The property market in Malaysia looks bleak as consumers cannot afford to own homes, according to an industry expert
A report by Free Malaysia Today (FMT), yesterday, 14 November, cited property expert Ernest Cheong, who opined that a market crash could potentially happen as consumers do not have the financial capacity to own homes, and could not even afford to pay their monthly instalments.
Cheong, who is a chartered property surveyor and consultant with more than 40 years of experience, said that the situation could be worse early next year after Chinese New Year.
"The panic (within developers and house owners) might start after Chinese New Year in February or later if the government decides to pump in money to strengthen the market," he was quoted as saying.
This comes as Deputy Finance Minister Datuk Lee Chee Leong recently revealed that 20,807 completed residential units have remained unsold in the first half of 2017
Bernama reported that the units were worth RM12.26 billion, a 40% rise from RM8.56 billion in the same period, a year ago at RM4.92 billion.
Lee reportedly said that the locations and pricing of these completed but unsold residential units contributed to what is collectively known as a 'property overhang'.
He pointed out that most condominiums and apartments that cost over RM500,000 dominate the overhang market, adding that properties worth RM300,000 were considered affordable in places such as Klang Valley although he noted that it might vary by states.
Responding to this, Cheong said that developers could be desperate to sell off their new properties and have resorted to offer "generous payment mode" to consumers
He explained that developers allow buyers to pay 1% of the property price and settle the remainder upon completion nowadays, while in the past, consumers were required to pay 10% as deposit.
Cheong went on, saying that the failure to sell at least 40% of the total units will put developers at the risk of losing their bridging finance from banks to support their construction.
"This is where the danger starts. I predict if this continues, markets will crash within 24 to 30 months because consumers do not have the financial capacity to buy properties any more.
"Furthermore, developers who started building two years ago are expected to flood the market further with their units," he told FMT.
The real estate veteran is also predicting that house prices will go down when the market crashes
FMT reported Cheong as saying that the prices of houses will fall from RM500,000 to RM300,000.
He also offered a piece of advice to Malaysian consumers who are looking to buy a property: consider renting first unless you have a minimum savings of RM1,000 a month for at least a year.
“This is to cover for rainy days if they lose their jobs."
"There should not be any urgency to buy a property at the moment. Try renting first."
Meanwhile, other experts did not share the same opinion with Cheong
In a separate report by FMT today, 15 November, several experts agreed that the market in 2018 is expected to be soft but less negative than suggested by Cheong.
The report quoted Henry Butcher Malaysia chief operating officer (CEO) Tang Chee Meng who did not deny that the market was sluggish and that there could be an increase in number for unsold houses next year.
However, he pointed out that are still projects that enjoy good take-up rates such as those projects priced under RM500,000 and those above that price range in popular locations.
"So for anyone to say that the market will crash next year is a bit too pessimistic," Tang said.
He told FMT several reasons why the future of property market is not as bleak as painted:
2. Borrowers are not facing financial difficulties in servicing their loans since there had not been a significant rise in nonperforming loans (NPLs). There is also no substantial rise in foreclosed properties put up for auction.
3. Employment and the business sector did not appear to be so negative as suggested by the latest economic data, and they should support a stable property market.
4. Quite a number of developers have shifted to the affordable homes segment, which he thinks will help to overcome the sluggish market.
5. Some investors may also choose to hold back their purchases to wait for the next general election's outcome.
This was also echoed by Penang Real Estate and Housing Developers' Association's immediate chairman, Jerry Chan who also refuted claims of a potential market crash
He cited strong exports, returning investor confidence, and no major retrenchment exercises as reasons why a property market crash next year is unlikely.
On whether prices of properties will fall next year, Chan reportedly said that developers will only drop the prices if they are having financial problems.
"But, most developers have been around for some time, had a good run and would’ve anticipated the current market slowdown. So I don't think they have their backs against the wall," he was quoted as saying by FMT.
He added that developers are more likely to change the products they are offering, such as making smaller units or putting less finishings to cope, rather than reducing prices as their margins are low.
"I don't see prices dropping more than they already have. When the market was at its peak, some developers set ridiculous prices and when the market slowed down, they dropped their prices a bit. But does this really mean that they dropped their real prices or merely slashed their inflated prices?"