Property Insight > Strategy > Property Overhang How Will It End?

Property Overhang How Will It End?

When a new residential development project is launched, it has been every developer’s wish to have it sells out as fast as they could, or at least they should achieve more than 70 per cent take-up rate, to begin with.

For the past two to three years, developers in the country were slowly taking cautious approaches in launching their projects given the sluggish property market that seems like it is not recovering anytime soon.

This includes postponing their new projects and giving out more rebates and incentives to the potential home buyers, just to attract their interests.

Although various efforts had been done from the developer’s end, the country still recorded relatively high number of unsold residential property units across all states in Malaysia, with majorities are from developed states like Johor, Penang and Selangor.

According to the latest data issued by National Property Information Centre (NA PIC), as of the third quarter for 2019, Residential Overhang Status stood at 31,092 units or RM18,770.47 million in value.

From the figure, Johor recorded the highest unsold units with 5,740 units followed by Perak with 5,126 units and Selangor in the third position with 4,872 units. From the same data, it stated that since 2015 to 2019, the number of unsold residential property units are increasing over the years and this trend is somewhat worrying as this may sparks debates not only from the developer’s side but also to the government and home buyers on how to solve or what is the best way to tackle this problem.

Before we delved further into the topic, an unsold residential property unit refers to a unit of property which has been completed with Certificate of Completion and Compliance and a unit which is still under construction.

Property Insight reached out to Chief Operating Officer, Agency and Project Marketing Henry Butcher Malaysia, Tang Chee Meng and he opined that the government should provide more accurate and updated data on supply and demand of unsold residential property units so that developers are able to make better decisions on whether to launch new projects and the type of units that they should launch in order to meet market demand and preferences.

The authorities should ensure that developers embarking on new projects have enough capital to carry out and complete their projects and not abandon them in the face of sluggish sales.

“Furthermore, the government should continue helping those of the lower income group who are buying their first home, for instance, by offering stamp duty savings, government loan guarantees and financial assistance on down-payments.

“Meanwhile, for developers, they should be conservative and carry out independent market and feasibility studies to advise them on whether they should proceed with the planned project and what type of properties and pricing they should be aiming for if they want the units to be taken-up; he said.

Now, to the next questions that left us wonders why and what makes these properties cannot be sold? Is it something to do with the pricing, locations or maybe the size of the property?

To this, Chee Meng said, the units which were added onto the unsold residential property from the third quarter 2017 to the second quarter of 2018 would have probably been launched over the period 2014 to 2015.

“That was the time when the property market started to slow down due to the cooling measures introduced by the government, particularly more stringent loan approval criteria adopted by banks. Some of the projects may also be in locations which are not favoured by or deemed suitable for the targeted buyers e.g. lack of amenities such as schools, market, shops et cetera.

“Some projects may be considered unaffordable by these buyers due to the lower income levels of the people in these areas. Some projects may also have been launched in areas where there is already an over-supply of such properties, for example, in Johor.

“In Johor, the foreign-controlled developers were launching projects with more units in each phase than what had usually been launched in the past and the local market which is already saturated cannot absorb the units quickly enough, hence when the demand was less than what they expected, the stock of unsold residential property units built up significantly.

“The unsold residential property units comprise of both landed and high rise but in terms of numbers, high rise segment contributed the most to the problem. Along with that, the segment with the highest number of unsold residential property units is within the price of RM300,001-RM500,000 followed by the RM200,001-RM300,000 segment and the segment below RM200,000.

“Nevertheless, although considered to be more affordable, properties priced in these segments may not be deemed to be within the financial buying capacity of the targeted buyers who are of the lower-income groups and who may not have sufficient cash reserves to pay the down-payment,” he continued.

Meanwhile, Ahyat Ishak who is the Chief Executive Officer (CEO) of Greater Synergy Group which specializes in empowering young investors and new investors in property investments also shares his view on this issue.

He said a property unit is considered unsold after no taker in the period of nine months of its completion.

“In the property market, there are many opinions being voiced out regarding this issue and some of the property gurus may have said that this is not a problem at all, probably because they believed eventually the units will be sold.

“But for me, unsold units are amongst the biggest headache that hit the market nowadays and the trend will likely go on for a few more years ahead. This is supported by official figures released from the government and proactive measures need to be done to curb this trend from growing.

“When addressing this issue, I would say everyone is at fault This includes the developer, the government; the consultant; the industry player and the buyer No finger-pointing, no blame game. No one is spared.

“I ‘d say that developers were not cautious enough that they kept launching new projects, but they are not the only one responsible for this issue. The new launches have to be done for the sake of its survival and how their business model works and on the government’s side, they did not have much to say than to approve all of these projects because that is one of the avenues for getting revenues for the country.

“Back to the unsold residential property units, in my humble opinion, it takes the entire system to fail for this to happen,” he affirms.

He then further commented that property projects have exceeded demands, especially in high-rise segment.

“This is aligned with current data titled “Property Market Review 2019/2020′ which was released by Rahim & Co recently. From the data, current unsold property specifically residential and serviced apartment and SOHO units are now at 50,008 units with an accumulative value of RM34 billion.

“The value is huge and high-rise segment recopied the most unsold unit and this attributes to factors such as wrong products for the wrong target market.

“In the property market, there are three cores that we should never mess with, namely location of the property, a right product at the right location; and a right product at the right location with a right price.

“If a developer manages to fulfil these three cores, the issue of an unsold unit may subside. How? Eventually, the developers get the sales, property agents get to include transactions, property investors get to have the right investment and the genuine buyers will get to have their own dream house; he said.

Ahyat also advises the buyers to be more discerning and to ensure they are not being influenced by anyone who has their own agenda.

Indeed, it is worrying to see the number of unsold residential property units keep increasing as it will trigger more chain reactions such as putting bank lending at risk and tens of thousands of unoccupied spaces.

Other than that, it will be hard for the appointed Joint Management Body (JMB) to maintain the buildings due to insufficient sinking fund and this problem will eventually hit back the genuine buyer who bought the house for their own stay.

Therefore, we hope there will be a way out to at least lower down the number and every party involved must work hand-in-hand to solve this issue. We cannot force the developers to stop planning and launching new projects, but we do hope they will provide more products that goes well with the market demands and caters to mass market, not only niche market.

Furthermore, Datc; KK Chua, the founder and CEO of Armani Media told Property Insight that one of the most important things that must be done prior to launching any new development is to do enough due diligence.

“Gone were the days where the development surrounding the area launched their development at RM700 per sq ft and when a new development coming in, they want to sell it at RM750 per sq ft. I hope, the government via the Ministry of Housing and Local Government or the National Property Information Centre (NAPIC) can provide more thorough and details data on the specific area of development.

“This includes the overall inventories comprises high-rise and landed developments hence the developers can make a more prudent feasibility study. At the end of the day, the property is all about demand and supply.

“If the demands are high, whatever supply that the developers come out with, the digestion period might be prolonged and this will lead to the overhang: he concluded.

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