Malaysia's housing market is expected to recover strongly
Wednesday, 17 October 2007
Bernard Lim
Malaysia´s housing market is expected to recover strongly in the second half of this year, with buying interest in the low end and mid range property ignited by government incentives to bolster sluggish sales.
While sales in the high-end housing market have always been robust, those in the middle and lower price range started to pick up at a steady pace from April this year after languishing for more than two years. Between April and June this year, the housing property market saw investor activities across all segments of the market as a result of the exemption of the real property gains tax (RPGT), which came into effect in April.
According to the Ministry of Finance´s (MOF) Economic Report 2007/2008, the residential sector moderated in 2006 following higher inflation and interest rates. Low-and-medium property developers deferred their new launches, resulting in lower housing starts of 65,045 units during the first half of 2007, down 23.5 per cent from 85,025 units a year earlier.
However, the report said purchasing sentiment picked up in the second quarter of 2007 as reflected by the take-up rate of newly launched residential units, which improved to 30.8 per cent from just 11 per cent a year earlier. Valuation & Property Services Department under the Finance Ministry said in a report that the existing stock of residential units stood at 3,944,825 units at the end of the second quarter of this year. During the four quarters to the end of June 2007 a total of 129,128 units were completed, ranging from 37,048 units (Q1 2007) to 55,864 units (Q2 2007). The incoming supply was reduced by 6.5 per cent to 590,667 units from the corresponding period of Q2 2006 (631,790 units).
It said 87,518 units started construction in the past four quarters. The planned supply increased to 644,452 units from the corresponding period of Q2 2006 (631,443 units) but slightly lower than Q1 2007 (650,005 units). The department attributed the lower number of the planned supply to higher number of buildings that started construction and decreased number of building approvals.
The number of developers with positive outlook on the housing market has doubled to four per cent in the first half of this year compared with the same period last year, the Real Estate and Housing Developers Association (REHDA) said. REHDA deputy president Michael Yam said the property players achieved better sales after the government introduced incentives, including real property gain tax exemption effective from April 1 and the removal of Foreign Investment Committee approval.
The maximum tax on property gains was 30 per cent for individuals and corporations previously. Other positive factors include Malaysia´s improving economy, availability of loans to foreigners and no restriction to number of units that can be purchased.
"These factors contributed to renewed interests in the property market and have resulted in more enquiries which translated into better sales," he said. Yam said those surveyed were likely to raise prices by between 10 per cent and 20 per cent, reflecting the increase in material costs and robust demand for properties in Kuala Lumpur and Selangor. Construction costs continued to climb, reaching 30 per cent year-on-year. For the first six months of 2007, 86 per cent of the respondents that launched new projects said sales improved or remained the same compared with only 38.8 per cent year-on-year.
He said 36 per cent of the respondents reported improved sales during the first six months of 2007 compared with 14.9 per cent in 2006 while the percentage of developers with softer sales plunged to 14.1 per cent from 61.2 per cent last year.
However, 66 per cent of the respondents said they had unsold stocks due to market-related factors such as Bumiputra quotas, unavailability of financing, wrong location of project, pricing and location of units.
Allan Soo, managing director of Regroup Associates, said that between April and June this year, the housing property market saw investor activities across all segments of the market as a result of the exemption of the real property gains tax (RPGT), which came into effect in April.
"The mood was decidedly upbeat at the start of the second quarter of 2007 and many real estate agents interviewed remarked on the positive effect this government measure had on the property market," he said. The buoyant mood in the primary market appears to have spilled over to the secondary properties in nearby areas. The survey conducted for The Edge/Regroup Klang Valley Housing Property Monitor show that values increased by about 2 per cent to 4 per cent.
However, Soo said the price increases are unlikely to continue as prices in the secondary market are already high. Some real estate agents confirm that the secondary residential market for 2-storey houses in certain prime areas in the Klang Valley remains slow despite the real property gains tax exemption and relaxation of Foreign Investment Committee rulings. Some analysts said prices seem to have risen too high in KLCC. This year, about 1,000 units will be added to the market, with the completion of Dua Residency (288 units) and Marc Service Residence (607), excluding those in the U-Thant area. Next year, more than 10 projects will be ready for occupation. This will be adding slightly more than 1,000 units to the market. An average increase of that size over a two- to three-year period does not represent a bubble, especially if the Malaysian economy is expected to grow 6 per cent annually. The price hike in that location is due mainly to foreign interest after the real property gains tax (RPGT) exemption and faster approval of foreign purchases by the authorities.
Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng said the interest is mainly due to foreign buyers´ expectations of further price rises. They feel there is room for prices to go up unless the Malaysian economy suffers a sudden setback.
He cited reasons for their optimism. Kuala Lumpur´s residential prices are relatively cheap compared to the major cities in the region. KL´s luxury condo prices are only a fifth or less of Singapore´s equivalent. However, he acknowledged that the price increase has to be backed by a corresponding increase in rentals as otherwise, the yield will drop. Aseambankers analyst Ong Chee Ting believed the current high-end residential prices are sustainable and may continue to set new records if the political and economic climate in Malaysia and the rest of the world remains favourable, and Malaysia remains business friendly.
He said unlike the typical residential-type property investor who seek returns in the form of rentals, buyers of high-end residential property are motivated by less tangible factors such as prestige, exclusivity or for speculation.
The strengthening of the ringgit also augurs well for the high-end residential housing market, he said. Other analysts said the recent economic uncertainties, brought about by the subprime troubles in the US, has made foreign investors more cautious. Some investors seem to be holding back on further investments until a clearer trend emerges. Although the property sector has received significant incentives this year, analysts feel that it is still lagging its regional peers. CIMB Securities head of research Terence Wong said Malaysia´s property market still lagged behind markets in Singapore and Hong Kong.
"We´ve only just begun (to rally). Singapore´s property market has had a good run for the past two years," he said. He believed the domestic housing sector should remain robust as long as US subprime mortgage problems are reined in. "It´s status quo for us as we expect Bank Negara to maintain interest rates at the current level," he said.
He said the recent 50 basis points interest rate cut by the US Federal Reserve was not likely to affect Malaysia´s property.
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Internet
Malaysia´s housing market is expected to recover strongly in the second half of this year, with buying interest in the low end and mid range property ignited by government incentives to bolster sluggish sales.
While sales in the high-end housing market have always been robust, those in the middle and lower price range started to pick up at a steady pace from April this year after languishing for more than two years. Between April and June this year, the housing property market saw investor activities across all segments of the market as a result of the exemption of the real property gains tax (RPGT), which came into effect in April.
According to the Ministry of Finance´s (MOF) Economic Report 2007/2008, the residential sector moderated in 2006 following higher inflation and interest rates. Low-and-medium property developers deferred their new launches, resulting in lower housing starts of 65,045 units during the first half of 2007, down 23.5 per cent from 85,025 units a year earlier.
However, the report said purchasing sentiment picked up in the second quarter of 2007 as reflected by the take-up rate of newly launched residential units, which improved to 30.8 per cent from just 11 per cent a year earlier. Valuation & Property Services Department under the Finance Ministry said in a report that the existing stock of residential units stood at 3,944,825 units at the end of the second quarter of this year. During the four quarters to the end of June 2007 a total of 129,128 units were completed, ranging from 37,048 units (Q1 2007) to 55,864 units (Q2 2007). The incoming supply was reduced by 6.5 per cent to 590,667 units from the corresponding period of Q2 2006 (631,790 units).
It said 87,518 units started construction in the past four quarters. The planned supply increased to 644,452 units from the corresponding period of Q2 2006 (631,443 units) but slightly lower than Q1 2007 (650,005 units). The department attributed the lower number of the planned supply to higher number of buildings that started construction and decreased number of building approvals.
The number of developers with positive outlook on the housing market has doubled to four per cent in the first half of this year compared with the same period last year, the Real Estate and Housing Developers Association (REHDA) said. REHDA deputy president Michael Yam said the property players achieved better sales after the government introduced incentives, including real property gain tax exemption effective from April 1 and the removal of Foreign Investment Committee approval.
