The latest property market report indicates that the sector would remain strong and resilient due to various economic factors in favour of domestic demand.
Juwai IQI in its second-half 2023 residential market outlook noted that stable economic growth, falling inflation, and strong household finances would support the residential market in the remainder of the year.
Founder and CEO Khasif Ansari said, “We expect the residential property market to further improve this year because of a range of supportive conditions and despite moderately lower economic growth. We forecast home price growth of 1.5% and 4% during the second half of the year compared to a year earlier.
Supportive Economic Outlook
Malaysia is benefitting from stable economic growth due mainly to proactive measures taken by the government and wise management by Bank Negara. In the first quarter, the GDP growth rate of 5.6% was driven by the private sector. Overall, 2023 growth will probably come in between 4% and 5%, even if the global environment does not improve. The strong growth in employment and wages gives households the income they need to spend more. It also allows them to invest in their own homes for investment property. Ansari says he does not think most people realise that the growth rate in Q1 is well above the average pre-Covid level. GDP growth averaged 5.1% in the nine years through 2019, half a percentage point below the first quarter level.
Inflation Has Been Tamed
Compared to many other countries, Malaysia has a significant advantage because it has already tamed inflation. Bank Negara was one of the first in Asia to begin raising rates in 2022 and now has lifted the OPR to 3.00%. That means the Bank has reversed all the pandemic-era lowering of interest rates. The economy has recovered sufficiently and no longer needs that extra boost. Falling inflation rates improve consumer confidence and raise the prospect of stable or lower interest rates. Core inflation fell from 3.1% to 2.9% in the first quarter. We believe inflation has been tamed and will continue to drop moderately in the six months ahead.
Household Finances Are Resilient
Strong household finances are a positive development for the property market. Only about one percent of loans are in trouble, and that rate is falling. Meanwhile, most households have about two times more assets as debt, roughly unchanged since a year ago. At the same time, and this is important for affordability, lower-income borrowers are more likely to be on a fixed-rate mortgage than those with higher incomes. That protects them from higher interest rates and keeps their borrowing cost stable.
Tourism Is Back
There is another factor that will directly and positively impact the property market: the recovery of tourism. Net exports climbed 54% in the first quarter, mainly due to higher spending by foreign tourists in Malaysia. Tourist arrivals have jumped from nearly zero during the pandemic to 1.5 million as of the fourth quarter. It’s easy to believe they could return to 2019 levels in the next 6 to 12 months. The growing tourist numbers will drive employment, household income, hotel occupancy, and investment in short-term stay and serviced apartments.
Real Estate Market Performance
2022 was a growth year for the real estate market, and Juwai believes 2023 will also be similar. National transaction volume climbed by 30%, and total transaction value rose by 24% compared to the prior year.
The residential market was the most robust sector, and its good performance led to a decrease in the property overhang in the states where it has been at its worst. The declining property overhang is a good development for the market. A smaller property overhang means more families are finding homes and will help stabilise prices and supply. The most significant
decreases were in the category of property worth RM300,000 or less.
Overhang Decreases
In Johor, the overhang decreased by 14% compared to 2021 levels. The overhang decreased 39% in Selangor, 35% in Penang, and 12% in Kuala Lumpur.
Industry Commits to New Supply
There are strong indicators that the industry is confident about the market. Housing starts increased in the first quarter, which means banks and developers are putting their money into constructing new homes. That demonstrates faith in the market outlook. Housing starts jumped 31% in March compared to the prior month. The rolling three-month average, which fell month after month in Q4 2022, turned positive in March with a 9% gain.
Market Activity Higher in Q1 2023
Total real estate market activity was significantly higher in the first quarter. Both the volume and value of transactions surged. In March, the aggregate value of real estate transactions surged 40% compared to February, reaching RM18.2 billion. That’s the highest it has been in 12 months. Transaction volume also climbed to 33,233 in March, the highest since September and the fourth highest level of the last 12 months.
Prices Marginally Higher Despite Higher Rates
The Malaysian House Price Index climbed a moderate 2% in the year through the first quarter, a growth rate not far off pre-pandemic growth. It said it does not yet have first-quarter price data, but in the third quarter of 2022, detached houses remained the most expensive residential property type, with an average price of MYR 617,432. The average semi-detached house price was MYR 669,402. The next most expensive category is terraced houses, with an average price of MYR 418,592. The average price of high-rise properties is MYR 342,506.
Market Outlook
Some analysts have stated that property prices could increase by 25% in the year ahead. However, Juwai thinks that’s overconfident, it added that households have the financial wherewithal, inflation is falling, the economy is growing strongly, and employment is high. The firm forecasts growth of between 1.5% and 4% in the Malaysian House Price Index during the second half of the year, compared to a year earlier.
