Pandemic turns property outlook analysis upside down

Property market players now find it difficult to determine how much of an impact the Covid-19 pandemic has had on supply and demand.

PETALING JAYA: Covid-19 has left property market players clueless about the supply and demand situation.

The pandemic has totally disrupted market forces and distorted what should have been the norm, according to Real Estate and Housing Development Association (Rehda) acting president NK Tong.

“As a result, it has made it difficult for us to decide what the reality is right now,” he told FMT Business.

Tong explained that the pandemic had made it difficult to determine how much of the changes had been caused by the two years of lockdown that had led to job losses and business closures.

“But it is clear that there has been a significant impact,” he said.

He was commenting on a report that there has been a marginal decline in the residential property market overhang in the first quarter of 2022 (Q1 2022) from the end of 2021.

In its latest report, the National Property Information Centre (Napic) said there were 35,592 units of residential property worth RM22.45 billion that remained unsold in Q1 2022.

This was a marginal drop from the more than 37,000 units worth RM22.79 billion at the end of last year.

Of the property left unsold in Q1 2022, up to 20,680 or 58.1% of the total, were high-rise units. Apart from that, 7,407 units of linked landed property (20.8%) and 7,505 other properties (21.1%) were unsold in the same quarter.

Tong said it had been difficult to determine the factors that had caused the residential property overhang in the first place.

“If the supply of completed but unsold units is too high, or higher than normal under usual circumstances, particularly in the residential sector, we can attribute it to over-building or a drop in demand,” he said.

He said that under normal circumstances, there will always be a certain percentage of completed but unsold units in a well-functioning market.

NK Tong.

“But it has not been normal for more than two years already. This has also made it difficult to quantify and attribute the causes of the overhang to the pandemic entirely,” he said.

Tong said it could take a year or more for the market to find a new equilibrium, taking into account the rise in inflation and the decision by Bank Negara Malaysia (BNM) to raise interest rates to help cool down the market.

At its monetary policy meeting last Wednesday, BNM raised the overnight policy rate (OPR) by another 25 basis points (bps) to 2.25%. This was the second increase in the OPR this year. At its previous meeting in May, it raised the OPR, also by 25 bps, from 1.75% to 2%.

According to data from the department of statistics Malaysia, the inflation rate has been rising steadily from 2.2% in January 2022 to 2.8% in May.

Tong said this is an opportune moment to purchase property to hedge against inflation and to protect the value of the investor’s money in the medium to long term.

“Purchasing a property usually comes with the expectation that its price will rise over time and this helps to lower the loan-to-value of the debt,” he said.

“Based on the assumption that property value appreciates faster than inflation, it will result in the equity of the property rising at a faster rate than loan repayments.”

He also expressed optimism in the outlook for the rest of the year. “The property sector will likely see steady growth in demand this year even in a moderately rising interest rate environment,” he said.

“It is obvious that demand has returned following the reopening of the economy and this can be seen in sectors such as food and beverage, retail as well as travel, to name a few.”

Source : Free Malaysia Today