Property market plagued by huge number of unsold houses

Property market plagued by huge number of unsold houses

January 15, 2018 0 By User

While property demand has started recovering, the sector’s fundamentals remain weak with the market plagued by a huge number of unsold houses and other properties.

The country has RM12.3 billion of Unsold completed residential units, a record high in Malaysia. Of these unsold stocks, 68,245 units or 66% were still under construction.and 14,776 unsold units are yet to be constructed

Unsold residential property stocks at the end-1H17 (first half of 2017) continued to rise by +24% year-on-yaer (YoY) (but -2% quarter-on-quarter – QoQ) to 103,897 units (KL +2% QoQ, +26% YoY; Selangor +11% QoQ, +44% YoY; Johor -6% QoQ, +36% YoY; Penang -6% QoQ, +20% YoY).

Elsewhere, auction properties (including land) for sale were also on the rise at +11% YoY at end-9M17 nine-months of 2-17 (source: indicating a challenging property market.

Recover a long distance away

“In our view, property sales are likely to stay challenging and an absolute recovery is still a distance away, with the sector plagued by a large stockpile of unsold properties.

While the House Price Index (HPI) has been holding up well in 3Q17 (Malaysia: +0.7% QoQ, +5.1% YoY; KL: +1.1% QoQ, +5.1% YoY; Selangor: +0.2% QoQ, +5.3% YoY; Johor: +2.2% QoQ, +4.5% YoY; Penang: +0.6% QoQ, +3.6% YoY), rental rates are weakening (as per our conversations with property agents,” said Maybank IB Research.

Total unsold residential units would be 103,897 units (+14.8% YoY) end-1H17.

Mixed signals from developers

Developers remain cautious on their property sales outlook and most are expecting flattish/low-teens growth in 2018 except for SP Setia, which expects a 25% growth in sales post the acquisition of I&P Group.

Maybank said it expects more developers to continue offering discounts/freebies (such as free aircons, kitchen cabinet, electrical appliances, etc) to clear unsold stocks/entice buyers and hence, we expect further blended margin erosion as competition continues to rise.

Also, margins are coming under pressure due to their higher involvement in the affordable housing segment. There is also intensifying competition in affordable housing segment.

Maybank cautious on property sector

While the underlying demand for affordable homes remains relatively strong as compared to the other property products, supported by a young population, “we have turned cautious on this property segment too, in view of the high volume of new properties launched under this segment in recent years, as developers have been switching their focus.”

In addition to the private sector developers, the various state governments and federal government also have their respective affordable housing schemes which add onto the ‘stockpile’.

Policy easing unlikely

Cautiousness among lenders may continue to weigh on mortgage loan disbursements especially after BNM has red-flagged the surge in unsold stocks in the residential segment.

Despite the improvement in household (HH) debt-to- GDP ratio by 4ppt to 85% as at end-Sep 2017, Maybank said it does not expect any policy easing to happen in the short term in view of Bank Negara Malaysia (BNM’s) continuous efforts in reining in HH debt expansion.

“Elsewhere, our Economics Team expects a +25bps hike in the OPR to 3.25% in 2018. This could translate to an additional mortgage payment of RM67 (+2.9%) p.m. for a property worth RM500k assuming 90% loan financing at a base rate of 4.4% and 30-year loan tenure, which is manageable,” it said.

Slow recovery

While some projects have received relatively stronger take-ups, there are still no clear signs of a broad-based pick-up.

The property sector outlook remains challenging in view of the current overhang issue. Rising property auctions (another form of competition) will also be negative to developers’ pricing power and take-up rates in the primary market, in our view.

Elsewhere, margins are likely to stay subdued or even weaken in the near term, in anticipation of more discounts/rebates/marketing incentives to lock in the prospective buyers as well as higher involvement in affordable housing segment (which carries lower margins).

“We expect a slow recovery and believe that sales will only pick up meaningfully from 2019 onwards, at best,” said the research house.