PENANG is heading towards an oversupply of higher-end residential properties, which could lead to a correction of property prices.
The bulk of the incoming supply of residential properties in Penang are in the high-end category, which are beyond the affordability level of the middle-income group.
The latest National Information Property Centre report (NAPIC) shows that more than half of the 48,076 units of incoming residential properties, 28,000 to be exact, comprise higher-end properties of two and three-storey terraced and semi-detached and detached properties, serviced apartments, and condominiums, while the remaining 20,076 units are in the lower-end category, where the prices are around RM200,000 and below.
Even in the sub-sales market, the prices are between RM500 and RM800 psf for NE, and RM450 to RM750 psf for SW, according to Raine & Horne.
The remaining 17,976 units are in Seberang Prai, where property prices are between RM200 and RM390 psf, the sub-sales prices range between RM150 to RM360 psf, depending on whether the property is a condominium or landed property, according to Henry Butcher Seberang Prai.
The NAPIC report also says the planned supply (projects with approved building plans) comprises 46,610 units residential properties, of which 27,579 are two and three-storey terraced and semi-detached and detached properties, serviced apartments, and condominiums, while the remaining 19,031 are in the lower category.
According to the Penang Institute (PI), some 40% of the Penang population are in the middle-income category earning between RM3,500 and RM7,100.
Under the new loan conditions from banks, which take into account a person’s net income and other commitments, this middle-income group is eligible to take up loans for properties priced between RM130,000 and RM245,000.
Penang Institute urban studies head Stuart Macdonald said there was an oversupply of high-end properties in Penang for the local market.
“Our analysis shows there is the greatest need for properties priced between RM130,000 and RM245,000.
“The state and federal governments are planning some 40,000 units of affordable properties priced from RM75,000 to RM380,000, however these projects will be delivered only between 2015 and 2020.
“Given the new banking loan guidelines which take into account net income and other commitments, assuming around 20% of income is allocated for settling non-housing debts, this middle-income group may be eligible only to take mortgages up to RM245,000 with a 10% deposit,” Macdonald said.
According to Macdonald, about half of the planned property supply from the private sector of 46,610 (from NAPIC) will come into the Penang market in the next couple of years, while the remainder will come in six to seven years.
“In Penang, there are an estimated 485,000 living quarters, inclusive of those properties outside of housing estates, of which 82% are occupied.
“The population in Penang is projected to reach between 1.8 and 1.9mil by 2020,” he said.
CA Lim & Co principal Lim Chien Aun said given the existing stock of 367,158 units of residential properties in housing estates, and taking into consideration that there are on average four persons to a house and a Penang population of 1.52mil, there was no oversupply.
“But with the entry of the 28,000 units of higher range properties into the market, who will purchase these units, as some 40% of the Penang middle-income population will not be able to afford them.
“There will certainly be downward pressure on property prices, especially when the planned supply also enters the market,” Lim.
From the NAPIC report, it is clear that there is nothing in between the higher-end and lower-end range for the middle-income group, Lim said.
“The middle-income group also finds it unaffordable to purchase sub-sales condominium properties in the north-east district, as they are priced around RM500 to RM800 per sq ft,” he said.
On infrastructural support, Lim asked whether the infrastructure for utilities supply in the NE is capable of supporting the incoming supply of new residential properties.
“There are presently 151,230 units of residential properties in the NE with a population 510,996.
“According to NAPIC, there will be an incoming supply of 4,657 units of higher-end properties in NE.
“With four persons to a house, the district will have an additional 18,628 people staying there very soon.
“When the government approves new housing schemes, do they ensure that there is sufficient utilities infrastructure support for the new population?” Lim asked.
On the speculative nature of the Penang property market, Lim said as the return-on-investment (ROI) was not attractive in Penang, most investors buy properties for capital appreciation reasons and not for rental yields.
“In other words, the Penang property market is very speculative in nature,” Lim added.
On the frequent comparison between property prices in Penang with those in Hong Kong and Singapore, Lim said such comparisons were unfair.
“No doubt among the cheapest in the region, Penang, however, is not a financial centre like Singapore and Hong Kong, where there is a substantial expatriate population to support high-end properties.
“Furthermore, the foreign participation in the local property market is less than 8%,” Lim said.
Raine & Horne Malaysia director Michael Geh said the overbuilding of high-end residential properties could lead to a situation where the pricing would correct itself.
“Price correction will happen when these properties enter the market. This situation is welcome, as more than 76% of the urban workers in the country earns less than RM5,000 and definitely cannot afford the prices in Penang.
“Given the affordability level of the middle-income group, owning a home is now a dream for them,” he said.
In view of the high pricing, the sub-sales market has now become important, according to Geh.
Geh said more people were going after secondary property because of the pricing which ranged between RM72,000 and RM350,000.
He said strategically located affordable apartments with built-up areas of 700sq ft to 800sq ft such as the Serina Bay in Sungai Pinang were now selling for RM350,000, compared to RM130,000 in 2005.
“Some apartment projects like the Symphony Park in Jelutong and Ocean View in Sungai Pinang have appreciated respectively to RM400,000 and RM380,000, compared to RM130,000 and RM150,000 when they were first sold in 2000 and 2001, due to their strategic locations.
“The Ocean View units have built-up areas of 870sq ft, while the Symphony Park units are 730 sq ft.
“The sub-sales properties are found largely in the SW and in Seberang Prai.
“Some 70% of residential property transacted in the country today is in the secondary market, while the remaining 30% are newly launched projects.
“The problem, however, is with the limited sub-sales supply, as there will be many who are also unwilling to sell at the sub-sales price.
“There are also no reasons for them to sell. If they were to give up their homes below the market price, how are they going to take up another home,” Geh said.
Meanwhile, Ideal Property Sdn Bhd chief executive officer Datuk Alex Ooi said the group planned to develop 2,000 units of affordable properties priced between RM200,000 and RM400,000 in Bayan Lepas next year.
“These will take three years to develop. We will plan more such affordable homes in the near future on the island,” Ooi said.
Penang Town & Country Planning & Housing committee chairman Jagdeep Singh Deo said the state government planned to deliver eight affordable projects, comprising 20,000 housing units, three on the island and five in Seberang Prai.
“These properties will be priced between RM72,000 and RM400,000.
“On the island, the location for the projects are in Jalan SP Chelliah, Teluk Kumbar, and Jelutong.
“In Seberang Prai, the sites for the projects are Kampung Jawa Butterworth, Ampang Jajar, Off Jalan Berapit, Bukit Juru, and Batu Kawan,” Jagdeep said.
In 2012, according to Napic, total transactions of residential properties in Penang fell by 23% to 23,266 from 30,674 in 2011, while the total value of transactions was down 7.5% to RM7bil from RM7.7bil in 2011.