The maximum tax on property gains was 30 per cent for individuals and corporations previously. Other positive factors include Malaysia´s improving economy, availability of loans to foreigners and no restriction to number of units that can be purchased.
"These factors contributed to renewed interests in the property market and have resulted in more enquiries which translated into better sales," he said. Yam said those surveyed were likely to raise prices by between 10 per cent and 20 per cent, reflecting the increase in material costs and robust demand for properties in Kuala Lumpur and Selangor. Construction costs continued to climb, reaching 30 per cent year-on-year. For the first six months of 2007, 86 per cent of the respondents that launched new projects said sales improved or remained the same compared with only 38.8 per cent year-on-year.
He said 36 per cent of the respondents reported improved sales during the first six months of 2007 compared with 14.9 per cent in 2006 while the percentage of developers with softer sales plunged to 14.1 per cent from 61.2 per cent last year.
However, 66 per cent of the respondents said they had unsold stocks due to market-related factors such as Bumiputra quotas, unavailability of financing, wrong location of project, pricing and location of units.
Allan Soo, managing director of Regroup Associates, said that between April and June this year, the housing property market saw investor activities across all segments of the market as a result of the exemption of the real property gains tax (RPGT), which came into effect in April.
"The mood was decidedly upbeat at the start of the second quarter of 2007 and many real estate agents interviewed remarked on the positive effect this government measure had on the property market," he said. The buoyant mood in the primary market appears to have spilled over to the secondary properties in nearby areas. The survey conducted for The Edge/Regroup Klang Valley Housing Property Monitor show that values increased by about 2 per cent to 4 per cent.
However, Soo said the price increases are unlikely to continue as prices in the secondary market are already high. Some real estate agents confirm that the secondary residential market for 2-storey houses in certain prime areas in the Klang Valley remains slow despite the real property gains tax exemption and relaxation of Foreign Investment Committee rulings. Some analysts said prices seem to have risen too high in KLCC. This year, about 1,000 units will be added to the market, with the completion of Dua Residency (288 units) and Marc Service Residence (607), excluding those in the U-Thant area. Next year, more than 10 projects will be ready for occupation. This will be adding slightly more than 1,000 units to the market. An average increase of that size over a two- to three-year period does not represent a bubble, especially if the Malaysian economy is expected to grow 6 per cent annually. The price hike in that location is due mainly to foreign interest after the real property gains tax (RPGT) exemption and faster approval of foreign purchases by the authorities.
Henry Butcher Marketing Sdn Bhd chief operating officer Tang Chee Meng said the interest is mainly due to foreign buyers´ expectations of further price rises. They feel there is room for prices to go up unless the Malaysian economy suffers a sudden setback.
He cited reasons for their optimism. Kuala Lumpur´s residential prices are relatively cheap compared to the major cities in the region. KL´s luxury condo prices are only a fifth or less of Singapore´s equivalent. However, he acknowledged that the price increase has to be backed by a corresponding increase in rentals as otherwise, the yield will drop. Aseambankers analyst Ong Chee Ting believed the current high-end residential prices are sustainable and may continue to set new records if the political and economic climate in Malaysia and the rest of the world remains favourable, and Malaysia remains business friendly.
He said unlike the typical residential-type property investor who seek returns in the form of rentals, buyers of high-end residential property are motivated by less tangible factors such as prestige, exclusivity or for speculation.
The strengthening of the ringgit also augurs well for the high-end residential housing market, he said. Other analysts said the recent economic uncertainties, brought about by the subprime troubles in the US, has made foreign investors more cautious. Some investors seem to be holding back on further investments until a clearer trend emerges. Although the property sector has received significant incentives this year, analysts feel that it is still lagging its regional peers. CIMB Securities head of research Terence Wong said Malaysia´s property market still lagged behind markets in Singapore and Hong Kong.
"We´ve only just begun (to rally). Singapore´s property market has had a good run for the past two years," he said. He believed the domestic housing sector should remain robust as long as US subprime mortgage problems are reined in. "It´s status quo for us as we expect Bank Negara to maintain interest rates at the current level," he said.
He said the recent 50 basis points interest rate cut by the US Federal Reserve was not likely to affect Malaysia´s property.
............
Internet