Prices may head south on govt approval freeze for luxury properties
KUALA LUMPUR: A protracted period of supply overhang from the government’s frozen approvals for luxury property development projects will push down property prices as market valuation adjusts to reflect the lack of demand, said Moody’s Investors Service.
The increasing oversupply and prospects of property price correction would continue to build as new supply entered the market and posed a risk to banks’ asset quality, said the rating agency.
The government had since November 1 frozen approvals of luxury property developments such as shopping malls, commercial complexes and condominiums priced above RM1 million to address oversupply in the market.
The freeze followed Bank Negara Malaysia’s report earlier this month that suggests the oversupply in Malaysia’s property market is worsening.
The volume of Malaysia’s unsold and vacant properties had risen substantially over the past three years and is likely to increase, raising the risk of a material decline in property prices that would diminish bank asset quality.
Moody’s said these developments are credit negative for Malaysian banks.
Citing Bank Negara data, Moody’s said the banking system’s total loan exposures to property segments with acute oversupply accounted for eight per cent of total bank lending.
The impaired loan ratios for the segments are low at 1.1 to 1.2 per cent.
“Furthermore, we believe suspending new property development will not correct the oversupply situation over the next five years, when property projects now in development enter the market,” it added.