Malaysian Real Estate Market Growth Persists

The Valuation of Property Services Department reports that the Malaysian real estate market continues to track upward with inflation, with the average house price standing at $68,905 at …

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The Valuation of Property Services Department reports that the Malaysian real estate market continues to track upward with inflation, with the average house price standing at $68,905 at the end of the first quarter in 2012. Kuala Lumpur’s house price index helped bolster the national average with a 6% increase on the year for the first quarter. C.H. Williams Talhar & Wong’s 2012 Property Market Report indicates price increases should level off through the rest of the year as stricter mortgage guidelines, anti-speculation laws and foreign purchasing restrictions act to slow growth. For more on this continue reading the following article from Global Property Guide.

Malaysia’s house price rises have continued, but at a slower pace, due to a slight GDP growth slowdown to 5.1% in 2011, from 7.2% in 2010. Malaysian houses prices have tracked inflation during the last decade, except during the recent surge.

In Q1 2012, the national house price index rose 6.1% (3.7% in real terms) y-o-y to Q1 2011, down from 8.9% growth last year (5.9% in real terms), according to the Valuation and Property Services Department (JPPH). The average house price was MYR 219,219 (US$ 68,905) at year end, according to the JPPH.

Price increases should moderate in the remainder of 2012, according to C.H. Williams Talhar & Wong’s 2012 Property Market Report .

Kuala Lumpur’s house price index rose 6% y-o-y to Q1 2012. House prices also increased in Selangor (8.9%), Pulau Pinang (5.2%), and Perak (4.2%). Johor and Negeri Sembilan had the lowest y-o-y price growth, at .2% and 1.6%, respectively.
By property type, nationally:

  • Terraced houses rose 6.6% y-o-y to Q1 2012
  • Detached houses rose by 2.3%
  • Semi-detached houses rose by 7.8%
  • High rises rose by 4.6%.

There were 6,359 units sold in 2011, down 21% from the previous year. In Q4 2011, only 5,519 new housing units were launched, down 45.6% from the previous quarter, and a 62.3% drop from the same period last year, according to JPPH.

The BNM’s more restrictive lending guidelines introduced January 1, 2012 are expected to restrain speculation. The BNM recently lowered the loan-to-value (LTV) mortgage cap for third house financing from 90% to 70%. The Real Property Gains Tax (RPGT) has also been re-activated by the government.

In 2012, the economy is expected to grow 4.2%, according to the Malaysian Institute of Economic Research (MIER. Inflation has moderated to 2.3% in Q1 2012, from 3.2% in Q4 2011. The BNM therefore decided to keep the OPR at 3% in May.

“Right now…interest rates are accommodative… in the sense it is not restricting borrowing activities and it is supporting the overall growth,” says Malaysia’s Central Bank Governor Zeti Akhtar Aziz.

Meanwhile, Prime Minister Datuk Seri Najib Razak has introduced Malaysia’s first minimum wage to support low income households. Workers in Peninsular Malaysia will receive MYR 900 (US$ 297), while rural areas workers will receive MYR 800 (US$ 252).

House price growth is slowing

House price rises in Malaysia have rarely outpaced inflation , but Kuala Lumpur home prices have outpaced those elsewhere:

In 2011 the national Malaysian house price index rose 9.9% (6.5% when adjusted for inflation).

2010: up 6.7% (4.9% in real terms)
2009: up 1.5% (0.9% in real terms)
2008: up 4.7% (a fall of 0.7% in real terms)
2007: up 5.3% (3.2% in real terms)
2006: up 1.9% (a fall of 1.7% in real terms)
2005: up 2.4% (a fall of 0.6% in real terms).

In 2011 Kuala Lumpur house prices rose 12.2% (8.7% in real terms)

2010: up 12.2% (10.3% in real terms)
2008: up 2.5% (-3.1% in real terms)
2008: up 4.5% (-0.7% in real terms)
2007: up 7.9% (5.8% in real terms)
2006: up 5.3% (1.6% in real terms)
2005: up 6.5% (3.4% in real terms)
2004: up 6.5% (5% in real terms).

House prices are still below pre-Asian Crisis levels. They rose rapidly in the early 1990s with two particularly dramatic surges – in 1991 house prices rose 25.5% (20.3% in real terms), and in 1995 they rose 18.4% (14.4% in real terms).

After the Asian Crisis, prices of luxury detached Kuala Lumpur houses fell 39% between 1997 and 1999.

After the economic downturn of 2008-2009, the property market was revitalized with the help of the Greater Kuala Lumpur Plan, targeting developing key locations, including the latest “The MRT Project”.

Stricter mortgage guidelines

Since January 1, 2012, BNM has implemented stricter lending guidelines. Mortgage eligibility assessment will be based on net income, considering:

  • Statutory deductions for tax;
  • Employees Provident Fund (EPF) contributions, and;
  • All other debt obligations.

The new guidelines have already impacted lending, with lower residential loan approvals in February 2012. The approval rate was below 50%, compared to over 62% in mid-2008, according to CB Richard Ellis (CBRE-Malaysia).

Outstanding housing loans reached MYR 222.2 billion (US$69.9 billion) in 2011, around 26.1% of GDP, up 11.8% from a year earlier.

A low and steady base lending rate (BLR) has encouraged loan growth. From May 2006 to October 2008, Bank Negara Malaysia (BNM) pegged its lending rate at 6.72% but adjusted it downward to its present 5.51% in August 2009.

