With the current rising cases of COVID-19 in Malaysia, property prices are likely to drop for the first time since 1999, and will continue to be sluggish for a period of time post pandemic. Another reason which contributes to the current sluggish property market is the imbalanced supply-demand of housing. Excessive supply of houses in 2017 have caused a drastic increase of overhangs that were then carried over to this year.
Post-moratorium: will prices be marked down due to cash flow constraints or weak market demand?
House prices are projected to fall but not dramatically. Developers may be willing to reduce prices post-moratorium as they will have to prioritise cash flow rather than gaining profit. Besides that, Bank Negara Malaysia (BNM) have given instructions that banks go all out to reduce non-performing loans (NPLs). With the current measures in place, it is estimated that property prices will set itself between 10-15% below market price in general. In some cases perhaps lack of demand might drive prices down below 30-40% in market value.
However, the homeownership rate in Malaysia remains relatively high and there are still genuine homebuyers in the market waiting for the suitable residential products. The reintroduction of the Home-Ownership Campaign (HOC) alongside with the National Economic Recovery Plan (PENJANA) will not only help stimulate the economic recovery but also stimulate the property market. With the HOC and other incentives, developers may rethink about their product positioning and marketing strategies including taking the opportunity to digitise and make a presence on e-commerce platforms (i.e. PLOT.MY) to improve sales moving forward.
Solutions for the overhang
One way that could possibly lessen property overhangs is if financial institutions were stricter on land purchase loans or set higher requirements for bridging loan financing, i.e. giving developers a prerequisite of achieving 80% sales first. Malaysia’s property market might need some form of correction to reduce overhang and vacancy rates for the next few years, and possibly attract foreign investments.
Malaysia’s property market may recover quicker than expected as the pandemic seem to have a minimal impact on the property prices so far. This can be attributed to timely government measures, i.e. HOC, low-interest rates enforced by BNM, and stamp duty exemptions.