Address Property Overhang Before Approving New Developments

There is a good feel factor all around, especially with the economy finally being able to get back on its feet fully and with the border reopening, the last restriction imposed since 2020 has now been lifted. The sector that has benefited substantially from the Government intervention has undoubtedly been the property sector, which did not collapse mainly thanks to the Home Ownership Campaign that has supported the transactions on developments that were coming online. The recently launched property market report shows a strong recovery in 2021 over 2020 showing signs of a return of confidence in a potential improved property market in 2022.

The volume of transactions for 2021 rose by 1.5% to 300,497 units with a value of RM144.87 billion a 21.7% increase over the same period last year. Though the percentage increase of 1.5% may seem small it’s important as it signifies recovery. The last quarter of 2021 saw an increase in the volume of transactions amounting to 99,462 units, which the Malaysian Institue of Estate Agents believes could be largely due to the HOC incentives which ended in December 2021. As in previous years, the residential sector was the strongest contributing 66.2% with 198,812 transactions with a value of RM76.9 billion, agriculture was second with 18.9% of transactions while the commercial segment came in third contributing 7.5% with 22,428 transactions. This trend remained the same as in previous years.

In terms of states, the following states contributed sightly in excess of 50% of the total transaction namely Selangor 61,507, Perak 36,893, Johore 36,145, and Kedah with 25,077.

In 2021 a total of 43,860 new residential properties were launched comprising 31,678 [43.3%] Landed properties and 13,182 (25.9%) high rise. Only 39.3% of the units were sold, resulting in an overhang of 36,863 units which is the highest in the last 5 years. These overhangs will be a great concern to developers as this will seriously affect cash flow and causes uneasiness among buyers who are concerned with unsold properties around these areas. MIEA points to these properties as being just poorly planned and executed, developers’ lack of research and not doing feasibility studies based on the population in the area has caused these eyesores that are impeding future development within the vicinity.

A supply versus demand mismatch in the type of properties price range that buyers are seeking in specific locations has also contributed to the predicament. MIEA seeks local authorities could perhaps put a pause on similar developments in the vicinity of high overhang units to allow time for the market to absorb the units or to relook into the development composition before approvals are given to proceed. Perhaps it’s time for the government through KPKT to intervene by adopting stricter guidelines or SOP towards building approvals at the state level to provide check & balance and not to waste resources that may run into billions.

There is a new trend where RM15,332 [35.0%] units were in the less than RM300,000 price range category, 15,723 [35.8%] in the RM300,001- RM500,000 category, 11,875 units in the RM500,001 – RM1 million category and 930 units in the above RM1 million categories. Interestingly 70.8% of units were launched below the RM500,000 category which is in the affordable category and clearly shows a shift by property developers in developing affordable homes, heeding calls by the government.

One alternative MIEA suggests to sort out overhang issues, is for developers to work with real Estate Agencies to help ease the sale of these units, especially small developers who normally use their own in-house sales team to market. Appointing estate agents to help is a logical choice as they are trained and have the relevant experience.

The Association has thrown caution in accepting broad or generic comments on the property market as there are underlying issues that are often not highlighted in fear of causing an imbalance in the industry.

While it may seem like things are heading southward, you can rest assured that properties well-located are still fetching top prices and expressed that the public can look forward with confidence to buy and invest in properties given that values are already on the rise after a slump in the last two years.

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