ARE we entering a Catch 22 situation in terms of the performance of the property market in general? What lies in the coming months? Will the implementation of the goods and services (GST) tax deal a blow on a market already feeling the after effects of the cooling measures put in place as dictated by Budget 2014? Most importantly, will the market be able to adjust itself in time to come?
If ever there was an apt description of putting a name to the year in terms of the general performance of the property market, 2014 could perhaps be categorised as a year of adjustments given the cooling measures implemented in Budget 2014.
This year, not only has the property ship been balancing itself to stay afloat with the impact of the cooling measures seen to be steering the movement of the market towards another direction – even the RM1mil entry level for units to be sold to foreign buyers was seen as another spanner in the works to curb property speculation which is particularly rife in Iskandar Malaysia. After all, Iskandar Malaysia is where developers from China are introducing units by the thousands to both foreign and local buyers.
Even within our shores, the sway of the market seems to be moving further into unchartered territory as the finer points of implementation with regards to GST needs to be worked out.
The effects of a cooling market
The findings of the Real Estate and Housing Developers’ Association (Rehda) Property Industry Survey 1H14 (first half of 2014) at its media briefing provided insights on the property market sales performance which also acts as an indicator to assess the outlook of the housing and property industry.
The survey, participated by close to 200 out of Rehda’s total of approximately 1,000 members from 12 states in Peninsular Malaysia, indicated that the real estate sector may have to brace itself for more challenging times ahead – given the findings that revealed a more subdued market with lesser number of respondents having new launches in 1H 2014 as compared to the previous corresponding year.
Comparing the new launches in 1H14 picking up to 10,189 units as compared to 9,364 units in 2H13, the percentage of units sold in 1H14 has gone down by 4%.
“You must remember that after Oct 25 last year when the Budget was announced, a lot of the developers actually pulled back their launches. When the Real Property Gains Tax (RPGT) was announced, the margin of financing was also scrutinised. When the Developer’s Interest Bearing Scheme (DIBS) was abolished, a lot of developers became unsure (of launching their new developments), so in our figures, lesser respondents reported having launches in 2014.
“Going through the sales performance, you can see that for the first time – out of the 10,189 units that were launched – the percentage of sales was below 50%. This is a worrying trend as growth should be moderate,” said Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor.
The launch of commercial units reflected a drop in 1H14 at 827 units compared to 1,188 units in 2H13.
There was a rise in residential units launched from 8,176 units (53% landed units, 47% strata title units) in 2H13 to 9,362 units (57% landed units, 43% strata title units) in 1H14.
Rehda’s 2H13 and 1H14 surveys revealed that two- and three-storey terrace units made up the top most landed property launches – indicating that this is a market segment a lot of property developers think there is demand.
The top three residential units by type launched in 2H13 in ascending order include 1,799 apartment/condominium units in Selangor, Kuala Lumpur and Johor; 2,082 serviced apartment units in Johor, Selangor and Penang, and 2,558 two- to three-storey terrace units in Johor, Selangor and Pahang.
The top three residential units by type that were launched in 1H14 in ascending order include 1,201 serviced apartment units in Selangor; 1,557 single-storey terrace units in Malacca, Negri Sembilan and Perak followed by 2,528 two- to three-storey terrace units in Selangor, Johor and Perak.
Launches for shop office units indicated an increase by 96% with 827 units launched in 1H14 as compared to 423 units in 2H13.
Among the 59 respondents, there was no launch of SoFo (Small office Flexible office)/SoVo (Small office Versatile office) units in 1H14 as compared to 319 units launched in 2H13.
In 2H13, 80% of commercial property launches were priced between RM500,000 and RM1mil. In 1H14, 67% fell within this price range.
In 1H14, 22% of commercial properties launched were priced above RM1.5mil whereas 11% were priced between RM200,001 and RM500,000.
Most launched residential selling price range
In 1H14, most of the residential selling price of properties located mainly in Johor and Pahang was between the RM200,001 and RM500,000 range or at 41% as compared to 43% in 2H13.
This same result applies to Malacca and Kedah for both periods.
In Perak, while 2H13 saw most units launched priced between RM500,001 and RM1mil, in 1H14, most of the properties were priced between RM200,001 and RM500,000.
