Raindrops falling on MY
A quick review of NAPIC’s data for 2020.
On the whole, Malaysia had 295,968 transactions worth RM119.08 billion exchanging hands throughout the pandemic year of 2020. When compared to the figures of 2019, this is a 9.9 per cent drop in transactions (328,647) and a 15.8 per cent decline in value (RM141.4 billion). Whilst the percentage decline in volume was below 10 per cent, the decline in value was higher at 15.8 per cent. This means that the value of the transactions dropped more than the volume and translates to a 6.5 per cent decline in the average value of each transaction ie. from RM430,000 in 2019 to RM402,000 in 2020.
The last time Malaysia had transactions lower than 2020’s figure was in 2006 with approximately 283,900 properties exchanging hands. The years preceding 2006 also had less than 2020’s total number of transactions. In terms of percentage growth, only 2016 and 2013 had a larger drop than 2020 at 11.5 per cent and 10.9 per cent declines respectively. But the biggest plunge was in 1998 with -32.3 per cent caused mainly by the shocks of the Asian Financial Crisis. By value of transactions, 2010’s RM107.44 billion and the years prior with less than RM100 billion annually were the only years that registered lower values compared to 2020s.
NAPIC’s data also reported a sharp drop across the sub-sectors in 2020 with residential declining 8.6 per cent, commercial 21 per cent, industrial 24 per cent, agriculture 10.7 per cent, and development land 2.6 per cent. In terms of the value of transactions, residential declined by nine per cent, commercial 32.6 per cent, industrial 14 per cent, and development land 34 per cent. Only the agriculture sub-sector experienced a positive growth albeit a marginal one at 0.6 per cent.
As the fright of Covid-19 has affected the business sector badly, it is not surprising that the demand for shops, retail, and office space in 2020 came down significantly compared to the residential sub-sector which was supported by those buying for personal occupation. Further, the primary market was aided by the Home Ownership Campaign (HOC) 2020/2021 with discounts and incentives which boosted demand, especially in the affordable segment. There is no surprise hence that the volume of commercial and industrial transactions dropped more than double that of the residential subsector and eight to nine times more than the development land sub-sector.
Whilst the volume of commercial transactions eroded by more than two times that of residential transactions, the value of the commercial transactions declined by more than three times. This implies that for the period under review, there is a higher proportion of lower-priced commercial properties transacted compared to the corresponding period the year before.
Interestingly though, the industrial sub-sector was the best performing of all the sub-sectors amid the transaction volume and value declines. It is also worth noting that while the value of development land transactions slid marginally by only 2.6 per cent, the value of the transactions registered the largest drop across all sub-sectors at 34 per cent. This implies that the focus of the development land transactions for the period under review would be those which were less prime and of lower values, presumably suitable for the development of affordable homes.
Residential: Led 2020
In terms of market share, the residential sub-sector led the overall property market with 64.7 per cent contribution in volume, followed by agriculture at 20.7 per cent, commercial 6.8 per cent, development land and others 6.2 per cent, and industrial 1.6 per cent. In terms of value, residential also led the market with 55.3 per cent market share, followed by commercial at 16.4 per cent, industrial 10.7 per cent, agriculture 10.5 per cent and development land and others 7.1 per cent.
In total, there were 191,354 transactions worth RM65.87 billion recorded in 2020, a decrease of 8.6 per cent in volume and nine in value as compared with 2019 (209,295 transactions worth RM72.41 billion).
Consistent with the overall decline, the performance of the residential subsector dipped across the states except in Perak and Terengganu. It is interesting to note that while Perak is one of two states which did not register a decline, it is the third-highest contributor to the residential property overhang in the country after Johor and Selangor.
Selangor: Highest Residential Volume
Selangor contributed the highest volume of residences at 23 per cent or 44,034 transactions and 33 per cent in value or RM21.72 billion. Although next door Kuala Lumpur recorded only 10,606 transactions or about a quarter (24 per cent) of Selangor’s, its value of transactions was the second-highest at RM8.24 billion contributing 12.5 per cent of the market share or about 38 per cent that of Selangor’s. In this regard, the average value per transaction in Kuala Lumpur is about 1.6 times higher than that of Selangor (RM777,000 vs RM493,000).
According to NAPIC, the downward trend in the major states of Kuala Lumpur (-4.5 per cent), Selangor (-15.3 per cent), Johor (-19.9 per cent), and Penang (-7.7 per cent) led to the overall decline in the residential sub-sector as it commanded 46.8 per cent of the total national residential volume. Southern state Johor poses the highest concern as the decline in performance (both volume and value) is amongst the worst of all states and it also led in terms of residential property overhang (both volume and value).
New launches: declined
As most developers had deferred new launches in light of the pandemic-hit economy, the primary market saw a reduction of new launches with 47,178 units launched in 2020 against nearly 60,000 units in 2019. Sales performance was modest at 28.7 per cent in 2020, lower than the 40.4 per cent in 2019.
Kuala Lumpur recorded the highest number of new launches in the country, capturing nearly 21.8 per cent (10,295 units) of the national total with sales performance at 18.6 per cent. This is followed by Selangor with 7,330 units or 15.5 per cent market share with sales performance at 39.1 per cent and Johor with 5,913 units, 12.5 per cent share, and a sales performance of 29.3 per cent.
