Over 80% of unsold housing units are priced above the affordable range ceiling of RM250,000

By NG MIN SHEN / Pic By MUHD AMIN NAHARUL

THE number of unsold properties continues to rise and has remained a concern for the Malaysian central bank as the market grapples with a potential property bubble and the subsequent consequences to the country’s lending system.

Bank Negara Malaysia (BNM), in its half-year financial review, said the number of unsold housing units increased to 146,196 units as at the end of the first quarter of 2018 (1Q18).

The number of unsold properties was 129,052 units as at end-September 2017, according to previous BNM data.

“Imbalances observed in the property market continue to persist,” said the central bank, which had in the past been issuing warnings about the glut in the sector.

Of the total number of unsold units, over 80% are priced above the affordable range ceiling of RM250,000.

BNM added that excess supply of office space and shopping complexes is also expected to continue as vacancy rates deteriorated further in the first three months of the year.

“Nevertheless, sustained demand for affordable housing, particularly from first-time home buyers, and prudent underwriting practice in lending to the property market and related sectors are expected to mitigate risks of a broad-based price correction,” the central bank said.

It said about three-quarters of new loans approved were to borrowers with debt service ratios (DSR) of less than 60%, while the ratio of household debt-to-GDP moderated to 83.8% in 2Q18 versus 84.2% in 2017. Meanwhile, banks’ margins improved in the first half of 2018 (1H18), as lenders benefitted from continued efficiency gains and improved asset quality.

Overall total impaired loans (net of individual impairment provisions) fell 10% to RM16 billion from RM17.8 billion in 2017, comprising 1% of total net loans compared to 1.1% last year.

Annual returns on assets and equity were stable at 1.5% and 13.3% respectively.

“Banks’ earnings performance is expected to be sustained amid continued efforts to enhance operational efficiency,” BNM said.

The central bank stated that Malaysia’s financial stability sustained resiliency in 1H18, despite heightened domestic and global uncertainties, although the agriculture and oil and gas (O&G) industries are likely to continue facing supply challenges.

Trade-related tensions and rising interest rates in the US have contributed to higher global market volatility and non-resident portfolio outflows, particularly from emerging-market economies including Malaysia.

The domestic financial markets also experienced bouts of volatility due to uncertainties following the outcome of the 14th General Election, though financial institutions and markets are well capitalised and liquid.

“Excess liquidity maintained by Malaysian banks stood at RM156.2 billion in 1H18. Liquidity and funding conditions remained conducive to support financial intermediation throughout the period,” BNM said.

Banks are bolstered against liquidity-related and funding associated stresses moving forward, supported by continued efforts to include more stable medium-term debt instruments in their funding base, coupled with existing buffers of high-quality liquid assets.

While financial institutions currently maintain an excess total capital buffer of RM135.9 billion, the central bank said it remains vigilant of domestic and external developments that could affect domestic financial stability, including further tightening in global financial conditions that could lead to higher volatility.

“Contagion risks from the external exposures and overseas operations of banks are also expected to be contained,” BNM added.

There is little sign of undue reliance on external and cross-currency funding among onshore banks, as onshore banks’ external debt comprised under 8% of total banking system liabilities, and non-residents accounted for 4.7% of total banking system deposits.

While external assets increased in tandem with banks’ external liabilities, the net external liabilities of banks widened in 1H18, primarily reflecting precautionary measures taken by lenders to reinforce foreign currency liquidity buffers amid increased global market volatility.

BNM said local banks’ domestic operations are funded predominantly by ringgit-denominated domestic funding sources, while domestic banking groups also continue to expand regional operations in line with growing investment linkages within Asia — albeit at a more moderate pace.

The aggregate leverage of non-financial corporations increased at a moderate pace in 1H18, but firms continue to maintain debt servicing capacity above prudent thresholds, with an interest coverage ratio of 8.2 times.

“The business performance of firms in the agriculture and O&G sectors could be affected by supply disruptions, which are expected to persist until end-2018.

“However, most other sectors are expected to perform better on the back of positive consumer and business sentiments, higher retail spending during the tax holiday period, as well as favourable labour market conditions,” BNM said.