Bank Negara recently revealed that there is currently an oversupply of property in the market with 130,690 unsold units in Q1 of 2017 with majority of these units being high rise luxury apartments. This marks twice as many compared to the historical average of 72,729 units in a year between the year 2004 and 2016. These numbers recently prompted the government to ‘freeze’ certain property developments with unit prices above RM1 million in value. The recent property freeze means that there will be additional scrutiny before approving the development for certain types of properties.
One cause of the glut is the recent upsurge of property developers in the KL and Selangor area wanting to get a piece of the action. Many recent developments around KL were built to be luxurious condominiums despite a greater demand for affordable housing.
Many developers feel that building affordable homes is not financially sustainable and opt for higher end projects.Aside from that lenient granting of loans from banks in the recent years made borrowing easily both for developers and home buyers.
However,with the recent hike in cost of living such as GST and the constant rise of fuel prices as well as other factors such as the weak ringgit, Luxurious housing affordability is out of the question for many Malaysians.
The question arises if banks are willing to provided lower lending interest rates with possible risks of borrowers defaulting in the event of a market crash and if the government might have a solution to increase sales.
The property freeze is announced to be temporary and done on a case by case basis, relieving some market sentiments that triggered a slight downfall on the property index by 1% and closing at 0.81%.
Kenanga Research said that they did not expect that the government will freeze luxurious properties given that while the property market had been stabilized with most developers now focusing on affordable homes, the demand for commercial spaces and luxurious condominiums had been weak recently.
They anticipate that lending rates next year will increase by 5-6% in monthly mortgage payments for people with a 90% margin of financing. As of now the freeze is a just away to bring awareness to developers to see if there is a market for their projects.
As of now, the types of properties limited to the freeze only shopping complexes, offices, serviced apartments and luxurious condominiums. At this time, the freeze only covers areas such as Kuala Lumpur and Selangor but there is no confirmation yet if it will cover other parts on Malaysia especially Johor having a large oversupply of luxurious homes.
The state government is already considering softening regulations on foreign ownership. If this initiative is implemented nationwide, developers in every state might be affected and forced to change their overall strategy and specifications.
The property market is a sensitive one, especially the housing sector, being an indicator of standard of living, spending power and employment, among others. If Kuala Lumpur aims to be an advance city by the year 2020, it must first solve its lopsided demand and supply equilibrium.
The property market situation risks affecting other sectors of the economy up to 120 different industries according to Bank Negara.
To solve this, the enactment of the residential tenancy act and the creation of the Tenancy Tribunal intent to protect the rights of landlords and tenants. More careful planning will be needed in the future between developers and local councils to make sure an area has adequate amenities and sufficient demand from people looking to stay. At this age, good public transportation connectivity is a must in new developing areas.
The question is what will happen in the upcoming year of 2018, will the property market crash with many home loans being defaulted, is there an alternative solution to solve this property glut? Share your opinions with us in the comments below.