Is the property market bubbling over?

 

By Lee Wei Lian

September 07, 2010

Property prices have continued to surge despite a growing supply overhang and low occupancy rates. — Pictures by Choo Choy May

KUALA LUMPUR, Sept 7 — Prices of residential property have surged by as much as 34 per cent in the past year despite a growing overhang in supply, far outpacing income growth and giving rise to concerns that the market is becoming unsustainable.
Figures provided by the National Property Information Centre (Napic) show that average prices for residential property in Malaysia rose a whopping 16 per cent to RM212,815 in the first half of this year, from RM183,807 in the same period last year. For Kuala Lumpur, the increase has been even more dramatic, rising an eye-watering 34 per cent to  RM485,435 in the first half of the year, up from RM362,569 last year.
The market, however, may be starting to lose its appetite for properties due to the high prices.
Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent in the fourth quarter of last year. For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.
Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.
The Edge business weekly reported recently that the government is mulling capping mortgages to 80 per cent of value in a bid to keep the market from overheating although MCA has come out strongly against the move. This comes as Singapore introduced a series of measures to reign in investors and speculators, such as a 70 per cent mortgage cap for buyers with more than one property and launching 36,000 public housing units this year and next.
While Napic does not have a housing affordability index, a rough calculation shows that the average price of RM212,815 is about 4.4 times that of an average annual household income of RM48,000. The average price of a KL home is now a steep 9 times that of the average urban household income of RM54,000 and a possible sign that the market is headed for a bubble.
The sharp increase in prices is said to be at least partly due to speculative demand as investors snap up multiple properties in the hope that prices will keep on spiralling upward — despite low occupancy rates that could affect rental yields.
Some real estate agents and developers have privately expressed worries that the market is already too speculative and the price escalation is not sustainable.
“I am all for sustainable price growth but the current market is too speculative,” one developer told The Malaysian Insider. “Most of the units are taken up by employees of the developer hoping to sell for a profit when the development is completed.”
Many developments completed in the past year such as Ameera in SS2 Petaling Jaya, Cova Suites in Kota Damansara and Challis Damansara in Sunway Damansara are experiencing only about 30-50 per cent occupancy rates, according to real estate agents. A check on new high-end condo Zehn in Pantai where sellers are asking for RM2.2 million per unit revealed the building to be almost completely dark at night.

Rental yields are starting to slide given that supply far outstrips demand.

A typical unit at Ameera is on the market for RM750,000. Given a 90 per cent margin of financing (MOF) over a 20 year tenure, the monthly loan repayment for a unit there works out to be about RM4,855. Rental rates at Ameera, however, are only about RM3,000 for a partly furnished unit.
A stand-off could be developing where buyers are now balking even as sellers are trying to hold out for higher prices.
Red FM DJ Terry Ong who has been on the lookout for a condominium said that housing has become “unaffordable” and has taken himself out of the market.
“I am not in a hurry,” said the DJ who is currently paying RM1,100 in rent at a less than full condominium complex, where sellers are asking for between RM350,000 and RM400,000.
Engineer Edward Seah said that while he would like to upgrade from his current condominium, he will not buy another house given current valuations.
“Are such high prices warranted?” he questioned. “I refuse to feed into the current property frenzy.”
Housing and local government minister Datuk Chor Chee Heung said that the high savings rate in Malaysia meant that there appears to be no shortage of takers despite the prices.
He added that there will be a limit although he was unclear as to how far prices will continue to rise.
“We have to continuously tell developers not to push the boundaries,” he said when contacted by The Malaysian Insider. “There is bound to be a maximum.”
Chor said that the government is building some 76,000 low cost units that cost about RM42,000 each in the next three years, but it is unable to tell private developers how much to build to boost supply of middle class housing in the market.
Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam said that the issue of rising property prices was partly due to an imbalance of supply and demand as more migrants move to land scarce Kuala Lumpur as well as higher cost of raw materials.
“Even if 50,000 new housing units are needed in KL, that is still a huge number to build,” he said at a recent Rehda media briefing.
* Figures for average residential property prices in Malaysia and Kuala Lumpur that were earlier reported reflected all property types and have now been corrected to reflect only residential properties.