Real Estate

No policy respite for Malaysia housing market woes


A burst of enthusiasm among Malaysians about buying property has proved shortlived. Demand has weakened and will remain so as long as supply and demand mismatches and affordability issues dog the market. 

The government’s upcoming budget may try to make it easier for lower-income Malaysians to buy housing, but the central bank is likely to remain deaf to calls from developers for easier lending rules so long as household debt levels remain elevated. 

Sentiment towards home purchases was caught up in the nationwide burst of joy that followed May’s general election surprise, but the improvement did not last. Our Property Buying Sentiment Index fell 5.2 points in the third quarter to 43.4, after rebounding to a three-year high in the second quarter. (Malaysians have not been net positive on buying housing since the end of 2014, according to our survey.) 

The drop was more pronounced for our forward-looking Property Purchase Index, which measures buying intentions six months out. This slumped by 10.3 points to a record low of 40.6 in the third quarter. 

Inventory piles up 

The latest data from the government’s National Property Information Centre (NAPIC) corroborate our survey results. Despite showing some signs of improvement in the first half, transaction volumes and values remain weak. Sales by volume shrank 2.4 per cent year on year in January-June and 0.1 per cent by value to Rm67.74bn ($16.27bn). 

Furthermore, the number of completed homes that are still unsold after nine months or more is at a record high. In the first half, the number of these “overhang” units surged 40 per cent year on year to 29,227. This is the result of a mismatch between supply and affordability. Almost two-thirds of these are on the market for Rm300,000 ($71,777) or above, beyond the Rm282,000 that the central bank considers affordable for the bottom 40 per cent of the population. 

Targeted intervention 

All eyes are on the November 2 budget in which the government is expected to provide more details about its housing policy. The budget is also being closely watched for new sources of fiscal income, including a potential broadening of the capital gains tax, as the new government tries to regain control of the country’s rising debt. 

Affordability has become a critical social issue because construction has not kept up with demand. In 2014-2016, an average 114,000 new homes were built, compared with 154,000 new households. The shortage of affordable housing has been exacerbated by a real estate industry geared towards catering to the higher end of the market. 

New measures, such as subsidised mortgage rates, may attempt to ease the path to home ownership for low and middle-income households. However, the government risks worsening the market’s weakness if its new policies are miscalibrated; it is lower-middle-income households that struggle most with affordability, not the low-income groups who get financial aid to buy homes. 

The government is hoping the market will help, and that developers will cut prices in response to this year’s tax changes. A broad-based goods and services tax (GST) was scrapped in June while property and basic building materials are exempt from the sales and service tax that replaced the GST in September. But developers in interviews with FT Confidential Research warned that these tax breaks would not be big enough to allow for meaningful cuts given their much bigger costs. Prices are already under pressure and developers will resist giving ground, particularly given the risk that the budget contains tax rises in other areas, such as higher stamp duties. 

The government’s affordable housing target is laid out in its current five-year development plan, which envisages building 653,000 homes by 2020. Only 170,246 of these units, equivalent to 26 per cent of the target, have been completed. 

In a midterm review of the plan in early October, Prime Minister Mahathir Mohamad said his government planned to build 200,000 new homes for low- to middle-income earners in the remaining two years of the plan but this looks overly ambitious given progress so far. 

The central bank remains cautious 

Malaysia’s property market has been decelerating for four years as a result of tighter central bank lending rules to reduce household debt and cool the market. Although Malaysia’s household debt-to-GDP ratio decreased to 83.8 per cent in the first half of 2018 from 89 per cent in 2015, it remains among the highest in south-east Asia. 

Despite industry lobbying for a relaxation of property lending guidelines, we expect the central bank to remain vigilant on debt and hold the line for now. On this basis, an immediate improvement in conditions for Malaysia’s housing market appears unlikely. 

— Siew Mung Tan, Malaysia Researcher, FT Confidential Research

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.



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