Property prices in Malaysia, particularly the primary market, are likely to be sluggish following the Covid-19 pandemic.

In the post-moratorium context, questions are being asked as to whether this will be the result of developers marking down prices due to cash flow constraints or because of weak market demand.

Metro Homes Realty Bhd executive director See Kok Loong told Property Advisor that while house prices are projected to fall, it won’t fall dramatically.

“Yes, prices will drop, and developers will be willing to reduce prices post-moratorium. But this will mainly be restricted to new launches of affordable units.

“What they need at the moment is cash flow as it is more important than profit,” he said.

During the three-month MCO period, and the two months that followed, See said developers did not earn any progress billings as no construction activities were allowed.

He added that another reason why house prices are not expected to drop drastically is because of Bank Negara Malaysia’s (BNM) instruction that banks go all out to reduce non-performing loans (NPLs).

“This is what we expect to see happen as some banks are already offering interest-only loans while others are restructuring their loans which mean only 25% of the monthly instalment for the next four years is expected to be settled.

“Without government intervention, I believe prices might drop as much as 30%, but with the current measures in place, I estimate that prices will correct itself to between 10-15% in general.”

He also noted that in some isolated cases, due to a lack of demand in properties, prices might sink 30-40% below market value through foreclosure sales.

Property insights and consulting firm Living Space Ventures Sdn Bhd director Ikhram Merican, said that the industry may see a decrease in prices of between 10-15%.

He too is optimistic that there will be no extreme price drops or that developers will offer big discounts as most are strong financially.

“Historically we’ve not seen extreme price drops in the Malaysian property market, and I don’t think it’s going to happen soon. I think in the worst-case scenario, we may see a decline of between 10-15% in market values.

“They (developers) can afford to wait out a dip in sales as opposed to reducing prices significantly.”

He said the property market would remain attractive on top of low-interest rates of 1.75% offered by BNM, tax and duty waivers as well as discounts in the primary market.

“Developers who have been building products that match demand have seen good sales so far,” he added.

Most affected areas for the primary market

According to See, the most affected area would be in Selangor, particularly high-rise developments with limited amenities and public transport access.

“For instance, the Seri Kembangan service apartments sold at 40-50% below market value at an auction recently.

“Another state is Johor. This state has the highest overhang and is heavily dependent on the Singapore market for employment as well as investment. Due to the pandemic, we would see Johor Bahru as the next area to be badly hit.”

However, Living Ventures’ Ikhram said there will be no specific areas affected. Instead, it could be a case of some projects being overpriced.

“Nonetheless, the property market has already received a boost with the Home Ownership Campaign 2020 (HOC2020) and incentives under the National Economic Recovery Plan (Penjana).

“Going by the economic recovery expectations of global agencies, I think the property market would see recovery by the third quarter of 2021 (Q3 2021).”

Solutions for the overhang in properties

According to See, there’s nothing much that can be done in regard to the property overhang. “The land system in Malaysia is a state matter, and anyone can be a developer.

“Development can take place once the local government approves it. So, supply is almost unlimited unless the government re-introduces ‘build then sell’.

He said other ways would be if financial institutions were strict on land purchase borrowings or set higher requirements for bridging loan financing such as imposing a prerequisite of achieving 80% sales first.

The “build then sell’ concept was adopted by the Selangor Development Corporation (PKNS) but was discontinued when soft market conditions rendered it impractical.

See said government agencies must provide reliable, up-to-date and comprehensive big data analysis of “real demand” and actual vacancy rates so the market has a clearer picture of supply versus demand.

In general, See said Malaysia’s property market needed to go through a correction to reduce overhang and vacancy rates for the next few years and to attract foreign investment.

This article was written by Sharina Ahmad of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.