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KUALA LUMPUR (Oct 14): Risks in real estate have risen due to the prevailing oversupply and a “re-evaluation of business property needs” owing to movement control orders, Bank Negara Malaysia (BNM) said in its Financial Stability Review -- First Half 2020 released today.
The central bank said the retail space sector has been significantly affected with consumers influenced by the movement restrictions or risks from the Covid-19 outbreak.
The report stated that property transactions fell by more than 25% by volume in 1H and by about 27% in value.
“Amid pre-existing oversupply conditions and changes to consumption behaviour since the pandemic, rental rates in the retail commercial property market are likely to remain depressed in the period ahead,” the BNM’s report said.
Also impacted is office space. BNM said the shift towards telecommuting and work from home brought on by the initial movement control order MCO has been continued by some employers even after restrictions were mainly removed.
Such a trend would further depress both office occupancy and rental rates, the central bank said.
It has been reported that retail and office space sectors already were already experiencing overhang before the pandemic struck.
Also of concern according to BNM is the residential market. It said the number of unsold houses remained elevated at close to 170,000 units, with most still under construction (67% of unsold units) or priced above RM300,000 (73%), reported Bernama
“The pandemic may increase risks of a broader decline in house prices due to a deterioration in income and weaker demand conditions, and this, in turn, would increase risks to financial stability, given that loans for the purchase of residential properties account for the bulk of banks’ total property-related exposures,” BNM said.
However, several factors are expected to mitigate this risk, including extending 80 per cent of loans for homes that are owner-occupied which substantially reduces the likelihood of borrowers defaulting on their loans, said the central bank.
“Second, the bulk (85 per cent) of borrowings for investment purchases are associated with higher-income borrowers earning more than RM5,000 per month,” it said.
Such borrowers are more resilient to income shocks and are unlikely to sell properties at a loss if they could continue to service their debt, BNM said in the Bernama report.
“Third, speculative activity in the housing market has remained subdued for some years now, with prices in some segments already having moderated significantly from exuberant valuations in the past,” it added.
Meanwhile, BNM said overnight policy rate cuts and the reintroduction of the Home Ownership Campaign should continue to provide some support to housing demand, especially in the primary market.
“The automatic loan moratorium and targeted repayment assistance also provide vulnerable borrowers with some relief and will limit property foreclosures that could put pressure on house prices,” said the central bank.
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