Yet another gloomy year for property market
KUALA LUMPUR: The local property market continued to face a tough time in 2017 with growing number of property oversupply, resulting from higherthan-affordable house prices flooding the market.
Affordable housing remained the key issue hogging the market, whereby most first-time house buyers seemingly could not afford to buy residential properties priced above RM250,000.
Bank Negara Malaysia (BNM) had recently raised the alarm that unsold residential properties were at their highest level in a decade, with the largest oversupply heading south in Johor.
“Supply-demand imbalances in the property market have increased since 2015. Unsold residential properties are at a decade high, with the majority of unsold units being in the above RM250,000 price category,” the central bank was quoted as saying.
BNM on its website in June revealed there were 130,690 unsold units as of end-March, 2017, with 83 per cent priced above RM250,000 and 61 per cent of them being high-rise apartments.
The issue of high house prices was also being tackled by Prime Minister Datuk Seri Najib Tun Razak who during the 2018 Budget announced a RM2.2 billion allocation to build 248,000 more affordable houses.
The government has continuously focus on addressing this issue to ensure that Malaysians will be able to own a house, while preventing a property glut moving forward, particularly in the high-end market.
One of the key measures taken by the government was to indefinitely freeze approvals for luxury property development beginning Nov 1 this year, with the main objective to control the oversupply situation from adversely affecting the economy. KUALA LUMPUR: Wah Seong Corporation Bhd (WSC) is expected to see a healthier balance sheet and lower gearing level next year.
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) noted that WSC’s current orderbook stands at RM3.4 billion where 91 per cent of the jobs are from the oil and gas (O&G) segment, seven per cent from the renewable energy segment and two per cent from the industrial trading & services.
It added, the bulk of its orderbook from the O&G segment consists of its Nord Stream 2 (NS2) project which takes up 77 per cent while its tenderbook currently stands at approximately RM4.7 billion, with the O&G segment consisting of approximately RM3.8 billion.
Second Finance Minister, Datuk Seri Johari Abdul Ghani, said the Cabinet had decided on this after scrutinising a detailed BNM report published in June on the real estate glut.
He said there was an overflow of luxury projects which had outstripped the market demand for affordable homes.
“The Bank Negara report takes into account high-rise condominiums, shopping malls and commercial units, including those that are worth more than RM1 million,” he was quoted as saying.
Johari said the move to stop the development of shopping malls, commercial complexes and condominiums priced above RM1 million was only temporary until the market can clear all the excess supply.
He said the government would continue to drive the development of affordable housing, specifically those priced below RM300,000 per
“Going forward, we expect sustained earnings for WSC going forward. In addition, the management has mentioned that with the recent rise in the global crude oil price, there has been a slight pickup in projects offered for tender.
“Yet, these projects are more forward looking towards late2018 and are only expected to materialise in 2019 and 2020,” it opined.
Meanwhile, on WSC’s move to dispose its plantation arm (WS Agro Industries Pte Ltd), MIDF Research said, the disposal is for a total cash consideration of US$6 million and the amount is based on the approximate carrying value of WS Agro’s investments in the plantation business.
“As such, we do not expect any unit. “In this sector, there is a disparity between the 48 per cent demand for affordable homes and the supply that only meets 28 per cent of that. This is the area that needs to be addressed swiftly,” he pointed out.
As for the overall property market performance, the National Property Information Centre (NAPIC) announced that there were 153,000 transactions worth RM67.82 billion in the first half of this year, which was a decline of 6.0 per cent in terms of volume but a 5.0 per cent increase in value, when compared to the same period in 2016.
Nevertheless, the rate of contraction has reduced, indicating that the property market is gradually adjusting to the changing market landscape, it said.
It said the residential sub-sector continued to drive the overall market constituting a 61.8 per cent market share and 48.4 per gain on disposal for this deal. Thus, we will be maintaining our earnings forecasts for 2018,” it opined.
Of note, WSC Group and WSC Capital has entered into a share sale agreement with Agro Panorama Sdn Bhd (APSB) for the disposal of WS Agro.
The purpose of this disposal is to streamline, realign and rationalise the business activities of the group.
The research team pointed out that for the first nine months of the financial year 2017 (9MFY17), WSC’s plantation segment has not contributed any profit yet, resulting in a cumulative RM4.1 million loss before tax.
All in, MIDF Research pegged a ‘neutral’ call on the stock. cent in value, while affordable houses continued to be in demand with more than 83 per cent of residential transactions within RM300,000 and below.
Due to the challenging market condition, NAPIC said the number of new residential launches fell to 28,397 units, down 9.1 per cent compared with 31,257 units in first half 2016, with sales at 23.9 per cent or 6,775 units.
PPC International Sdn Bhd Managing Director, Datuk Siders Sittampalam, said the lower volume despite higher transaction value, signalled that some buyers had started to adapt to purchasing properties at higher prices.
“It has also shown that the market sentiment is starting to recover. If we compare with 2015 and 2016, this year showed that the decline in volume of transaction for residential properties has reduced to a single digit as compared to a double-digit.
“It not only indicates that market sentiment has improved but buyers have also been adapting the new market environment,” he told Bernama.
He also reasoned that the government’s RM2.2 billion initiative to boost development of affordable houses as under the 2018 Budget, would not give a major support to the market next year.
“The initiative, as we know, could be fully implemented by next year. In my opinion, the initiative would not have a bigger impact for the short period,” he added.
According to NAPIC, the slow market absorption has led to the increase in residential overhang in the first half of this year to 20,867 units worth RM12.26 billion.
It said the overhang volume and value increased by 40 per cent against the corresponding half of 2016, predominantly priced between RM500,000 and RM1 million, the bulk of which comprised condominiums and apartments.
For the office and retail sectors, despite having an occupancy rate of above 80 per cent for the period under review, NAPIC said unoccupied space remained high with that of private office at 3.40 million square metres (sq.m), led by Kuala Lumpur with more than 1.62 million sq. m and followed by Selangor with 870,000 sq.m.
The retail sector recorded more than 2.79 million sq.m in unoccupied space, up slightly by 2.6 per cent against the same period in 2016, with Selangor and Penang recording higher unoccupied space of more than 500,000 sq.m.
“Both issues – residential overhang and commercial space vacancy -- are pertinent issues that must be addressed by all parties, particularly the local authorities and property developers. Both must exercise due diligence before arriving at development decision to avoid oversupply situation,” according to NAPIC.
Similarly, the central bank has also suggested for a single agency to be set up to handle “affordable housing” of which such homes are usually priced at RM150,000 and below, and built by several agencies under both the federal government and various Malaysian states.
Moving into 2018, Siders said the retail and office segment was expected to see some changes in terms of volume and prices for new projects, in order to fit into the current market demand while the residential sector was forecast to remain stagnant.
“The market sentiment is expected to be fully stable beginning the second half of next year,” he said.
Meanwhile, for the construction industry, data from the Construction Industry Development Board saw a decline in the volume of projects as of June 2017, to 2,133 projects valued at RM40.36 billion from 3,556 projects worth RM67.64 billion in the same period last year.
Of these, 488 projects worth RM6.05 billion were from the government by local contractors while the remaining 1,567 projects worth RM29.80 billion were private projects by local contractors.
Foreign contractors handled 48 private projects worth RM4.51 billion and none from the government.
Malaysia’s construction industry growth is expected to be among the fastest in the world from 2016 to 2020, supported by the government’s plan to improve the country’s transportation network and tourism infrastructure, as well as increase the volume of renewable projects. — Bernama
WSC to see healthier balance sheet and lower gearing level in 2018