Unsold completed units on the rise
Hopefully, the coming budget will help to shed some light
ABOUT two weeks ago, a group of about 80 property club members saw licensed auctioneer Warrick Singh.
They were seeking solutions as to what they can do with their property purchases which they took vacant possession a few years ago.
Aged between 28 and 42, most of them have two or three property units purchased in 2011 and they were given possession of the property in 2014 or 2015.
Many of them, according to Warrick, have never heard about the property cycle or property clock.
“They bought the properties based on what they were taught about the good debt versus bad debt principle, that buying properties is a good debt,” says Warrick.
Most of them bought the properties with zero downpayment because they were given a 10% discount. They signed the sale and purchase agreement without having to pay anything and the developer paid for the interest during construction period, Warrick says.
They are disgruntled now because they are unable to rent out the units to meet the monthly mortgage payments and they do not want to sell at a loss, although some have done so. They are also unhappy they have to pay for the monthly management charges and sinking fund.
Warrick says their gross salaries were “between RM5,000 and RM10,000 or dual income”.
“They were seeking a solution but I had no solution. Instead, I told them about the property clock. Some call it property cycle which is roughly every seven to 10 years.
“Prices will not be down all the time. Just as there is a peak, there will be a bottom. That is the first thing buyers must understand. So timing is important,” he says.
Warrick says the current situation may need a bit more time to unravel as the number of unsold units continue to rise.
According to the National Property Information Centre’s (Napic) Property Overhang Report for the second quarter 2018, Malaysia has an overhang of 29,227 units, valued at RM17.24bil as at June 30, 2018.
A year ago, it was 20,876 units, valued at RM12.26mil.
That is a rise in overhang units of 40%. In ringgit value, it was a rise of 40.60% year-on-year.
Over a two-year period between the second quarter of 2018 and 2016, the stock of unsold units rose from 13,438 units to 29,227, an increase of 117.50%.
In ringgit value, it was a rise of 127.14% from RM7.59bil to RM17.24bil. It takes two years to build a landed unit and three years to build a condominium. That means over a two-year period, the stock of unsold completed units rose exponentially.
The above overhang figures exclude serviced apartments and small offices home offices (SoHos), which are built on commercial titled land. If this segment is included, the overhang volume and value would rise considerably.
Napic defines an overhang as unsold units nine months after completion. Valuation & Property Services department director general Nordin Daharom says the rising number of overhang units is one of two pertinent issues – the other being the commercial space vacancy, both retail and office space.
“(This) must be addressed by all parties, particularly local authorities and property developers,” he said on Oct 11.
Warrick believes we are currently at 7 o’clock (of the property cycle clock), while the Institute for Democracy and Economic Affairs (Ideas) senior fellow and economist Dr Carmelo Ferlito is of the view we are currently between 3 and 6 o’ clock.
Not surprised by the rising overhang, he says: “Prices will probably start to go down a little but we cannot hope for all these overhang units to be absorbed in the short term.”
He is of the view that a property crisis is approaching. The situation will be more critical at the beginning of next year, he says.
How much prices will go down, what the government will do and in what direction, as long as the bubble has not burst – the government will have to manage expectations, he says.
“As I have mentioned before, all this while, the focus has been on affordable housing and helping people to buy affordable units. But this crisis is not just an issue of affordable versus non-affordable units. It goes far beyond that,” he says.
Hoping for salaries to go up and prices to come down is wishful thinking because it takes a long time for salaries to move up, he says. This is exemplified by the current RM50 rise in minimum wage to RM1,050 issue.
At an Oct 9, Housing Conference 2018, National Housing Department director-general N. Jayaselan said the 2016 monthly median household income is RM5,228, annually RM62,736. At three times the affordability level, this amounts to RM188,208 versus average house price at national level of about RM400,000 at the end of the June 30, 2018.
Jayaselan says when it comes to housing, there is a need to look at more than just the price perspective.
“There is the price, the ability to finance the cost to keep the house and this is especially when it comes to strata developments which comes with management fees and the ability to finance the loan.
“Developers want sales. But how do you, as a buyer, going to maintain it? There is a cost to keep the house. But we tend to talk about only one perspective, the price of the house when keeping it involves a lot more than that.
“So we have to look at housing from a broader perspective. It is not about house prices alone. It is about affordability. There is a different between a house and a home.
“Your capability and ability to service it will create a home. An investor will look for a house. So there is a group who will own (a house), and there is a group who will rent, which is why the government today is looking at the Rental Act,” Jayaselan says.
He says there has been so much talk about salary being equitable with house prices but salary does not equal house prices today. The whole thing is in a mess, and this is not only experienced by Malaysia alone.
But a solution has to be found and hopefully this will be revealed during Budget 2019 on Nov 2.
“The solution is to identify the gap between demand and supply. The problem is, we do not know what is the demand like so in order to make projections, we make assumptions. So the government decides on the pricing,” he says.
“We want to move from the Asian tradition of accumulating wealth. Our future must allow peo- ple the flexibility to rent and to own. And this is what we are talking about today,” he says.
City Hall’s public housing rental is very manageable, and this has resulted in more preferring to rent rather than buy a unit, a City Hall staff says. At RM124 a month for a three-room unit, the tenant pays for his utilities. If he were to buy a unit, he would have to pay between RM250 and RM300 a month and he has to pay maintenance. As a tenant, if anything is broken, we go in to fix what’s broken, he says.
Housing and Local Government minister Zuraida Kamaruddin at the Malaysia: A New Dawn event on Oct 9 said the government is mulling over organising a home-ownership campaign next year to focus on the unsold stock of affordable units.
Getting a buy-in from banks and developers was needed and suggested developers to take a hair-cut (to offer discounts) for this unsold units.
Up to 38.81%, or 11,344 units out of the 29.227, are priced from RM500,001 above.
The remaining 17,883 units are priced from less than RM50,000 to RM500,000.
The proposed campaign mirrors the month-long ownership campaign initiated by then-prime minister Tun Dr Mahathir Mohamad and Tun Daim Zainuddin in December 1998, also to reduce unsold stock. About 22,000 units valued at RM5.2bil were put on sale then. Zuraida says the unsold stock has to be cleared.