Is Property Overhang Still A Main Concern to Most House Buyers?

by Kenny Teoh,
Managing Director, Hectarworld Group

The supply overhang remains a concern to most Malaysians in general as according to the National Property Information Centre (“NAPIC”) data in Figure 1 below, a total of 30,358units of completed houses were reported unsold in the third quarter (Q3) of 2021, and by state with reference to Figure 2, 3, 4 and 5 respectively, Johor has the highest number of unsold units(21 per cent share) in Malaysia, followed by Penang (15 per cent), Kuala Lumpur (13 per cent) and Selangor (11 per cent).

According to the definition by the NAPIC, overhang is defined as residential units which have received Certificate of Completion and Compliance (CCC) but remained unsold for more than nine months after launch.

A property overhang reflects an area of the market where the supply of available properties is higher than demand. Among the factors that contributed to the property overhang were changing economic conditions, supplies that did not match demands in localities, prices and household income, and unattractive locations of housing projects.

New launches will contribute to the overhang situation if developers do not accurately assess or predict local market conditions, then they may ultimately end up oversupplying the market.

The property market’s performance for the third quarter of 2021 (Q3 2021) is expected to remain stagnant due to the impact from enforcement of Movement Control Order (MCO 3.0),. Pent-up demand is expected by early Q1 2022 after the government lifted the MCO 3.0.

Nevertheless, Malaysia’s property market remains relatively resilient due to the strong financial position of property developers and banks’ continued lending.

This property overhang situation is expected to remain stable amidst efforts by developers to clear unsold completed properties at a reasonable price and measures taken by Malaysian Government like the Home Ownership Campaign (HOC) and low interest rate regime to encourage more home ownership especially for first-time home buyers.

Data by the NAPIC revealed a 1.83 per cent decrease in the number of unsold residential units in the third quarter of 2021 compared with the third quarter of 2020 (a total 30,926 unsold completed houses).

This slight drop in unsold housing properties was attributed to numerous promotional efforts by developers including reducing prices or offering discounts to house buyers.

“This was shown by the reduction in the House Price Index in the third quarter of 2021 (preliminary) recorded at 198.6 index point compared with the third quarter of 2020 at 199.9, which is a 0.7 per cent drop (as shown in the Figure 7 below)

The current low Overnight Policy Rate (OPR) of 1.75 per cent since July 7, 2020, and the HOC which offered duty stamp exemption and a 10 per cent discount on houses priced between RM300,000 and RM2.5 million by developers registered with the Real Estate and Housing Developers’ Association Malaysia (REHDA) till year-end of 2021 have helped shore up residential property sales, easing the overhang in the segment in the third quarter.

Most prospective buyers are owner-occupiers who capitalise on the low interest rate and incentives offered under HOC or by the developers. The young population and first-time house buyers are the main factors that drive the demand for properties.

What is next for the property sector and house buyer like you and I?

It’s a buyer’s market now!

During the pre-pandemic period, the sheer number of newly completed and handover units in the market had shifted the bargaining power in the property market to house buyers.

In the case of an oversupply of property market, a house buyer might even be able to find a great deal with many perks from developers and banks. House buyers can try and negotiate for reduced prices or sweeteners like freebies or discounts are more likely to happen in a buyers’ market.

Malaysian economy is expected to gain momentum after the government lifted the MCO since Q3 2021 and is preparing to enter epidemic phase with possible opening of borders in 2022. Based on recent preliminary claim made by Bank Negara, the overall economy will expand between 5.5% and 6.5% in 2022. Firmer property market from H2 2022 onwards will be expected driven by the economic recovery as income may rise and turn into greater purchasing power. There could also be spill over effects to property market from strong commodity prices and stock market gains.