A bubble that never pops


CLICK TO ENLARGECLICK TO ENLARGE

THE National Property Information Centre recently released statistics on the performance of the Malaysian property market for 2021.

While the headline numbers showed the number of transactions surpassed the 300,000 unit threshold level, up by 1.5% year-on-year(y-o-y), the data is still below the pre-pandemic level when the number of transactions hit 328,647 units in 2019.

The 2021 total transacted units were also lower than the 2017 and 2018 data points when total transactions were well above 300,000 units.

However, transaction value in 2021 was significantly higher at RM144.87bil, up 21.7% y-o-y and the at the highest level since the 2016 total value of RM145.41bil.

Oversupply sustained across segments

For property overhang, this column aggregates the supply in the residential segment and takes the data from both service apartments and the Soho sub-segment to gauge the market’s overall residential overhang status.

After all, it is the combination of the three that is the real market supply in the residential market segment as shown in figure 1.

In total, the residential overhang is now at a new peak with 63,432 units remaining unsold worth some RM44.54bil.

Compared with a year ago, the number of overhang units increased by 11.0% in units and 7.2% in value.

What is even more compelling is to look at the data at the end of 2017 and 2021 for comparison.

CLICK TO ENLARGECLICK TO ENLARGE

It is rather shocking that even as far as early 2018, market watchers were out with the red flags, and today, from the level we were four years ago, the market’s overhang in terms of volume has doubled, while in terms of value it is up by almost 120%.

An interesting fact from this data is the overhang within the high rise segment (which includes residential high rise, commercial service apartments, and Soho units) is now at a new record high of 44,800 units worth some RM33.32bil.

Overall, this translates to 70.6% of the overall market overhang in volume and almost three-quarters of the total value.

Imagine, seven in ten properties in Malaysia that are unsold today are high-rise units.

CLICK TO ENLARGECLICK TO ENLARGE

For the residential segment by state, the key overhang is in Selangor, Johor, and Penang as they account for 48% of total overhang units, worth some RM10bil or 43.9% of total overhang value in the residential segment.

For Penang, overhang units increased by 165.5% y-o-y to 5,493 units, and in terms of value, the overhang data shows that the market has seen a significant jump of 231.6% to RM3.55bil from just RM1.07bil a year ago. For service apartments, Johor and Kuala Lumpur are key geographical areas with the most overhang with a total of 87.1% of the segment’s overhang in terms of units and 90.3% in terms of value. Johor alone accounts for two-thirds of the segment’s total number of units at 16,476 units and nearly 70% of the segment’s total value at RM14.14bil.

RM110bil worth of unsold properties

A year ago, the total number of units that remained unsold and under construction was 111,804 units, worth about RM60.6bil, bringing the total overhang and those under this category to 167,104 units worth some RM101.4bil.

Statistics for 2021 revealed that the total number of units that remained unsold and under construction has jumped by 10.1% to 183,918 units, and in terms of value, this increased by 8.1% to RM109.7bil as seen in Figure 2.

Property industry unperturbed by overhang

As this column has highlighted in the past that Malaysia is in the denial stage when it comes to the property market overhang, what is even more astonishing is looking at future supply.

For easy reference, the data in Figure 3 for future supply includes starts, incoming supply, planned supply, and planned new supply.

One thing that is obvious from the table, despite the massive amount of overhang that we see in the service apartments and Soho segments, developers remained optimistic to build even more of them and future supply is expected to be more than the current inventory even. In terms of states, the key states with massive future supply especially within the Soho and service apartments sub-segment are Selangor (for the expected increase in the number of Soho units), Kuala Lumpur (for the expected increase in the percentage of Soho units and the expected increase in service apartment in the number of units) and Penang (for the expected increase in the percentage of service apartments units) as seen in figure 4.

Malaysian property market is stagnant

From Sydney to Singapore, from New York to New Zealand, the property market is booming across the globe but not in Malaysia.

The sheer overhang that the market is experiencing plus the avalanche of new product launches that we see in Malaysia has resulted in those wanting to buy only looking at new products and thus leaving stale products unsold for a considerable period.

CLICK TO ENLARGECLICK TO ENLARGE

One cannot imagine if a developer is still marketing a product that was launched five to seven years ago and today is still being marketed while developers continue to innovate with actual new launches.

These new launches have done relatively well as the market is receptive to them, especially landed and affordable homes in good locations.

But at the same time, with so much in the pipeline as far as future supply is concerned, what will the shape of the Malaysian property market be in five years or 10 years?

RM222bil by 2030?

It took just four years for the overhang to double in the market and with the value of those under construction at 150% of overhang, simple arithmetic seems to suggest that we may see the market experiencing an unprecedented amount of unsold properties by 2030.

As the pace of overhang and unsold properties remains on an upward trajectory and if the increase over the next nine years remains at about 10% a year in the number of units and 8% in value, we will see total overhang and unsold under construction hitting 436,000 units by 2030 and valued at about RM222bil, more than double than where we are today.

Watch out for balance sheet strains

As developers and financiers pour more money into development-related activities and if we see a sustained increase in unsold properties, especially units that are completed but remain unsold, the key risk for developers is rising inventories.

This will also result in developers’ having cash tied up in unsold properties and if their finances are not strong enough, they would have to resort to more external funding, be it in the form of new equity or debts.

Rights issue or private placement could be one form of fundraising, which most investors dislike, while another form of funding could be new borrowings, which banks will likely avoid, realising the severity of the market dynamics as bankers would be concerned about this bubble that never seems to pop.

Pankaj C Kumar is a long-time investment analyst. The views expressed here are the writer’s own.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights
   

Next In Business News

Kenanga Research cuts end-2022 KLCI target to 1,610 points
Quick take: Sapura Energy back in black, shares jump 22%
Bursa Malaysia volatile in early trade
Trading ideas: MyNews, Sapura Energy, Reach Energy, AAX, DNeX
Oil price rises US$2/bbl after G7 vows new Russian sanctions
Russia in historic default as Ukraine sanctions cut off payments
Sri Lanka stops fuel supply to non-essential services as crisis worsens
Wall Street ends down, pulled lower by growth stocks
Nike revenue beats as Europe demand overshadows China sales slump
Pertama Digital exploring with banks to provide digital products

Others Also Read