Malaysia’s Waning Property Market

https://www.propertyguru.com.my/property-news/2017/3/147831/malaysia-second-china

Malaysia had its fair share of ups and downs in 2017. While the overall Malaysian economy fared well throughout the year, international notoriety for the 1MDB scandal and plunging property market proved to be it’s not so subtle undoing.

According to Bank Negara Malaysia governor Muhammad Ibrahim, the ringgit did strengthen by 14.6% last year, with the upswing greatly credited to market forces. Such forces did not, however, include the property market.

The Malaysian Reserve reports that due to an excess of housing supply, economic and political concerns as well as exorbitant house prices, local high-end and low-end properties seem unlikely to recover from its fall in 2017 anytime soon.

According to National Property Information Centre (Napic), the first quarter of 2017 showed 130,690 unsold residential properties throughout the country, demonstrating the oversupply currently besetting the nation — also revealed was that the top five highest rental yields recorded last year were lower than those in 2015.

The total unsold units in Napic’s findings include overhang (completed, but unsold) units, unsold under construction units, as well as SoHo (small office/home office) units and serviced apartments.

Napic data reveals that the total number of unsold residential properties reached 130,690 -- the highest number in 10 years. Source: Napic; Image credit: http://bit.ly/2CtnTIm
Napic data reveals that the total number of unsold residential properties reached 130,690 — the highest number in 10 years. Source: Napic; Image credit: http://bit.ly/2CtnTIm

The majority of unsold housing spaces fall under the above-RM250,000 category; 83% of them, to be precise. Of this 83%, 61% of the total unsold units comprise high-rise properties, of which almost 100% were priced above RM250,000.

Housing affordability remains a primary problem in the Malaysian property market. A summary of what Affin Hwang Investment Bank Bhd analyst Loong Chee Wei told The Malaysian Reserve is as follows: the property market is far from an upturn due to the rising cost of living and the disconnect between society’s income and affordability level.

The commercial sector in Malaysia also faced a major downturn due to a glut in the market. True vacancy rates in Klang Valley malls were up to 60% in some areas, according to a Financial Times (FT) article acknowledging the country’s continued obsession with building more shopping space despite chronic oversupply.

What best illustrates the critical oversupply in Malaysia is the value of unsold and unutilised a properties which rounded off to a whopping RM35.5 billion.

Total unsold residential properties by state in Malaysia as of 1Q 2017. Source: Napic; Image credit: http://bit.ly/2CtnTIm
Total unsold residential properties by state in Malaysia as of 1Q 2017. Source: Napic; Image credit: http://bit.ly/2CtnTIm

With the previously mentioned conditions in mind, the local property market is set to welcome a buyers market. Local property investors seeking great returns would find it in their best interest to manage expectations as property sales in Malaysia are not as attractive as they used to be.

Rising Ringgit, Rising Opportunities for Investment Overseas

Public Investment Bank Bhd’s research arm has reported that Malaysia is slated to become the second fastest growing economy in Asean. The Malaysian economic outlook for 2018 and a steady growth of the local currency have opened doors for investors who are looking to leverage on flourishing property markets overseas.

The UK and Australia are home to a high-yielding, growing property market where the currency is stronger, hence rental returns and appreciation are at a higher value than the ringgit.

Moreover, these countries are home to a critical undersupply of houses unlike Malaysia, following a high population growth due to migration, job creations and educational opportunities. Furthermore, regeneration schemes that are taking place in the UK and Australia, such as the Knowledge Quarter in Liverpool and the ‘super city’ project in Melbourne, will further drive population growth.

“The UK and Australia have strong growth potential. The population and its demand for housing have grown faster than supply, causing property prices to keep appreciating. It is also because of this, that there is a strong rental market,” says property expert Virata Thaivasigamony of CSI Prop.

“With the current and forecasted performance of the ringgit, alongside the weakened pound and Australian dollar, investors now have the opportunity to invest from a position of strength. Diversifying investments is key to hedging against uncertainties both locally and globally.”