Is Our Property Market Bottoming Out?

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Is Our Property Market Bottoming Out?

The Property Market Report 2017 published by the Valuation and Property Services Department, Ministry of Finance Malaysia was launched by its director-general Tuan Haji Nordin Daharom on last Tuesday, 17 April 2018. What does the report say about the Malaysian property market which has been trending downwards year after year since 2012? Can we now say that the property market is bottoming out after 5 years of healthy consolidation? Below is a summary of the latest property market report: -

 

Overview

  • The property market in 2017 performed better than 2015 and 2016 on the back of steady economic growth.
  • The year registered a total of 311,824 transactions with a total worth of RM139.84 billion, down 2.7% and 3.8% respectively as compared to figures recorded in 2016.
  • While the figures continued to drop in 2017, the declines were substantially lower compared to 2015 and 2016 signifying that positive economic growth had helped restored confidence and boosted demand in the property market.

Residential Sector 

  • The residential sector continued to support the overall property market in 2017 with 62.4% market share in terms of transaction volume, followed by agricultural sector (22.5%), commercial sector (7.1%), development land (6.1%) and industrial sector (1.8%).
  • Residential transactions rose 4.4% to RM68.47 billion despite a drop in the number by 4.1% to 194,684 transactions suggesting that the average price of residential transactions continued to rise.
  • Loan applications for the purchase of residential properties increased by 15% in 2017 driven by improved confidence. Loan approvals for residential properties increased in tandem by 15.9%.
  • Loan applications for non-residential properties increased 7.6%. However, loan approvals for non-residential properties continued to decline in 2017 by 5.4% as financial institutions remained cautious in the commercial sub-sector.
  • Demand for residential properties continued to focus on units priced at RM200,000 and below, which accounted for nearly 45% of the total residential transactions in 2017. This price segment used to account for 60% to 70% of the total residential transactions in 2010 to 2012.
  • On the back of rising property prices, residential properties within the range of RM500,000 to RM1 million saw its market share grew from 5.1% in 2010 to 13.1% in 2017.
  • In terms of new residential launches, 2017 witnessed more launches by property developers with 77,570 units entering the market (2015: 58,411, 2016: 52,713). Sales performance of these launches was moderate at 32.6%.
  • Kuala Lumpur recorded the highest number of new launches in 2017 with more than 22,000 units, followed by Selangor (13,522 units) and Johor (7,926 units). Sales performance was 19.5% in Kuala Lumpur, 45.0% in Selangor and 44.0% in Johor.
  • Residential overhang which grew by a whopping 67.2% in 2017 to 24,738 units nationwide - the highest ever recorded, is a concern. Its total value grew 82.8% to RM15.64 billion.
  • Overhang refers to units which have been completed yet remained unsold for more than 9 months after its launch. These numbers accounted for those in the residential sector only excluding service apartments, SOHO, etc.
  • Johor continued to top the list in 2017 with the most overhang in the country accounting for 17.7% (4,376 units), followed by Penang 15.8% (3,916 units), Kedah 15.3% (3,783 units).
  • The unsold under construction saw a decline of 3.4% in 2017 to 61,882 units as buyers opted for units under construction and nearing completion. Johor and Selangor have the most unsold under construction with 11,289 units (18.2%) and 11,172 units (18.0%).
  • The unsold not constructed continued to increase by 8.6% to 12,626 units. Topping the list is Kuala Lumpur (52.8%: 6,662 units) comprising mainly affordable homes under various housing programmes initiated by the government.
  • As more developers returning to the market, housing starts increased by 14.4% in 2017 to 133,592 units. New planned supply increased by 24.5% to 132,731 units. New completions recorded a 7.9% decline to 94,198 units.
  • As at end-2017, there were more than 5.4 million existing residential units, with another 480,892 units in the incoming supply and 448,199 units in the planned supply.

Commercial Sector 

  • The commercial property market continued to decline in 2017. The total number of transactions was down by 6.7% to 22,162 transactions while the total worth dropped 29.2% to RM25.44 billion.
  • Shops formed the major component accounted for 55.6% of the total commercial transactions. Some 12,310 shops worth RM9.63 billion changed hands in 2017, dropped 4.4% in number but increased 2.5% in value.
  • Shops overhang reduced 10.3% to 4,546 units but the total worth rose 16.3% to RM3.3 billion as 62.0% of these overhang units were above RM750,000.
  • The average occupancy rate of shopping centres remained stable in 2017 at 81.3% (2016: 81.4%). Improvements were seen in Johor at 79.9% (2016: 73%) and Penang at 72.6% (2016: 69.9%). Kuala Lumpur saw a decline in occupancy rate to 85.3% (2016: 86.8%).
  • The office sector performed better in 2017 made possible by strong economic growth with an overall occupancy rate of 83.3% (2016: 82.3%). Take-up was substantially higher in 2017 at more than 770,000 square metres (2016: 285,379 square metres).
  • Kuala Lumpur topped the list with a take-up of over 380,000 square metres in office space, followed by Selangor (171,072 square metres), Sabah (86,905 square metres) and Putrajaya (66,855 square metres).

Industrial Sector  

  • The industrial sector recorded a total of 5,725 transactions worth RM11.64 billion in 2017, increased 2.1% in number but dropped 3.1% in value. Selangor and Johor recorded commendable growth of 19.5% and 9.5% respectively while other states saw contraction in activities.
  • Vacant industrial plots formed 31.0% of the total industrial transactions, followed by terraced factories with 28.7% market share.
  • Industrial overhang stood at 999 units worth RM1.51 billion in 2017, upped 11.4% in number and 27.1% in value. Johor had the most overhang with 407 units representing 40.7% of the total industrial overhang nationwide.

Where Is Our Property Market Heading To In 2018? 

So, is our property market bottoming out?

 

While the overhang situation is a concern, the property market has started to see a recovery in the beginning of 2018 brought about by strong economic growth and improved sentiments and confidence among property investors and homebuyers.

 

According to Tuan Haji Nordin, the Director General of Valuation and Property Services Department, residential property transactions improved by 4% in January and February 2018 as compared with the same period last year. We at Landserve noted a similar trend as our valuation and estate agency activities picked up in the first 2 months of the year.

 

Premised on this and as declines in the total number and value of property transactions are tapering off, there seems to be a possibility that our property market is about to bottom out soon. Nonetheless, we like to observe the market a little longer as GE14 is just around the corner. It would be interesting to see whether the momentum of our economic growth will continue and more investors will actually return to the property market in the second half of the year.