Catch-22 in the property market?

THERE seems to be a Catch-22 situation in the property market as more developers plan new launches in the second half of this year (2H14), knowing that demand remains solid, and yet may end up accumulating more unsold units going forward.

Many property players have been holding back their launches in the first half (1H), banking on homebuyers’ rush to buy in the face of the Government’s imminent Goods and Services Tax (GST) implementation in April 2015.

Market experts, however, believe the sector does not have to worry about a Catch-22 situation.

CB Richard Ellis (M) Sdn Bhd executive director Paul Khong says that with nominal Government intervention, the property market will automatically find its own equilibrium.

“No private developer will continue to build if demand does not exist. With the market doing fairly well, developers are pushing harder for sales with various incentives,” he says, touching on how players are adapting to the environment the best they can.

Khong notes that the market has had a quiet start in 2014, as forecast earlier, due to various tightening measures taken by on the Malaysian property market through Budget 2014.

While players have had to bite the bullet and adjust their business strategies according to the new reins, he has observed more traction in the market towards the second half.

“Launches are now more frequent, with developers actively marketing their products ranging from new launches to unsold unit stocks,” he says.

Zerin Properties Sdn Bhd chief executive officer Previndran Singhe agrees, stating that developers are a market-savvy bunch who will adapt to demand.

In the first-half 2014 Property Industry Survey by the Real Estate and Housing Developers’ Association Malaysia (Rehda), the association states that 49% of its respondents will have new launches in the second half compared to 39% who had launched in the first half.

In terms of units, there will be a total of 15,820 new residential and commercial units launched into the market by year-end. In the first half, there were 10,189 units launched.

This is despite the number of unsold units in the affordable housing range under RM1mil being rather high at over 30%.

As Rehda has discovered, some 31% of properties in the RM500,001 to RM1mil range were still unsold after completion in the past three years, largely in more popular property markets like Selangor and Johor.

For properties in the price range of RM250,000 to RM500,000, 34% of the completed units were unsold, located mainly in Perak and Pahang.

Rehda’s survey also found that local buyers are leading the market, making up 80% of the total purchasers, and of that, 85% are buying for self-dwelling.

At the presentation of Rehda’s survey findings on Thursday, president Datuk Seri Fateh Iskandar Mohamed Mansor suggested that the Government reinstate the developers’ interest bearing scheme (DIBS) specifically for first-time homebuyers.

To this, Khong echoes Rehda’s suggestion.

“We hope to see a slight liberalisation on financing guidelines, with the DIBS being made available again, especially to first-time house buyers targeted at the mid-end segments of the market.”

He says this will help solve overhang issues as well and encourage better house ownership in this category, possibly up to the RM1mil price tag for Klang Valley buyers. However, this is subject to actual affordability.

Khong adds that property investors will always continue to come around when the market moves actively, but there is a current need to address the real demand from first-time buyers which is critical.

Previndran also believes that the DIBS should be reintroduced for first-time house buyers. He too believes that financing needs to be less restrictive, especially on first-time homebuyers.

“(Being able to get financing) can be the solution to the amount of unsold units in the affordable home segments. What the central bank is doing in having these cooling measures is good, but I think the guidelines for financing should loosen up for properties under RM500,000,” he opines.

“The rich can take care of themselves but the vast majority of people who are buying for own occupation need financing,” he adds.

On whether more new launches in 2H this year would create more supply of unsold units, Previndran believes that more forthcoming launches will be in the higher-end property segment, although he admits he does not have the data at hand.

“There may be more launches selling above the RM500,000 price tag, therefore, they are bypassing the group of homebuyers who are facing difficulty in getting housing loans,” he says.

Rehda’s survey points out that the segment of homebuyers with the highest loan rejection rate is in the RM250,000 to RM500,000 property price range, with 30% of the loan applications being rejected. The second-most vulnerable segment is in the RM500,001 to RM700,000 range, where 24% of applications were rejected.

For 2H, most planned launches in the RM500,001 to RM1mil range are in Selangor, Johor and Penang. Kuala Lumpur will continue to see launches above RM1mil per unit, while all other states are mostly launching in the RM200,001 to RM500,000 range.

On the flip side

A market observer believes that the Government’s current cooling measures are sending out the right signals, having taken speculators out of the market. “The transaction volume is returning to where the market was about five years ago, which is not too bad.”

For him, it is necessary for the market to do a little correction post the booming times in the few years prior.

“The sales volume is dropping, but there is still an 8% to 9% improvement in pricing this year,” he said, noting that a double-digit growth in housing prices will not likely come by.

He points out that the survey numbers may have distorted market perception slightly, as the highest financing rejection rate in the RM250,000 to RM500,000 range was largely for projects located in Perak and Pahang, which are not primary property markets in Malaysia.

He notes that the main property markets are still around Greater Klang Valley and Johor, where new property launches were by and large priced above RM500,000.

The market observer also notes that the survey findings came in a timely fashion, leading towards the Government’s Budget 2015 which will be announced less than a month from now.

“The players are definitely pressuring the Government to lift the measures that are cooling the market,” he says. One of the biggest impacts to the property sector from Budget 2014 was the removal of the DIBS, which heavily dampened sales growth.

“Of course, access to financing is harder for first-time homebuyers now, but perhaps it would be more meaningful to provide them with grants like in Australia. But this would need to be enforced efficiently,” he says of the genuine homebuyers’ dilemma. This suggestion takes into account the impending GST implementation next year, reflecting Australia’s First Home Owner Grant scheme which was introduced on July 1, 2000 to offset the effect of the GST on home ownership.

The market observer believes that developers with the right product that fits the demands in the locations they build in will not face a big problem with their launches.

On housing prices, Fateh says they would stabilise rather than fall because the cost of doing business has gone up by 20%, according to the survey. That, plus market demand holding strong in the medium term as Greater KL sees further urban migration, are factors that will keep property prices buoyed.

“Realistically, prices cannot go down because cost and land prices have gone up while the economic growth in Greater KL is expected to create a population of 10 million by 2020. Bear in mind, 67% of Malaysians are below the age of 35, meaning demand will continue to be there,” he shares.

To add on to that, when the GST kicks in, Rehda expects property prices to rise 3% to 4% across-the-board. For developers who have not budgeted for the GST, Rehda notes that they could face a margin compression of about that much as well.

~ By THE STAR