Moderating overhang

More efforts needed to improve the situation

“To hedge against inflation, property is an excellent asset class.” Samuel Tan

THE level of residential overhang in the country is expected to continue its downtrend this year, on the back of improving buyer sentiment, better property sales and various government initiatives.

However, property consultants believe that more can and should be done to expedite the reduction in the country’s overhang levels.

According to the National Property Information Centre (Napic), the number of overhang residential units fell 7% year-onyear to 25,816 in 2023, compared with 27,746 units in 2022.

The value of residential overhang units also declined 4% to Rm17.68bil in 2023, from Rm18.41bil a year earlier.

In spite of the improvements, PPC International Sdn Bhd managing director Datuk Siders Sittampalam says that the level of volume reduction in the residential overhang last year was lesser, compared with 2022.

“In 2023, there was a 7% reduction in the level of overhang, versus 2022 where there was a drop of 24%. Year-on-year, the volume of overhang is not reducing as much as it should be,” he tells Starbizweek.

Siders notes that “overhang” is defined by Napic as residential units that have received certificates of completion and compliance, but remain unsold for more than nine months after being launched.

“When looking at the overhang statistics, it also includes properties that have been unsold for up to a decade; and these are properties that will most likely never get sold. Including these properties in the statistics does not present an accurate picture of how serious the overhang situation is in the country,” he says.

Savills Malaysia group managing director Datuk Paul Khong says the reduction in the level of overhang last year was due to developers scaling down new launches during 2020 to 2021, in response to Covid-19.

“Many developers also continue to focus on reducing their inventories at significant discounts.

“Additionally, government incentives, such as the memorandum of transfer and stamp duty exemptions, as well as the housing credit guarantee scheme providing financial guarantees to Malaysians without fixed monthly income (like gig workers) proved effective.”

KGV International Property Consultants executive director Samuel Tan, meanwhile, says that there was pent-up demand last year due to the lockdowns during the pandemic.

“People were unable to view showhouses and this prevented many from investing into properties. Post Covid-19, people who have saved during the previous two-to-three years looked forward to purchasing their dream homes.

“The improvement of the economy is another major factor. The fear of inflation is an important consideration. To hedge against inflation, property is an excellent asset class. Obviously, the more stable political landscape is another compelling reason.”

According to Napic, Perak had the highest level of overhang in the country last year, overtaking Johor as the number of unsold residential units in the silver state surged to 4,598 units in 2023.

This is comparable to 2,312 units a year ago, while Johor’s fell 19.6% to 4,228 in 2023, from 5,258 previously.

Siders explains that Johor’s level of overhang has always been high, mainly due to the oversupply of high-rise units in the state.

“In Perak, it’s a mix of landed and highrise units, but more towards the former.”

Siders believes that the higher level of overhang units in Perak last year can be attributed to the properties being built in less-than-ideal locations or buyers being too choosy.

“This needs a little bit more investigation, as the (overhang) situation could be due to other factors, such as oversupply,” he says.

Going forward, Khong says the overhang situation should improve in 2024.

“This optimism stems from better sales in 2023 in the unsold, under-construction segments. These trends indicate that the housing sector is still gaining support from growing homebuyers’ confidence. Efforts by the government will also help ease the overhang situation in the country.”

Tan meanwhile says the outlook will depend on the economic performance of each state.

“For instance, Johor is expected to perform well due to the many catalytic projects that are ongoing and planned.

“The Johor Baru-singapore Rapid Transit System is sure to be a game-changer. Although the market has factored in some degree into its pricing, new service apartments are expected to increase their prices, especially those near to the station.”

Additionally, Tan says the proposed Special Economic Zone and Special Financial Zone will be further boosters.

“The completion of the electrified double-track is a major bonus. Then, there is the proposed Light Rail Transit and Bus Rapid Transit. The latter, when in operation, will cover about 90% of the Johor Baru district, making connectivity convenient.

“The opening of the Johor Baru-pontian bridge will also boost property prices in Pontian. Meanwhile, the possible revival of the Kuala Lumpur-singapore High-speed Rail is one project that is much anticipated. This will send another wave of excitement in the air.”

In Penang and the Klang Valley, Tan believes that the overhang situation will continue to moderate as the economy improves.

“The increase in foreign direct investment is testament of confidence in our country. This is aided by the geopolitical situation.

“The continuous trade war between the United States and China will cause more plants to relocate to Asean countries. Malaysia will be one of the beneficiaries.”

Meanwhile, Siders believes the overhang situation will not be resolved so easily.

“It will remain unless something is done. I believe that the authorities shouldn’t approve projects that are in the middle of nowhere. There should be a proper market for proposed developments and a feasibility study needs to be done beforehand, to ensure that the project is viable.”

In light of the various government initiatives in place, Siders believes that newer units categorised as “overhang” will start reducing.

“However, older categorised units will remain, unless there is intervention from the public sector,” he says.

Tan emphasises that the mantra of “location, location, location” is undated. “Today, it is location, affordability, quality and branding.

“When developers are able to get that formula right, the overhang volume will decrease.”