6% to 32,313 units, from 24,738 units in 2017.

Among the states, the highest increase was seen in Kuala Lumpur, where overhang units almost tripled to 2,769 last year from 929 in 2017.

Perak placed second with a 136% increase to 5,367 units in 2018, from 2,276 the previous year.

But the overall picture wasn’t all bad. Penang, a property hotspot, managed to buck the trend, with residential overhang units declining 11% to 3,502 units from 3,916 in 2017.

The government has implemented initiatives, including the Home Ownership Campaign and waiver of stamp duty for eligible purchases, in an effort to address the problem.

Experts, however, say these measures are unlikely to have a significant impact although they could help to trim the inventory of unsold units.

“The government measures are merely incentives. It will not significantly ease the property market problem. It will probably incentivise those who were already thinking of buying a property and can afford to do so,” says an analyst with a local research house.

The key factor, according to some experts, is the stringent lending requirements imposed by banks, which have resulted in many prospective buyers not being able to fulfil the credit criteria.

In an April 4 sector report, Kenanga Research says the effective margin of financing needs to be improved to relieve the tight liquidity in the sector. It adds that that measures to bridge the gap between the initial down payment and the developer drawdown could also help.

“The initial down payment of a property (assuming no discount/rebate) is 10% upon signing the SPA and if the buyer fails to secure the full 90% margin of financing — say 80% margin of financing — the buyer will need to fork out an additional 10% during the construction period before the developer can draw down from the bank,” says the report. “There are examples where the government has given first-time home buyers grants to fund the initial down payment of the property. An example of this was seen in February 2019, where the Ministry of Housing and Local Government (KPKT) launched the FundMyHome + DepositKu scheme.”

However, the DepositKu scheme, which allows first-time home buyers to opt for a loan of up to RM30,000, is only limited to the FundMyHome scheme.

The glut is not new issue and has existed even in better years, notes KGV International’s Tan.

“Developers must be mindful to ensure that supply matches demand. In the larger cities, the overhang is mainly in the high-rise sector. The slowing down of new high-rise developments will prevent further oversupply issues. However, the absorption of existing completed units will be tough,” he admits.

It is imperative for stakeholders to quickly find ways to clear their existing inventory before physical and design obsolescence creeps in, he advises.

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