Residential property overhang easing, but concerns remain

Unsold property declined 15.4% in 3Q22 while transaction volume rose 12.6%, however, interest-rate and cost-increase risks linger 


THE Malaysian residential property market is seeing a slight improvement with the number of overhang residential units shrinking by 15.4% in the third quarter of 2022 (3Q22). 

However, the overall real estate market is expected to continue to be dragged by oversupply and more cautious lending measures by banks. 

According to the National Property Information Centre’s (Napic) Property Market Status Report for 3Q22, the number of overhang residential units in Malaysia stood at 29,534 units with a total value of RM19.95 billion. 

Quarter-to-quarter, the statistics for overhang residential units was reduced by 15.4% compared to 34,902 units in 2Q22, while the overall numbers for half-yearly comparison shrunk by 19.9% against the second half of 2021 (2H21). 

In terms of transaction volume, the statistics look equally promising as 3Q22 recorded sales of 105,204 units of residential properties, a jump of 12.6% compared to the 93,466 sold in 2Q22. 

Nonetheless, market players are being cautious as the macroeconomic uncertainty is expected to continue and the operating environment remains challenging. 

According to a property valuer, the rising interest rates and increase in construction costs are putting pressure on ownership affordability amid the high ratio of household debt to GDP in the country.

“The challenging environment for developers can be seen through the Malaysian House Price Index (HPI) which has been flat in the past few years with contraction in the 2Q22 despite rising construction and land costs.

“The loan approval rate remained low at around 37% as at 1H22 compared to between 43% and 52% when the cycle increased in 2011 to 2014. 

“This, coupled with the increasing interest rates and high construction costs, also translate into high selling prices, putting the viability of new launches at risk,” said the valuer, speaking on condition of anonymity to The Malaysian Reserve (TMR). 

Malaysians continue to worry about affordability despite having several govt schemes such as i-MILIKI and the Malaysia Family Home Ownership Programme (pic: Bernama)

Residential Property Correction 

CCO & Associates (KL) Sdn Bhd ED Chan Wai Seen opined that the reason for the high number of overhang residential properties is the mismatch between demand and supply. 

He said that a large proportion of the overhang properties comprises high-rise residential properties such as serviced apartments and condominiums, which are not preferred by local residents. 

“Actually, the residential property market is undergoing a correction at the moment. New launches of high-rise residential properties have slowed down considerably. 

“In the absence of the Home Ownership Campaign (HOC), most developers are not as bullish as previously when launching new residential projects,” he told TMR. 

Based on observation, Chan said the over- hang situation started to worsen when the market trend changed. This started with the increasing household debts, tighten- ing of credit policies by the banks, reduced spending power when Goods and Services Tax (GST) was implemented and an over-supply situation. 

He also pointed out that demand for properties, particularly for high-end residential properties, have slowed down gradually since 2015 and the number of overhang properties started to increase. 

“The Covid-19 pandemic and Movement Control Orders implemented in 2020 and 2021 worsened the market situation. 

“Many developers have enhanced their marketing strategies to sell the unsold properties. Some choose to rent out the unsold completed units for recurring rental incomes,” he said. 

Centre for Market Education (CME) research fellow Dr Consilz Tan viewed the property market as looking good with a positive trend in the volume of transactions. 

She noted that there was a jump of 12.6% from 2Q22 to 3Q22 (93,466 units to 105,204 units) where residential units accounted for the biggest share (RM25.03 billion), followed by commercial (RM7.86 billion). 

“We witnessed 3,966 newly launched residential units which are priced below RM300,000 (48.2%) and only 184 units of newly launched properties which are above RM1 million in 3Q22. Yet, we still see overhang values in 3Q22, especially in high-rise units. 

“Whether it is a residential or serviced apartment overhang, we still see the problem is with the properties priced between RM500,000 and RM1 million,” she told TMR. 

Tan says it is vital to understand the buyers’ concerned attributes before constructing a housing project (pic: TMR)

Tan highlighted that overall, there is a dip (-2.1%) in the Malaysian HPI from 2Q22 to 3Q22, which is the lowest based on the quarter-on-quarter (QoQ) change since 2017. She added that this could be due to the political uncertainty in the previous months. 

However, Tan said with the conclusion of the 15th General Election (GE15) and the establishment of a new government, we should be able to see more stability in the markets and a slight increase in the index point in 1Q23, hovering around an increment of 0.5%. 

Commenting further on the property overhang situation, she said the major issue is that the houses provided do not attract the target market in the specific area. Hence, the housing property overhang problem occurs in the market. 

“The willingness of homebuyers to pay for the dwelling is related to neighbourhoods, location and structural attributes of the houses. 

