Oversupply of residential units and the pandemic is putting pressure on the rental market
The local residential property market had been in the downward trend for several years with overbuilding and oversupply of properties. This, coupled with the on-going Covid-19 pandemic is putting pressure on the rental market.
REA Group Asia (iProperty.com.my) general manager customer data solutions Premendran Pathmanathan said with projects gradually adding to completed units, it has caused a glut in the rental market.
According to NAPIC, as of the third quarter of 2020 (Q3 2020), the number of new residential properties topped 50,176 units along with 13,904 serviced residence units entering the market.
Between 2016 and Q3 2020, a total of 427,978 residential units and 135,726 serviced residence units entered the market.
Although the number of new housing stock entering the market has since declined year-on-year, it is still a staggering amount, said Pathmanathan.
He said to put things in perspective, residential property stock increased by 10 per cent between 2016 and Q3 2020 while population growth in the same period was only at 4.7 per cent.
As for rental properties, Pathmanathan said the number of listings on iProperty.com.my saw a drop beginning March 2020 with the enforcement of the first Movement Control Order (MCO).
Listings fell 21 per cent month-on-month to their lowest point in April 2020 but inched up again after April, he said in the property portal’s 2020 Portal Demand Analytics (Rental Market).
The findings showed that more people are opting to rent due to uncertainties brought about by the pandemic. Visits figures for rental properties in 2020 grew faster than visits to properties for sale.
“Judging by these visits figures, there is a trend towards renting as opposed to buying properties. However, the increase in rental property listings has outpaced the increase in visits, causing the national demand figure to decline to -12.6 per cent,” he said.
Having said that, landlords who are renting out their units are facing challenges as some tenants are unable to pay their rents.
While the government is providing assistance and relief schemes to alleviate some of the burdens of the renters, the situation is further worsened by new residential properties entering the market, as property investors would have to compete to attract a limited pool of financially stable tenants.
Pathmanathan said the rental property sector is further impacted as a sizeable portion of the tenant pool in major cities consisting of expatriates (expats), foreign students and local students have returned to their home cities.
The expats are the ones who would usually lease a property, the majority of which are serviced apartments or condominiums in a prime area like in Kuala Lumpur city centre, Mont Kiara, Damansara, or Bangsar, and students will rent nearby colleges or universities.
With the expats returning to their home country and students taking on on-line classes due to the pandemic, property owners or landlords will have to resort to other means and ways to rent out their property.
“Most landlords would do well to forgo their goals of having a positive cash flow for the foreseeable future,” Pathmanathan said.
He said that even with a lower Overnight Policy Rate (OPR) announced by Bank Negara Malaysia (BNM) that has lowered monthly home loan installments for property owners, the bigger drop in rental income is currently offsetting the lower financing cost advantage.
“Competition among landlords would be fierce, especially for those with less holding power, as loan moratorium becomes more targeted on an as-needed basis. Affected landlords will have to apply for a loan moratorium extension as it is no longer granted automatically,” he added.
At the end of 2020, the rental yield for terraced houses was at 3.3 per cent from 3.4 per cent in H1 2020.
The median asking rent for condominiums was RM1,800, from RM1,900 in H1 2020, while for serviced Residences, the median asking rent was RM1,600 from RM1,700.
Major states like Kuala Lumpur, Selangor, Penang, and Johor saw a decline in the median asking rent for terraced houses, condominiums and serviced residences.
Kuala Lumpur
In Kuala Lumpur, the weak job market had slowed demand for apartments.
The demand for residential rental properties declined by -7.7 per cent Y-o-Y, given that a significant part of the rental property market is fuelled by employment prospects.
Apartments are the main choice of blue-collar workers and daily wage earners, and these workers who are in the B40 segment was hit the hardest by the onslaught of the pandemic.
According to the Department of Statistics Malaysia, the unemployment rate rose to 4.8 per cent in December 2020.
iProperty said there was a decline in user visits for the apartments segment.
It said that property seekers in Kuala Lumpur are in search of terraced houses with sizes ranging from 1,500 sq ft to 2,000 sq ft, and four-bedroom condominiums with built-up from 1,000 sq ft to 1,250 sq ft.
They are also looking for a three-bedroom apartment priced below RM2,300.
Overall, it said that there was a slight decrease in asking prices and rental yields across all property types.
The rental yield for terraced houses was at three per cent from 3.2 per cent in H1 2020, while for condominiums, it was at 4.1 per cent from 4.3 per cent.