Most of the residential properties launched in 2H13 for Selangor, Penang and Negri Sembilan were priced between RM200,001 and RM500,000 while in 1H14, the range was between RM500,001 and RM1mil.
Most properties in Kelantan were priced below RM200,000 in 2H13 whereas in 1H14, the range was between RM200,001 and RM500,000.
In 2H13, most of the properties launched in Kuala Lumpur were priced between RM500,001 and RM1mil while in 1H2014, the range was above RM1mil.
Increased cost of doing business
“The cost of doing business has gone up tremendously as reported by 61% out of 152 respondents in 1H14. Land prices have even tripled in certain areas within seven years as land has become scarce.
“Secondly, the conversion premium for some states have even gone up by 300%. The infrastructure contribution and compliance costs are ever increasing. Rehda members indicated that in 1H14, the cost of doing business went up by 20%,” he shared.
“So, realistically, the prices of houses cannot go down. Property prices cannot be stagnant. Everything else has increased. It can help to stabilise, and for the increase to not be too steep, the only way is to provide more supply – not by cutting down (supply) or by making the rules difficult. What is essentially happening in the first half is developers pulling back their launches so lesser properties are being put into the market and because of that, there are lesser choices.”
Given that 67% of Malaysians are under the age of 35, with Greater Kuala Lumpur alone having six million people which is envisioned to grow to 10 million by 2020 because of urban migration and demographic growth, there is demand for housing.
“These are actual figures from the Government and private sector, which means that if you were to take one household of four people, which is the average, we would need one million new homes in the next six years.
“There are affordable units being supplied but the highest number of rejections from financial institutions is for the category of properties priced between RM200,001 and RM500,000. We can build, but it’s whether or not the potential cases have the capacity to buy those homes,” he said of the problem of getting end-financing.
He cited the top three reasons for unsold units as unreleased bumiputra lots, low demand and interest in particular locations plus odd unit lots.
“Rehda supports the bumiputra quota which was originally 30%. However, in certain location and councils – Majlis Daerah or Majlis Perbandaran or even Majlis Bandaraya – they would increase the quota to 50% or even as high as 70%. By increasing this, there is a higher cost of doing business.
“We have asked for an automatic release mechanism which means that if we cannot sell the bumiputra lots after six months of the launch, we would be able to release 10% out of the 30%. In the next 12 months, if we cannot sell the units, we would release another 10% and so on. The demographic locality cannot be pushed yet this quota is still being put at every place,” he opined.
The survey revealed that approximately 80% are local buyers purchasing for their own dwelling.
“Yet, the main issue is most people cannot afford to buy a home. This is because our purchasing power has not gone up as fast as the commodity (prices). It’s as simple as that.
“This phenomenon is not just in Malaysia – but is happening worldwide,” he said, highlighting the RM250,001 to RM500,000 price range that appears to be the most vulnerable to end-financing challenge, with banks requesting more documents.”
He said Rehda would like to push for DIBS to be extended to first-time buyers to help them purchase their dwellings.
Catch 22 situation?
Overall, close to 90% of respondents experienced a slowdown in property sales due to the cooling measures.
The top measures impacting sales, as cited by the respondents, are the 70% Loan-To-Value (LTV) ratio and the impending implementation of GST come next year and the higher RPGT.
These factors coupled by the effects of the Responsible Lending Guidelines introduced by Bank Negara Malaysia and challenges in dealing with utility service providers plus the impending implementation of GST have dampened the overall property market performance for the next half with sales mostly anticipated to be moderate.
About 39% of the 86 respondents also reported the severe impact of building materials and labour problems on construction projects.
Additionally, with 85% out of 152 respondents reporting a slowdown in their property sales due to cooling measures, also augmented by the maximum loan tenure cap of 35 years, the property market outlook for 2H14 is mostly neutral at 45%.
Meanwhile, the outlook for 1H15 revealed an equal number of 41% of the respondents taking on a neutral and pessimistic stance respectively although prices of new launches are expected to remain stable.
Rehda deputy president Datuk Soam Heng Choon said that despite all these challenges, there would likely be a pent-up demand for properties in the lead up to GST.
He believes that while there are many issues facing the property industry, it would be a matter of time – albeit a longer period after GST takes effect – for the market to adjust itself back to normalcy.
