Property market needs a reset button

IT is always believed that the government’s job is to govern the country and to ensure rules and regulations as well as laws are well in place. The government’s role is to provide the right atmosphere for investors and businesses to thrive and for the general public to be protected as well from unscrupulous business practices for the supply of good and services provided by the business community.

While it is not the government’s business to be in the business of supplying goods and services but for certain essential needs of the people, it is the duty of the government to do so. They include in areas related to education, healthcare, public security and safety and to a large extent even ensuring affordable homes for Malaysians in general. It is the duty of the government to ensure there is enough public housing while supply of affordable homes by the private sector remains adequate in the market not only in terms of price, but also in terms of location and type of properties.

All these are done by the government via the state and local councils through the planning and development orders that are issued. This means that there must be adequate control in terms of what is being built and not leave it to the private sector to build at its own whims and fancies.

It is the duty of the government to control the types and prices of homes that come to the market as it has the required data in terms of existing supply, demand as well as market transacted values of secondary properties in any particular area. We cannot have a situation, be it the government or the private sector, that keeps building without realising if there is actual demand in terms of the type, location and price of the properties and that is why we are now saddled with a huge overhang.

Overhang is defined as properties that are completed and issued with certificates of fitness for occupation or temporary certificates of fitness for occupation, but remain unsold despite having been in the market for at least nine months.

The release of the 1H 2019 property market data is still revealing the dire straits of the Malaysian property market as the residential sector which still has a good 32,810 residential overhang units valued some Rm19.76bil. Of this, 4,213 units were unsold residential units that were priced at Rm1mil and above. Compared with the 1Q 2019, the overall overhang in the high-end segment improved marginally as the numbers dropped by 118 units.

In the 1Q of 2019, total residential overhang in the high-end segment was valued at about Rm8.74bil, which translates to about Rm2mil per unit. Interestingly, the property market statistics also suggests that as at 1H of 2019, we now have 97,707 units of unsold residential properties that are either under construction (81,627 units) or not constructed (16,080 units), which is an increase of 3% year-on-year. Those that are under construction remain at record high, rising by 11.2% y-o-y while those not constructed yet have dropped by about 25% y-o-y. Why is this relevant?

It is relevant as the government has now taken on its shoulders to market not only this unsold completed units which are priced at Rm1mil and above and are deemed to be high-end residential homes but also unsold under-construction units. The Minister was quoted as saying that the residential high-end segment priced at Rm1mil and above per unit is worth some Rm100bil in terms of unsold properties. This was a shocking announcement by the Minister as the figure is 11.4x larger than those categorised as overhang.

It can rightly be presumed that this Rm100bil value of high end properties priced Rm1mil and above includes both the statistics from the overhang status of the market and those that do not qualify to be categorised as overhang, i.e. they are either under construction or not constructed but properties that have been launched by developers. If one were to take away the 1Q overhang statistics from this huge amount, it seems to suggest that properties that are not under the overhang category (and are in the either under construction or not constructed categories) are worth some Rm91.26bil! Does this mean we have, other than the 4,213 completed high-end units and remaining unsold after nine months of completion, another 45,630 units that are unsold based on Rm2mil average per unit?

Hence, the total overhang and those under construction that remained unsold equals 49,843 units! Isn’t this a scary figure? Rm100bil is equivalent to almost 7% of our annual nominal GDP and if these unsold units or under construction units are funded partly with bank financing and if they remained unsold, the consequences to our banking system can be significant.

While the Minister has backed away from using the Home Ownership Campaign (HOC) goodies for the purpose of marketing these units to foreigners as she has now said that these properties would be sold under Malaysia My Second Home (MM2H) programme instead.

This after the proposal to use the HOC backfired as it was widely believed that it is not the government’s job to bail out developers who are keen to build and sell expensive homes but run to government when they are stuck with unsold under-construction properties and unsold completed properties. While the government’s intention can be said to be noble, looking at the bigger picture in terms of economic and banking sector impact if these properties remained unsold, the government has no duty promoting them to end-buyers.

The government’s job is to ensure that it has the capacity to make sure we have a healthy and balance property market, especially in the government’s ability to provide public housing and affordable homes. The Minister should just focus on the one million homes that the government intends to build under its 10-year programme and not worry about private developers. Let them sort out themselves, after all they are all they are risk-taking entrepreneurs. You win some, you lose some.

As for the current market situation, the government needs to step up and stop developers who are building this unwanted high-rise high-end homes. We already have too many of them and most of them are just an empty nest without occupants. Ask any property agent in town and he/she will tell you how difficult it is to sell a property in the market today and if you want the property to generate income through rental, be prepared for a very low yield.

To the developers, its time to do homework and feasibility studies to understand the market better. It is no longer a game of building residential high rises at sky-high prices and expect the general public, both local and overseas to purchase these over-hyped and over-valued properties just because is the next in-thing.

Every developer who is launching a new project thinks their development will be a success but only come to realisation in the months or years ahead that the market has shifted. This is the result of poor planning and feasibility studies carried out. The Real Estate and Housing Developers Association (Rehda) in its comments on Thursday too admitted that the high end market is a specific market that most locals cannot afford while home ownership among wealthy migrants remained relatively small. The question is if this is the market dynamics, why do Rehda members keep building all these unnecessary and unwanted homes?

It is time the authorities demand more from developers in terms of ensuring that these properties are actually sold perhaps by between 60%-70% before construction even starts as the last thing Malaysia needs are uncompleted residential towers that are just an eye-sore.

With so many issues plaguing the Malaysian property market, it is time to go back to the basic needs of the people and even time to press the reset button. We need to have a consensus view, be it from the government, the developers, town planners, local councils to draft out a new property master plan – a plan for the future for the sake of the nation and not for the property developers’ own whims and fancies and their self-fulfilling agenda, which is nothing but greed.

The views expressed here are solely the writer’s own.