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Resolving the Malaysian property overhang

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Resolving the Malaysian property overhang

When Malaysia's National Property Information Centre (Napic) released its overhang numbers for 2021 recently, it revealed that the Southeast Asian country is still far from resolving an issue that has been plaguing the property market for years.

Not only are the numbers up on a year-on-year basis, but the statistics also showed that the level of overhang in the country is at its highest since 2018.

This, says PPC International managing director Siders Sittampalam, is a cause for concern.

“The level of overhang is even higher than when they were during pre-pandemic levels,” he tells StarBizWeek.

Despite the higher year-on-year numbers, Siders points out that the overhang situation in the country is nowhere near at its tipping point.

“It’s not a new situation in Malaysia and it has not become a major economical issue to the point that developers are going bust.”

Siders adds that the high level of overhang in the country can be attributed to the properties either being overpriced or were built in less-than-ideal locations.

“However, the cost of building properties has been rising and you can’t expect all developers to build cheaper homes.”

He emphasises that there needs to be more political will in resolving the situation.

“We need a holistic approach to resolving this. Property development is a state matter and the federal government needs to get the state governments to work together.

“Instead of approving every project, the government needs to also ensure that there is demand in that locality.”

On the private sector side, Siders says developers should conduct a study before deciding to develop a project in a particular location.

“Both the public and private sectors need to come together to resolve this,” he says.

According to Napic, there were 36,836 overhang units worth 22.79 billion ringgit ($5.39 billion) last year, which was an increase of 24.7 per cent and 20.5 per cent increase in volume and value, respectively, compared with 2020.

Selangor retained the highest number and value of overhang in the country with 6,095 units worth 5.28 billion ringgit, accounting for 16.5 per cent and 23.2 per cent respectively of the national total.

This was followed by Johor (6,089 units worth 4.72 billion ringgit), Penang (5,493 units worth 3.56 billion ringgit) and Kuala Lumpur (3,908 units worth 3.17 billion ringgit).

Condominiums and apartments formed 55.6 per cent (20,505 units) of the national total overhang, followed by terrace houses (21.3 per cent; 7,839 units).

Ironically, houses in the affordable price range of 300,000 ringgit and below formed the majority with 31.5 per cent (11,610 units).

This was followed by 500,001 to one million ringgit with 30.2 per cent (11,139 units), 300,001 and 500,000 ringgit with 25.7 per cent (9,461 units) and more than one million ringgit with 12.6 per cent (4,653 units).

The number of unsold units under construction improved, dropping by 2.1 per cent to 70,231 units.

However, the number of unsold units not constructed recorded a sharp increase by 69.2 per cent to 21,960 units.

Siders says it was a surprise to see units costing 300,000 ringgit and below topping the list of overhang residential properties.

“Some of these units are located in less-than-ideal locations and may be difficult to sell.

“What the government can consider doing also is to perhaps relax the financing preconditions to make some of these properties more viable for purchasers.”

Rahim & Co International Sdn Bhd real estate agency CEO Siva Shanker says it would be a help to many property developers if the gestation period to sell properties can be reduced.

“Sometimes, getting the relevant state approval can take time. In some situations, it could take up to a year just to green-light a sale.

“In a year, a lot of things can change. What was initially a red hot property market can become soft by then. Not many developers have the holding power to hang on to their products for that long.”

Over the last couple of years, the Malaysian economy took a hard hit as a result of the Covid-19 pandemic.

To help spur the property market, the government introduced the Home Ownership Campaign (HOC) in June 2020 under the Penjana initiative.

The campaign ended on December 31, 2021. Many industry observers and property players believed that the HOC was indeed a huge help to the market and urged the government to extend the campaign period into 2022.

Siders believes that even with the HOC last year, demand remained constant, while supply continued to be on a steady rise.

Siva says that even without the HOC, developers will still find ways to push sales.

“Developers that are stuck with some units will likely continue to offer rebates and freebies.”

As Malaysia transitions to endemicity, Siva cautions that the property market should not repeat mistakes that were made in the past.

“In the last two years, developers have slowed down their launches. But this is also because Covid created a terrible set of circumstances.

“But today as we enter the endemic phase, people have started to move on and have come to accept that the worst is over.”

As the property industry starts to recover, Siva warns of potential speculators coming back into the market.

“When the property market starts improving again, all the speculators are going to start crawling out of the woodwork.”

When the property industry was at its peak some 10 years back, Siva says that it was flush with glorified “property investors clubs” that were purely focused on manipulating the market.

“If we’re not careful, the whole thing is going to happen again and we’re going to be left with another vacuum of unsold properties.”

According to National Housing Buyers Association secretary-general Chang Kim Loong in a paper titled “Of speculators and bogus house buyers”, an investors club will manipulate the property market through en-bloc purchases, say 100 to 200 parcels in stratified properties, with some nearly dominating 50 per cent of housing units and commercial developments.

“The modus operandi of the operators of such a club is to negotiate as block purchasers with cash-strapped developers and bargain for a pre-launch block discount of, say, 25 per cent off the sales price.

“The operators then circulate amongst their members for a ‘bargain’ early-bird discount of 15 per cent, thus making themselves a 10 per cent clean profit. The members of the investors club will subsequently dispose of their ‘wares’ upon delivery of vacant possession at a further profit,” Chang explains in his article.

Meanwhile, Centre for Market Education CEO Carmelo Ferlito believes that the pandemic has accelerated a growing awareness about certain changes in the property market.

“While Malaysia moves on the path of being a developed nation, its property market changes accordingly. This means that the extraordinary and fast returns experienced in the past belong to the past.

“Investors in search of quicker returns may decide to turn to the financial markets, rather than to the real estate. Somehow, these two years contributed to growth in the understanding of this underlying process,” he says.

THE STAR (MALAYSIA)/ASIA NEWS NETWORK

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