Unsold properties and the cooling market

Residential overhang numbers, or properties unsold after nine months post-completion, totals 29,227 units worth RM17.24 billion as of 1H2018. This marked an increase of 18.1% in volume and 10.2% in terms of value from last year (2017).

According to the Preliminary Property Market Brief 2018 for the first half of the year, launched by the Valuation and Property Services Department (JPPH) under the Finance Ministry, many overhang units are properties priced from RM500,000 to RM1 million — with a total of 7,525 units valued at RM5.17 billion.

JPPH in a statement say the increase was due to "slow market absorption." They also said that they expect the property market to remain soft in the next couple of years. 

The Edge, quoting CBRE|WTW managing director Foo Gee Jen said any further increase from hereon will be slower, as he sees progressively lower proportions of higher-end properties in the expected completions this year and in 2019. 

"Developers have been moving to scale down the pricing, so we can see that the units coming onstream in the Klang Valley would range more between RM400,000 and RM500,000, which would be more palatable to the demand," he said.

In 2014, overhang residential stock was at 9,733 units, worth RM3.78 billion. By June 30 this year, overhang homes numbered 29,277, worth a total of RM17.24 billion. 

In response to the cooling market, and the overhang in which properties between RM500,000 and RM1 million currently total 7,525 as at June this year, developers are repositioning into the range of RM250,000 to RM500,000. 

According to Foo: "The high-end market is less crowded now, so that itself will ease the overhang growth situation going forward," says Foo to the publication. 

In other words, the supply is correcting, towards the demand. The recent half-yearly survey by the Real Estate and Housing Developers' Association (Rehda) shows the proportion of new launches priced below RM500,000 is increasing. 

It is currently at 65%, up from 44% in 1H2017. 

However, Datuk Soam Heng Choon, Rehda president, when asked if the worst is over, says: "I would have to see in the next six months whether the worst it over. We have a new government, so they need more time."

Foo notes that the JPPH numbers are only for the primary market, and not homes that were bought, but no utilised. This can be seen in completed high-rise buildings where the utilisation is low. 

These "secondary unsold" units may re-enter the market under foreclosure and auction, magnifying the overhang situation.

"So we need to see a price correction [to ease the overhang backlog]. It is already happening in some segments of the market. We can see asking prices trending downwards because more people are prepared to listen and take position even at a loss," says Foo. 

This would result in overhang stock that sees continued slow absorption, which he says is not necessarily a bad thing.

"This is a lot healthier than a sudden plunge. A slow correction is much better."