The poorer sales performance across the country in 2020 was not unexpected as developers’ sales galleries had to close during the Movement Control Order (MCO) for about 3½ months. The adverse impact of the pandemic on businesses resulted in pay cuts and an increase in layoffs. The ensuing poor sentiments also caused buyers and investors to stay on the sidelines. It goes without saying that the drop in sales performance would obviously compel developers to defer new launches, particularly during the first half of 2020, and concentrate on clearing existing stock to reduce inventory and improve cash flow.
Type: terraced trumps
Terraced houses continued to be the preferred residential type as they made up 41 per cent of the total transactions, followed by vacant plots (16.2 per cent), high-rise units (14.4 per cent), and low-cost houses/flats (11.6 per cent). Terraced houses also dominated the new launches at 43.1 per cent with single-storey at 9,409 units and 2-3 storey with 10,944 units. This is followed by condominium/ apartment units at 39.7 per cent share or 18,717 units. Developers with township developments were able to launch terrace house projects which enjoyed stronger demand than high-rise strata developments and therefore had an advantage over developers whose existing landbank were focussed on high-end condominiums/serviced apartments in the urban centres.
By price range, demand continued in the below RM300,000 segment which accounted for 61.7 per cent of the total residential transactions, followed by RM300,001 to RM500,000 (21.9 per cent), RM501,000 to RM1 million (12.7 per cent), and more than RM1 million (3.7 per cent).
Overhang: slight improvement
Despite the enforced MCOs, the residential overhang situation improved by 3.6 per cent to 29,565 units worth RM18.92 billion while its value of transactions also increased by 0.5 per cent against Q4 2019 (30,664 units worth RM18.82 billion). It is therefore gratifying to note the improvement over two consecutive years of 2019 and 2020. This is clearly the result of the boost provided by the two HOC campaigns which reported sales achievements of 57,000 units worth RM37 billion for HOC 2019 and 34,000 units worth RM25.65 billion as of the end of February 2021 for HOC 2020. It is also not a surprise that property developers have clamoured for and appealed to the government to extend HOC 2020/2021 until the end of 2021.
Johor retained the highest volume and value of overhang in the country with 7,030 units worth RM5.48 billion, accounting for 23.8 per cent and 29 per cent respectively of the national total. This is due to the large number of units launched in recent years by foreign-controlled developers in the state. The preponderance of units sold in the affordable categories (under RM300,000 and between RM300,001 to RM500,000) which contributed about 83 per cent of residential units sold in 2020 will inevitably lead to more developers acquiring land and rebalancing their landbank portfolio to refocus on these segments of the market.
After Johor, Selangor has the second-highest volume (4,889 units) and value (RM4.29 billion) of overhang units, followed by Perak (3,637 units, RM1.16 billion) and Kuala Lumpur (3,023 units, RM2.92 billion).
The biggest chunk of overhang residences are those priced under RM300,000 and between RM300,001 to RM500,000 which made up a combined 53.9 per cent of the total residential overhang. It would have been natural to assume that the overhang homes within the affordable categories as low as they would be within the reach of the lower to middle-income groups. It is also believed that the high overhang numbers in these affordable homes categories could be due to projects in unpopular locations, insufficient take-up of units under the Bumiputera quota, wrong products for that particular target market eg. apartments instead of the preferred landed properties, and non-affordability of the houses in relation to the targeted buyers. All these calls for more detailed research to get a better understanding of the local market dynamics and preferences.
Of the total national overhang, condominium/apartment formed the majority at 51.9 per cent (15,354 units), followed by terraced houses (28.1 per cent; 8,306 units). From the perspective of price, 34.5 per cent or 10,199 units are priced between RM500,001 to RM1 million (higher than 2019’s 28.3 per cent), followed by 29.6 per cent or 8,758 units below RM300,000, 24.3 per cent or 7,185 units between RM300,001 and RM500,000 and 11.6 per cent or 3,423 units exceeding RM1 million.
Price index: marginal uptick
Enveloped almost by an overall market setback in 2020 and also in the preceding few years from 2015, the Malaysian House Price Index (MHPI) still showed a growth trend albeit a low one. On the ground, developers have been offering discounts/rebates of a minimum of 10 per cent besides other freebies to be eligible to participate in the two HOCs. Auction sales prices have also been going lower whilst owners have lowered their price expectations in the secondary market. By right, this should translate to a decline in the MHPI. A possible explanation for this seeming anomaly would be that the basket of properties used by NAPIC to measure the HPI did not show any declines but an increase instead.
NAPIC’s data for MHPI in 2020 stood at 199.3 points with a low annual growth of 0.6 per cent, the lowest recorded since 2010 with all states recording positive annual growth except for Kuala Lumpur (-1 per cent), Selangor (-0.7 per cent), Penang (-0.1 per cent) and Sabah (-1.3 per cent). Johor however bucked the trend to register a moderate 2.5 per cent annual growth while the Terraced House Price Index also went up by two per cent although it was the lowest in the decade. On the flip side, high-rise declined by 0.8 per cent, semi-detached 0.6 per cent and detached houses by 1.1 per cent. – Henry Butcher Malaysia
Source: NST