“Homebuyers will not purchase a house if the house does not fulfil their expectations. “It is vital to understand the attributes that the buyers are concerned about before constructing a housing project to meet their housing preferences,” she noted.

Additionally, Tan said by looking at the overhang values in 3Q22, the property market has issues with the high-rise units. 

“So, the new government needs to pay attention to this type of housing project and their location in order to address the over-supply problem in the market. 

“Feasibility study and market needs are two important aspects that must be assessed by the government before approving new housing projects,” she added. 

Cautious Outlook for Property Sector

The Malaysian property market is expected to continue to face challenges as it moves towards recovery in 2023, according to PropertyGuru Malaysia’s Property Market Outlook Report 2023. 

This comes on the back of continuous economic and political instability in the country, resulting in an overall downcast in consumer sentiment. 

While the property market saw a steady improvement in 2022 with reopened international borders and higher productivity levels, findings from the report foresee a challenging year ahead due to vast uncertainties in public policy, federal incentives and economic prospects. 

Apart from that, PropertyGuru said the Russian-Ukrainian conflict also created pressure on the rate of inflation and resulted in the hike of interest rates. The war occurred when the property market was expected to undergo a steady recovery when standard operating procedures (SOPs) for the Covid-19 pandemic were loosened on April 1, 2022. 

The impact of the war had also cascaded into the manufacturing sector in Malaysia as critical raw materials were short in supply. 

Commenting on this, PropertyGuru Malaysia country manager Sheldon Fernandez said it is challenging to project an accurate outlook on how the market will fare in the new year, due to these uncertainties. 

“While we have seen gradual movement in recovery with overall transaction prices in 1H22 recording a higher trend compared to the previous year, we are also seeing cautious behaviour as Malaysians await possible revisions of Budget 2023,” he said in the report. 

Demand Weakens due to Expiry of HOC

The PropertyGuru Malaysia Property Price Index, which tracks the movement of prices via property listings on PropertyGuru, saw a 3.3% increase from 2021. 

The property portal highlighted that against rising median prices, the demand trend, however, tracked weaker numbers due to the expiry of the HOC in the 1Q22. 

It added that a slow but steady pace continued, as reflected by a 7.9% QoQ increase in the Sale Demand Index in the 2Q22. 

We are also seeing cautious behaviour as Malaysians await possible revisions of Budget 2023, says Fernandez

According to Fernandez, the decline in the Demand Index is likely due to potential homebuyers continuing a cautious approach against inflation and higher borrowing costs. 

“It is uncertain at this point in time when we will likely see an improvement, as Malaysia is not only on its journey to economic recovery, but we are also in the middle of huge changes in the political landscape after GE15. 

“Respondents in our Consumer Sentiment Study also highlighted that they expect interest and inflation rates to continue increasing in 2023. 

“Ultimately, this shows that Malaysians are awaiting more stability as changes in government will affect policymaking as well as expectations for revised or new homeownership aids,” he noted. 

Affordability Issues Loomed Throughout 2022

PropertyGuru said amid economic and political instability, the budgets of prospective purchasers continued to be squeezed, on the back of corresponding declining demand as well. 

According to the Consumer Sentiment Study (CSS) 2H22, PropertyGuru Malaysia’s affordability rating dropped seven points from 62 in 1H22 to 56 in 2H22. 

More than half of the individuals surveyed in the same study highlighted that they understood that they are not qualified for government affordable housing schemes and are not able to purchase property without financial assistance. 

PropertyGuru opined that with housing affordability as a key concern among millennials, home seekers would likely look to government assistance to transition into home ownership. 

However, it noted that while the govern- ment’s latest measures and potential Budget 2023 may help relieve some of the cost pressures young home buyers face, there are still segments of society that are missing out on assistance. 

“It is important to note that Malaysians continued to worry about affordability despite having several government schemes such as i-MILIKI and the Malaysia Family Home Ownership Programme to support home ownership in 2022. 

“This really highlights the instability that homebuyers are currently facing and the significant downtrend in purchasing confidence as a long-term result of the pandemic. 

“We are also looking forward to what the new government will offer should the earlier announced Budget 2023 be revised,” Fernandez said. 

For those who have the means to purchase a home, PropertyGuru recommended that buyers should give themselves a building buffer when committing to a home purchase, following the potential interest rate hikes and uncertain economic climate ahead. 

On top of this, it said buyers would need to manage their credit scores to secure loans or re-establishing a good credit history, as banks will be cautious to ensure the purchases will not turn into non-performing loans. 

For those looking to sell, PropertyGuru highlighted that finding a replacement home may be another challenge too, as asking prices are likely to be higher at this point in time.

  • This article first appeared in The Malaysian Reserve weekly print edition