The asking price for serviced residences, which was RM2,300 in H1 2020, reduced to RM2,000 by the end of 2020.
The top 10 most in-demand areas in Kuala Lumpur are Taman Tun Dr Ismail, Damansara Heights, Wangsa Maju, Pantai, Brickfields, KL Sentral, Bangsar, Jalan Ipoh, Sentul and Setapak.
Selangor
In Selangor, the demand for residential rental properties fell by -10.3 per cent but terraced houses recorded a growth of +2.8 per cent, attributable to people moving from the city to the outskirts in search of larger living spaces.
Visits for apartments remained unchanged with rental prices holding steady. The majority of users who visited Selangor properties for rent were more interested in double-storey terraced houses between 1,500 sq ft and 2,500 sq ft and priced from RM1,200 to RM2,000.
A lot of visitors were particularly interested in double-storey terraced houses for rent in Bangi priced between RM1,400 and RM2,000, with built-up sizes of between 1,500 sq ft and 3,000 sq ft.
There is also high rental demand for terraced houses and apartments for rent in Rawang. For terraced houses, users were looking for double-storey units between 1,250 sq ft and 2,000 sq ft, priced around RM1,000.
For apartments, they were keener on those ranging from 750 sq ft to 1,000 sq ft, priced between RM600 and RM750.
Ulu Kelang had the highest growth in rental demand, growing +32 per cent Y-o-Y. A large number of visits were for three-bedroom condominiums priced below RM2,000.
Penang
The rental demand figure for Penang in 2020 stood at -18.3 per cent.
Both visitor traffic and listings increased on a Y-o-Y basis with listings outpacing the number of visitors.
Visits for apartments and flats for rent purposed continued to see growth as the industrial sector remained open and areas such as Sungai Dua, Bayan Baru, Bukit Jambul, and Perai continued to provide accommodation for workers.
Sungai Dua is the most in-demand area for rent in Penang. Sungai Dua was included to the coverage recently as the minimum threshold of listing for consideration has been reached, more than half of the interest isre for apartments below RM1,000.
The other in-demand areas include Perai, Bukit Mertajam, Bukit Jambul, Simpang Ampay, Ayer Itam, Butterworth, George Town and Bayan Baru.
The demand for rental properties in Bukit Jambul is still in the green zone, bolstered by a surge in demand for flats with two bedrooms (500 sq ft to 750 sq ft), priced below RM700.
Johor
The closure of the border between Singapore and Malaysia has impacted the rental market in Johor Bahru.
Prior to the MCO, more than 300,000 people would commute across the Causeway daily. With the border closure, many were forced to seek a temporary stay in Singapore.
Visits for Johor rental properties experienced a drop while listings on the other hand increased.
Newly completed units have entered the market and they remained idle, resulting in a drop in demand figure by -27.8 per cent.
The reopening of the Malaysia-Singapore border will play a significant role in the demand recovery for Johor’s residential rental property.
The Rapid Transit System (RTS) link between Johor Bahru and Singapore, which is expected to be in operations in 2026, will further improve Johor’s residential rental property demand.
As of now, Pengerang tops the list for the areas that is most in demand for rent in Johor, bolstered by a vibrant oil and gas sector that are still seeing plenty of job hires.
Many users were in search of double-storey terraced houses in Pengerang with sizes ranging from 1,500 sq ft to 2,000 sq ft, priced from RM1,400 to RM1,700.
The other most in-demand areas in Johor include Kulai, Pasir Gudang, Ulu Tiram, Gelang Patah, Masai, Perling, Skudai, Johor Bahru and Tampoi.
Vaccination programme to help boost the property market
iProperty.com.my general manager Shylendra Nathan said that because of the current scenario, tenants are in a better position to negotiate prices and this has been reflected in slight drops in median asking rent prices and rental yields.
In his presentation on 2020 Portal Demand Analytics (Rental Market) yesterday, Nathan said that the entry of newly-completed projects in an already crowded market has resulted in landlords lowering their asking rental rate in a tough market environment.
“On a brighter note, the ongoing vaccination program has provided much-needed optimism for the local property market. Although the recovery will not be as fast as many would expect, it will definitely boost the property market’s recovery in the first half of 2021,” he said.
Nathan said the ongoing vaccination programme will help improve the local property market, and it is likely that it will see a small recovery in the next quarter.
He expects the property site to have pent-up demand, given that there is more confidence in the market now.
Nathan hoped that rental rates will improve towards the end of this year or the following year.
Source: NST