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Will The Malaysian Property Market Crash in 2018?

Jan 01, 2018

Kuala Lumpur, 01 January : Recent reports published by the National Property Information Centre (Napic) and Bank Negara Malaysia (BNM) have painted a pessimistic picture of the property market in Malaysia.

BNM has expressed concern that the unsold stock of residential properties which stood at 130,690 units as at Q1 2017 was the highest in the last ten years. About 83% of these unsold properties are those which are priced above RM250,000 and 61% are high rises. BNM highlighted that there is an oversupply of residential properties as well as office space and retail malls.

Napic’s statistics also revealed that there has been a substantial increase in the stock of unsold residential properties in the first half of 2017. Further, according to the statistics, the volume of the overall as well as residential property transactions dropped again in 1H 2017 and was the lowest recorded of first half yearly data since 2013. Nevertheless it was interesting to note that the value of the transactions registered a slight increase over that of 1H 2016. All these have led to dire predictions by certain quarters of a looming crash in the property market in 2018.

Now, how would one define a crash in the property market? An economic recession is commonly defined as two or more consecutive quarters of negative economic growth whilst a stock market crash is described as a sudden and dramatic fall in share prices across a wide cross section of stocks listed on that stock market. There is no official definition of a property market crash but it happens when a property bubble which has been building up over a number of years suddenly bursts and is often precipitated by a change in economic fundamentals eg. a recession or economic slowdown, stock market crash or overly high interest rates, all of which lead to a drop in investors’ confidence. This then results in a drastic drop in demand for property leading to poor response to new launches by developers, sluggish sales, a huge jump in unsold stocks and an increase in abandoned projects. Property prices then plummet by double digits and non-performing loans (NPLs) shoot up.

The symptoms of a crash is evident when the sales and marketing staff of a property developer or property consultancy clocks in to the office on a work day, reads all the newspapers, drinks two rounds of coffee and not, within this period of time, having to pick up his hand phone or office telephone to attend to any phone enquiries. He goes out with his colleagues for long lunches because there is nothing much to do but eats mostly at the coffee shops instead of the fancy restaurants that they used to frequent and have their cuppas at the mamak stall by the roadside instead of Starbucks. His office cuts down his work week to three days with an accompanying 30% pay cut and he often worries about whether he can keep his job despite taking a pay cut. The property consultant is however busy with valuation cases for bank recovery work and his colleagues at the auction department is groaning at the sudden increase in properties being put up for auction by the banks.

So have we reached a point where the property market has crashed or are we at a stage where there is an imminent crash? Past market slumps in Malaysia such as those which happened in the mid 80’s, 1997/ 98 and 2007/ 08 followed an economic downturn (an economic recession in 1985, a recession in 1998 following the Asian Financial Crisis and a recession in 2009 after the Global Financial Crisis) accompanied by plunging stock markets. Businesses contracted, retrenchment rates went up and investors’ confidence were at a low. Are we seeing similar signals now?

Economic conditions

In Budget 2018, the government has projected GDP growth for 2017 at between 5.2% and 5.7% in 2017 and forecasted economic growth for 2018 to be between 5.0% and 5.5% in 2018. In fact BNM just announced that the Malaysian economy grew at an even faster pace of 6.2% in the third quarter of 2017. The continued growth of the Malaysian economy at rates close to what is projected to be achieved for 2017 spells stability and augurs well for the property market as it provides the base for more positive investors’ confidence.

Further the government has projected the country to be near full employment (the unemployment rate was recorded at 3.4% in Q3 2017) with the inflation rate projected at a benign 2.5% to 3.5% in 2018. Barring any unforeseen circumstances which will have a drastic impact on global economic well-being such as an outbreak of war, the spread of an infectious disease or substantial changes in key commodity prices such as crude oil, we foresee that the property market would generally be stable although transaction volumes and values could continue to decline amidst sluggish market conditions.

Government measures to prevent an asset bubble

In 2010 when there were fears that an asset bubble could be building up, the government stepped in and introduced several cooling measures in the years that ensued to prevent the bubble from developing as there would be detrimental effects on the market as well as financial well-being of the country if the bubble does materialise and burst. These measures managed to rein in the hefty price increases and brought down the volume of transactions although they did not manage to bring prices down to the levels that were deemed affordable to the masses.

With the current concerns over the potential impact that the glut of luxury condominiums, service apartments, office space and retail malls could have on the property market as well as the financial health of the banking industry, the government was quick to react by announcing a freeze on new approvals of such projects. This measure is good for the long term health of these property sectors as the market would have more time to digest the existing stock and help to reduce the oversupply problem.

