The government’s freeze on housing, mall and office space is “a wake-up call to the developers not to overbuild” and to buyers, to be “more discerning and selective” in their choice of purchase, PEPS said in response to Bank Negara’s statement last week that the country has a decade-high of unsold residential properties.
However, the freeze should not be country-wide. Instead, it should take into consideration the sector, location and effective demand and supply.
The statement said the estimated value of residential overhang of 130,690 units is RM20bil.
“This RM20bil is the average value of the 130,690 units,” PEPS said.
The residential overhang comprises unsold units in completed projects. It also includes serviced apartments built on commercial titles.
In the purpose-built office space in the Klang Valley, the estimated value of the 20 million sq ft vacancy is RM10bil. This 20 million sq ft is already built but vacant, PEPS said (see table).
In the retail space in Klang Valley, up to 7 million sq ft is vacant with an estimated value of RM5.5bil.
Despite this huge overhang, there is an incoming supply of 13 million sq ft in the office sector over the next two years and another 44 mil sq ft in retail space starting from 2017 onwards, PEPS said.
The costs have already been “sunk in” and every effort must be made to absorb this incoming supply before the freeze is lifted, the statement said.
PEPS said the high unsold and unutilised space was due to the following factors:
* Indiscriminate building by developers
* Lack of market studies and financial feasibility studies
* No coordination on planning among local authorities,
* Indiscriminate approvals by the various local authorities,
* Delay in gazetting of local plans, which lead to uncontrolled development,
* Higher cost,
* and artificial demand.
There was this public fear of losing out on choice properties several years ago. Hence, the demand was “artificial”.
“We concur with Bank Negara that severe property market imbalances can pose risk to macro economics and financial stability.
“The property industry has linkages to more than 120 industries and collectively account for 10% of GDP. Any severe property market imbalances and overbuilding will affect the stability of the financial system,” the statement said.