Malaysia’s Unsold Properties Still At Elevated Level, Says BNM

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Unsold properties in Malaysia remains at an elevated level as at end of 2020 even as transaction volumes within the housing market rebounded to a pace comparable to the average quarterly increase seen before the pandemic, according to Bank Negara Malaysia (BNM).

The central bank said the unsold properties mainly consist of small office home office (SOHO) units, serviced apartments and homes priced above RM500,000 situated in less popular locations, reported The Edge Markets.

In its Financial Stability Review for Second Half 2020 report, BNM noted that growth in housing market activity was more concentrated within the mid- to higher-priced segments, primarily the secondary market, with buyers more likely being those whose incomes were less affected by COVID-19 pandemic.

This led to growth in average home prices, albeit prices climbed at a more moderate pace in the third quarter of 2020 (Q3 2020), said the central bank.

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Given the softer housing market conditions, developers adjusted supply towards more affordable housing segments. And while overall launches significantly declined across all price segments during the first three quarters of 2020, BNM observed that the drop was notably sharper for properties priced over RM500,000.

“This is a welcomed adjustment and will help reduce demand-supply mismatches that had worsened housing affordability and increased risks of price corrections in the past,” said BNM in the report.

“These adjustments also do not appear to have induced a more broad-based decline in house prices in the secondary market, with average transaction prices continuing to rise, as noted earlier, owing to firm demand.”

Malaysia’s non-residential property segment, on the other hand, faces considerable challenges.

Average hotel occupancies, for instance, remain way below the occupancy levels pre-pandemic even after improving from the all-time low of 11% during the imposition of Movement Control Order (MCO).

“Market conditions for hotels are likely to remain modest throughout 2021 amid intense competition for a smaller pool of travellers, higher operational costs due to the imposition of standard operating procedures, and slow recovery in travel demand,” said BNM.

Shopping malls fared a little better as they registered some recovery in footfalls particularly towards end-2020, said the central bank. However, it expects online purchases to persist, partly weighing on demand for retail space amid pre-existing excess supply.

Meanwhile, adjustments were also observed to the incoming supply of retail and office space as some developers opted to defer the completion of their projects.

However, planned incoming supply of retail and office space within the Klang Valley remains large for at least the next three years – at 58% and 23% of existing stock, respectively.

“Amid the prevailing oversupply and challenging business conditions, rental and occupancy rates for office and retail space are expected to remain depressed in the period ahead,” said BNM.

“Taken together, risks of potential losses to financial institutions from prospects of weaker debt-servicing ability and valuations as a result of depressed conditions in the non-residential property market are judged to have increased from the impact of COVID-19.”

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