House ownership and the overhang problem

  • Business
  • Saturday, 26 Jan 2019

Housing mismatch: Foo says there is a mismatch today because of wrong location, wrong price range and wrong products.

BUY a house and get a car free. Or win a holiday in some distant land. Well, we have come across such mind-boggling promotions the last two years.

Could it get better than this? Maybe. We will see.

The property market started the year with differing views from analysts and real estate personnel, with more bears than bulls.

There are some who feel that the market will turn around this year in the second half while there are others who feel the current weak market will continue through the year with some light in 2020. There are a lot of noises, both external and internal.

On Thursday, Sunway Bhd’s property division managing director Sarena Cheah said she does not expect the sector to be “hot” but the company will continue to launch RM2bil worth of products, to be divided equally between Malaysia and Singapore. She will not be launching anything in China although the company is there.

Eco World Development Group Bhd is projecting a two-year target sales of RM6bil for Malaysia.

Both companies launched their campaigns this week. Tan & Tan Developments Bhd is also having a scheme, but the IGB Corp Bhd subsidiary is limiting this to Sierramas Heights, a high-rise development in Sierramas, which it jointly developed with KL Kepong about two years ago.

Putting aside who is giving what and looking at the campaign on a broad basis, freebies like exemption on stamp duty and that minimum 10% discount from developers are a given. There may be other goodies thrown in like furniture and air-conditioners.

Some are offering financing help. Sunway is offering up to 95% financing depending on projects. So this is one pathway. Others are inspired by the Fund My Home concept where the buyer put in 20%, move in, and decide five years later whether they want to buy at the price they locked in five years ago, or whether they want to find a buyer, sell the property and split the profit equally with the developer.

So far, these are the two pathways offered. Some may be more creative than others and promote a third pathway.

If a buyer were to opt for the pay-20%-and-decide- later model, they may be viewing the house purchase as an investment instrument.

If prices were to trend upwards, and they are able to find a buyer, bingo!

But if prices were to trend downwards, and they are unable to find a buyer, they may be just postponing their house problem. Buying a home is a long-term commitment.

But going back to bears and bulls within the sector, says CBRE|WTW managing director Foo Gee Jen: “If somebody say that prices will be down all the way for the next decade, I disagree.

“We are still a growing country. There are two types of growth -- the 1.7% annual population growth of about 30 million.

“There is also urbanisation growth, so Kuala Lumpur always need houses, easily of between 5% and 7%, depending on the economic growth,” says Foo, who was involved in the first home ownership campaign 21 years ago.

“There is a mismatch today because of wrong location, wrong price range and wrong products.

“As for 2019 being a bull run, I also disagree. We have a high overhang in practically all major segments of the property market, apart from the hotels.

And this will be a drain, and a strain, on resources for both banks, consumers and developers.

“If you put your money in banks and you get little yield, or if you own 10 properties and you can only rent out one, in terms of cash flow, this is not going to be attractive.

“As for appreciation, that is not going to happen in the next three to four years. I am talking about the oversupply sector, most of which are in high-rise developments,” he says.

Foo says he does not see real appreciation in high-rise properties, but there is still room for growth for conventional landed terraces.

In view of the current over supply, in the short-to-medium term, I don’t think the market can turn around so fast.

The only positive sign today is the home ownership campaign which will be officially launched by the government in March, says Foo.

This will help to drive activities, but Foo also admits that the factors which prompted the government and the private sector to work together on this second campaign is different from 20 years ago.

That campaign took place after the 1997/98 Asian Financial Crisis. Income was on the decline and there was poor market sentiment and job uncertainties, like today.

House prices then were “unlike today” and the over supply of condominium and high-rise units not as high as today.

However, one has to look at the situation in perspective. Foo says the best way forward is not to be overwhelmed by the high overhang figures.

The Valuation and Property Services Department’s (JPPH) said the country’s overhang is valued at RM19.54bil, with a total of 30,115 units. Inclusive of serviced apartments and small office, home offices (SoHos), the figures climb to 40,916 units, valued at RM27.38bil.

Condominiums, serviced apartments and SoHos combined make up 75% of the total residential overhang although technically, serviced apartments and SoHos are built on commercial land.

JPPH defines an overhang as completed unsold units nine months after launching but before the issuance of certificates of fitness.

Foo says: “Klang Valley properties, from the quantum and the value, will be the highest. If you look strictly at the numbers, it looks frightening but the Klang Valley is the market which can turn around the fastest.

Foo suggests controlling the new supply may be the way to go.

Jordan Lee & Jaafar Sdn Bhd executive director Yap Kian Ann says despite the weak market today, there will be certain locations and types of properties that fit the criteria of customers.

Yap says serviced apartments may not be popular in the suburbs but they may be sought after in the city centres.

Society comprises a diverse range of people motivated and inspired by different types of housing. In certain locations, there will be demand for certain type of products.

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