Moody’s ex­pects ma­te­rial de­cline in prop­erty prices

This will hap­pen in event of pro­tracted pe­riod of sup­ply over­hang

The Star Malaysia - StarBiz - - News -

PETALING JAYA: Moody’s In­vestors Ser­vice ex­pects a ma­te­rial de­cline in prop­erty prices in Malaysia in the event of a pro­tracted pe­riod of sup­ply over­hang as mar­ket val­u­a­tions ad­just.

In its credit out­look, the rat­ings agency pointed out that in such a sce­nario, the qual­ity of hous­ing loans with high loan-to-value (LTV) ra­tios are most at risk.

“We un­der­stand from our rated banks in Malaysia that 20%-30% of mort­gages booked each year have LTV ra­tios of 90% or higher at the time of orig­i­na­tion.

“Fur­ther­more, we be­lieve that sus­pend­ing new prop­erty devel­op­ments will not cor­rect the over­sup­ply sit­u­a­tion over the next five years, when prop­erty projects now in de­vel­op­ment en­ter the mar­ket,” it said in its re­port is­sued yes­ter­day.

On Nov 20, Sec­ond Fi­nance Min­is­ter Jo­hari Ab­dul Ghani was quoted say­ing the Gov­ern­ment had since Nov 1 frozen ap­provals of lux­ury prop­erty devel­op­ments in­def­i­nitely and tem­porar­ily halted the de­vel­op­ment of shop­ping malls, com­mer­cial com­plexes and con­do­mini­ums priced above RM1mil to ad­dress over­sup­ply in the prop­erty mar­ket.

The fol­low­ing day, Works Min­is­ter Datuk Fadil­lah Yu­sof said the freeze would be ap­plied on a case-by-case ba­sis.

The freeze fol­lowed Bank Ne­gara’s re­port ear­lier this month that sug­gests the over­sup­ply in Malaysia’s prop­erty mar­ket is wors­en­ing.

Moody’s noted the vol­ume of Malaysia’s un­sold and va­cant prop­er­ties has 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.

“These devel­op­ments are credit neg­a­tive for Malaysian banks,” it said.

Bank Ne­gara had pointed out ear­lier the bank­ing sys­tem’s to­tal loan ex­po­sures to prop­erty seg­ments with acute over­sup­ply (that is, com­mer­cial prop­erty and high-end high-rise res­i­den­tial) ac­count for 8% of to­tal bank lend­ing, and the im­paired loan ra­tios for the seg­ments are low at 1.1%-1.2%.

Moody’s pointed out that sus­pend­ing new prop­erty devel­op­ments would not cor­rect the over­sup­ply sit­u­a­tion over the next five years, when prop­erty projects now in de­vel­op­ment en­ter the mar­ket.

Much of the new sup­ply are in Malaysia’s key states, where sup­ply-de­mand im­bal­ances in var­i­ous seg­ments of the prop­erty mar­ket, in­clud­ing res­i­den­tial hous­ing, com­mer­cial of­fice and re­tail shop­ping com­plex, have oc­curred since 2015.

These states in­clude Kuala Lumpur, Pe­nang and Jo­hor, which the cen­tral bank has warned will likely have the largest prop­erty mar­ket im­bal­ances in the coun­try.

Jo­hor has the largest share of un­sold res­i­den­tial units in Malaysia (27%), fol­lowed by Se­lan­gor (21%), Kuala Lumpur (14%) and Pe­nang (8%). Ac­cord­ing to Bank Ne­gara, the large vol­ume of un­sold prop­er­ties re­flects that the majority of newly com­pleted prop­er­ties were priced above RM250,000 (the barom­e­ter for af­ford­able hous­ing in Malaysia) and do not cater to house­holds’ de­mand for af­ford­able new hous­ing.

In the com­mer­cial of­fice seg­ment, va­cancy rates have risen steadily since 2015.

Bank Ne­gara es­ti­mates that of­fice va­cancy rates could rise to 32% by 2021, from 24% in first-quar­ter 2017, con­sid­er­ing the large de­vel­op­ment projects such as Tun Razak Ex­change and Bukit Bintang City Cen­tre in Kuala Lumpur that are un­der­way.

In the re­tail shop­ping com­plex seg­ment, to­tal re­tail space per capita has in­creased sharply in key Malaysian states over the years, and now sur­passes re­gional mar­kets such as Hong Kong and Shang­hai.

The large in­com­ing sup­ply of re­tail space will ex­ac­er­bate the over­sup­ply sit­u­a­tion and raise the va­cancy rates across Kuala Lumpur, Pe­nang and Jo­hor from cur­rent lev­els of 13%30%.

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