Construction sector at risk if property doldrum prolongs

The property market’s correction process is going to be slow because of the huge volume of overhang units


THE slow readjustment of the property market to get rid of billions worth of unsold properties will eventually hurt the country’s construction sector and the general economy.

Property development is linked to a wide-ranging ecosystem in the larger construction sector, from cement producer to steel and framing to roofing, generating billions in economic value.

ACCCIM SERC Sdn Bhd ED Lee Heng Guie said the property market is readjusting itself although at a slow pace as the nation confronts the biggest property glut in its recent history.

“The overall property market is currently correcting itself, but the process is going to be slow because of the huge volume of overhang units. Every quarter the overhang number continues to grow.

“The property market is the subsector of the construction sector. The long drag of the overhang situation will pull down the construction sector which is linked to another 140 downstream industries including transportation and communication,” he told The Malaysian Reserve.

He said the performance of the construction sector will affect the country’s economy.

For the second quarter of 2019 (2Q19), the construction sector contributed 4.6% to the country’s GDP growth of 4.9%.

The sector strengthened by 0.5% in 2Q19 due to improvements in the residential and special trade subsectors.

But the property market faces an unprecedented glut of residential, high-end, office and commercial units. Overbuilding during the sector’s recent peak after 2011 saw millions of square feet of new properties entering the market.

The government tried to intervene to help clear the supply glut. The Home Ownership Campaign (HOC) has been relatively successful to clear some of the unsold units.

Housing and Local Government Minister Zuraida Kamaruddin recently proposed for an HOC in Hong Kong and China to promote high-end local properties to foreign buyers.

The government’s intention were widely criticised despite the move would clear backlog, allow for new investments in low-cost properties and prevent the construction sector from going into a tailspin.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the property market has been in the doldrums since 2015 based on the unsold unit trends.

“However, the property market might make a comeback should developed economies reinstate quantitative-easing measures.

“That way, foreign funds might search for higher yields in the emerging economies, which could benefit the property market.

“It is a similar situation that we saw during 2010 to 2013 when Malaysian equities and fixed income markets received sizeable net inflows from foreign funds.

“During these periods, house price index had been rising at a fast clip from 6.6% in 2010 to 9.8% in 2011, 13.4% in 2012 and 11.2% in 2013,” he said, adding that the property market is already seeing correction in house prices.

Mohd Afzanizam said the average price for terraced houses in 1Q19 stood at RM381,048, which is lower compared to RM384,827 in 4Q18.

Similarly, average price for high-rise units fell to RM338,281 in 1Q19 from RM340,079 in 4Q18.

He expects the current trend to continue in view of the external uncertainty.

Malaysia recorded 58,078 overhang units worth RM37.23 billion as at 1Q19, a 5.5% increase by units and 4.1% by value from last year.

Residential properties made up the bulk of the unsold units, accounting for 32,936 units worth RM19.96 billion as at March this year.