No recovery for house prices, no thanks to economic recovery plan

Housing prices have soared across the world in the past year, but a local research house sees little room for optimism in Malaysia.

Research house Kenanga said in its latest report that the housing market would “continue to remain subdued even if we recover from Covid-19” because of the relatively slower economic recovery from Covid-19 and a long-standing oversupply that began in 2015.

Quoting a Knight Frank survey of 56 countries, Kenaga said house prices have soared in countries such as Indonesia (1.2% increase), Turkey (32%), US (13.2%), Britain (10.2%) and Singapore (6.1%).

However, the conditions in those countries did not apply to Malaysia “so we do not foresee a blanket re-rating for property prices,” Kenanga said.

The MCO 3.0, imposed in early May 2021, and followed by the full MCO on June 1, have not helped, the report said.

Although the house ownership campaign was extended from May 31 to Dec 31, the continual restrictive movements had limited productivity, impacted earnings and sales for most developers under their coverage for the entire year.

The report said Malaysia’s oversupply started in 2015 when developers flooded the market with serviced apartments despite cooling measures imposed in 2014.

Overhang units for serviced residences grew at a whopping compounded annual growth rate (CAGR) of 192% since 2015 till the first quarter of calendar year 2021, based on data from the National Property Information Centre (Napic).

“This issue is unlikely to abate in the near term given the large amount of overhang and unsold-under-construction units still in circulation today,” Kenanga said.

The end of first quarter 2021 saw 23,533 units of overhang serviced apartments. If combined with those under construction, this swells to 154,723 units.

Napic defines an overhang as units launched more than nine months ago, now completed and ready for occupation but unsold. Unsold under construction are work-in-progress launched more than nine months ago and unsold.

The property sector’s risks include the domino effects in the event of financial default by key property companies, impairment, falling property prices, and rising building material costs.

However, Maybank believes the housing sector is poised for recovery this year. Its latest research report said that, if not for MCOs, the sales momentum achieved in the first months of the year would have carried on into the second half of 2021.

Developers had believed “the worst was over”, were prepared for lower profit margins and lower prices and that the pent-up demand in a low interest rate environment would save them, the report said.

But the national recovery plan, the ensuing politics, coupled with noises with regards to the emergency, are today beginning to weigh on any green shoots seen earlier in the year.

Although Maybank believes in a recovery this year, the report made no mention of the unsold completed units, nor the thousands of high-rise homes which are works-in-progress and yet to find an owner.

Source: FMT