With the government’s emphasis on affordable housing in the last two Budgets coupled with sluggish sales for houses priced above a million ringgit and the stronger demand for houses priced below RM500,000, private sector developers have refocused their attention to the affordable homes segment. These projects are expected to tide the developers over the current rough patch and provide much needed cash flow to keep them going although profit margins may not be as attractive as the luxury housing segment.

Another point to note is the government’s initiatives to boost the rental market. Firstly, Budget 2018 has proposed that rental income of up to RM2,000 a month will be given a 50% tax exemption applicable to individual tax residents for YA 2018 to 2020. Secondly the government has just announced a 100% stamp duty exemption on the sale and purchase agreement for house buyers who opt to buy their homes under the Rent-To-Own scheme (HouzKEY) to be introduced by Maybank to the public in 2018. The government has also announced that for purposes of RPGT, the date of acquisition of the property will be backdated to the date the lease agreement was signed. These concessions are expected to encourage those who do not yet own a home to come forward to participate in this scheme. More banks are also expected to come forward and ride on this bandwagon. The housing industry will benefit as this will help to clear and reduce the unsold stock of houses which would otherwise remain vacant.

GE 14

As there is some uncertainty over how GE 14 (14th General Election) would turn out, some investors have been holding back on purchases until the situation becomes clearer. It is quite possible that once the dust has settled down after the election is over, these investors could return to the market and help provide some support and help it to recover from its current sluggishness.

Some bright spots in Napics statistics

Whilst the media has gone to town on Bank Negara’s concerns of the substantial increase in unsold stock of houses as well as oversupply in the residential, office and retail sectors, not many have noticed that the statistics released by Napic showed that the sales of new launches actually performed better in the first half of 2017 compared to the corresponding period the year before and for some price segments, better than even that of the same periods in 2014 and 2015. This could be interpreted as that the market may have found its balance footing and may even be poised for a rebound as developers have refocused on the correct market segments. However we cannot help noticing a recent report that Pr1ma which is focused on affordable homes have a substantial stock of unsold homes which contributed to the huge overhangs in certain states. This has been attributed to the slow take-up for affordable homes priced above RM250,000.

Contributing factors to the increase in unsold stock

The statistics from Napic showed that there was an increase in the number of units launched in 1H 2017 over the preceding half year whilst it was slightly lower than the number for 1H 2016. As it is typical that a 30% or 50% bumiputera quota is imposed on projects, it is inevitable that if these projects are located in areas less favoured by the Bumiputera community, it will take a longer time for the developers to sell these units. However it does not necessarily mean that these units will never be sold as the developers may be able to clear these stocks once they meet the authorities’ conditions for release to the open market.

Another factor which may have contributed to the rise in unsold stock could be the launch of projects in not so popular locations or it could be due to the wrong type of products and design. Although enlarging the stock of unsold houses and the developers will certainly have to bear the consequences of their poor decisions, the statistics of the increase in unsold houses will have to be analysed deeper instead of being interpreted straight away as symptomatic of an impending market crash.


None of us in the property industry are soothsayers who can predict accurately market upturns and downturns. We nevertheless have available to us official statistics and feedback from the ground which we property consultants try to interpret to the best of our abilities to make sound conclusions on the market direction and trends. Whilst we cannot claim to be always right, we nevertheless try to make responsible and sound forecasts based on the latest data available to us.

In this regard, we are convinced that although the property market in 2018 will remain challenging with subdued interest in residential properties costing above RM700,000 as well as rising vacancy rates in office buildings and retail malls, we do not think that there will be a crash in the property market.

Of course, only time will tell whether our prediction is correct but for the investing public, a soft market like what we are currently experiencing provides better opportunities to pick up good properties at more realistic prices. Property developers are now offering more incentives and attractive payment terms in order to close a sale whilst in the secondary market, sellers are more realistic in their pricing and more willing to negotiate. Just as the current November month has seen much cheaper Musang King durians leading to increased local sales of the fruits, the refocus on the affordable homes segment and the offering of more incentives which are actually indirect price reductions, could lead to more home buyers coming out of their shells to pick up the dream home that they have missed out all these years in a hot market where prices have galloped beyond their reach.

The alarm raised of a potential market crash can however be looked at positively as it has provided a timely wake up call to everyone in the industry. The property developers should make use of objective market studies to help them make decisions on where and what to build and the realistic pricing that they should adopt and avoid undertaking projects where there is a clear sign of overbuilding or poor demand. The authorities should monitor the situation more closely and endeavor to provide more timely and accurate information to enable the right decisions to be made and whilst economic enhancement is important, should themselves, monitor the market closely and not worsen the oversupply situation. Last but not least, property investors should exercise greater caution, carry out more homework and not blindly follow the herds led by so called gurus whose business model is flawed and driven purely by speculation and greed. If all players in the industry work together, there will be less chances of a market crash happening anytime soon.

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