As the Malaysian economy strengthened, the BLR rose from 5.76% in March 2010, to 6.53% in March 2012. The OPR was raised by 25 basis points to 3% in May 2011, and remains today.

Average lending rates fell from 4.94% in May 2011 to 4.74% in March 2012.

New anti-speculation laws

In July 2011, the Malaysia People’s Housing (PR1MA) Bill 2011, was launched to assist low and medium income and the youth buying their first homes. Developers are currently teaming up with the PR1MA scheme, switching from high-end developments to mid-range ones to lure first time buyers with easier financing and reduced stamp duty for houses below MYR 400,000. Borrowers with monthly income up to MYR 7,000 per month qualify for the scheme.

Some anti-speculation measures:

Increasing housing license project deposits of 3% of total estimated project cost have been introduced, and a MYR 500,000 fine, plus maximum of three-year jail term for developers who abandon their projects have been proposed by the Housing and Local Government Ministry.

The government has reactivated the Real Property Gains Tax (RPGT), taxing gains on real property disposals at 5%, if sold between the first and the fifth year. In the Budget 2011, the RGPT was raised to 10% from 5% for the first two years to help curb speculation. The tax regime of 5% will be imposed on the third to fifth year. No tax will be imposed on property sold after the fifth year.

Foreign buyer restrictions back!

The Malaysian government has partly retreated from its December 2006 liberalization of foreign property purchases. Effective January 2010, the price floor below which foreign buyers can buy is hiked to MYR 500,000 (US$145,383), twice the previous level.

Foreign purchases above MYR 500,000 (US$145,383) are placed under the “purview of the State Authorities” under the new regulations, with approval expected to take one to two months.

The REHDA opposed the new restrictions, arguing that “the restriction might impact residential property acquisition by foreigners in the country, as the number of properties priced above MYR 500,000, especially outside the Klang Valley areas, are limited.

“The ruling may be applicable to properties in Kuala Lumpur areas, but we should also consider other states with lesser price ranges,” said Datuk Ng, president of REHDA in a statement.

“This is definitely not the right time to restrict the property value to be purchased by foreigners.”

Housing over-supply?

Malaysia has an active condominium market, especially in Kuala Lumpur, Johor Bahru, Kota Kinabalu, Kuching and Penang. Condominium price rises are expected to moderate in 2012, but continue trending up, according to C.H. Williams Talhar & Wong,

The over-supply of high-end condominiums remains a concern, despite high demand. CBRE projects that around 2,300 units of high-end condominiums will be completed in 2012, half located in the Kuala Lumpur City Centre (KLCC).

Meanwhile, the supply of terraced houses, semi-detached, cluster houses, and bungalows remained strong in 2011, with around 66 projects with 5,400 units launched, according to C.H. Williams Talhar & Wong.

In total, around 54,557 properties were unsold at end-2011, down 2.3% on the previous year, and down 34.9% from the 2004 peak of 83,811 units. There was a 62.3% decline in house launches during the year to Q4 2011.

Yields have been falling

Rental yields in KL have moderated, and ranged from 4.75% to 6.27% in October 2011. They have slightly fallen from the 5.5% to 8.7% range recorded in October 2009, according to the Global Property Research. Bungalows have relatively lower yields, ranging from 2.6% to 3.32%.

Kuala Lumpur’s average rent on high-end residential areas was down by 1.4% y-o-y and 1.0% q-o-q to RM 3.40psf (US$ 1.07) per month in Q1 2012.

KLCC had the highest rents at an average of RM 3.91psf (US$ 1.23) per month, followed by Bangsar (RM 3.26psf per month) and Mont’Kiara (RM 3.03psf per month), according to CB Richard Ellis (CBRE-Malaysia).

The government’s Economic Transformation Programme (ETP) has helped to increase the demand for luxury condominiums in Klang Valley, which caters mainly to foreigners, according to C.H. Williams Talhar & Wong.

However, incoming supplies of high-end condominiums, with half of new completions located in the KLCC area, are is likely to further downward pressure rents, even through the newer launches may be priced higher than the existing ones.

Malaysia’s rental market is small. Only 6% of the housing stock is in the private rental sector. About 85% of the total stock is owner-occupied, while government-provided housing accounts for 7% of the stock.

Slower economic growth expected in 2012

Malaysia grew by 4.7% during the year to Q1 2012, followed the country’s strong economic rebound in 2010 (7.2%) and 2011 (5.1%) from a downturn of 1.6% in 2009.

In 2012, Malaysia is expected to grow 4.2%, according to the Malaysian Institute of Economic Research (MIER).

What weighs the economy down is the continued exports contraction. According to some economists exports, which account for 60% of economic output, and weak manufacturing, are likely to drag down Malaysia’s economic growth.

Gross exports slowed with only 4.4% growth during the year to Q1 2012, The decline was caused by the global economic downturn, and by the Ringgit’s appreciation against the US dollar.

Inflation moderated to 2.3% in Q1 2012, from 3.2% in Q4 2011. Unemployment remains low at 2.9% in March 2012. To support low income households, a minimum wage was introduced by the Malaysian government for the first time. Those private sector workers located at the peninsular Malaysia will receive a monthly minimum salary of MYR 900 (US$ 297) while workers in the Sarawak and Sabah will receive MYR 800 (US$ 252).

This article was republished with permission from Global Property Guide.

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