Future uncertainty for the real estate market

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Malaysia’s real estate sector is unlikely to return to pre-pandemic levels in the next three to five years, according to the chairman of the Malaysian Real Estate and Property Developers Association (Rehda), Datuk NK Tong.

At a press conference on Rehda’s 2H2022 real estate industry survey and 2H2022 and 2H2023 market outlook on October 12, Tong said the real estate market may not return to its previous state and the recovery of the sector depends a lot on that of the country’s economy.

“Meanwhile, the country’s economic recovery would depend on when the global economy returns to normal, which I think will take some time… Most likely not in the next three to five years given the situation. difficult market conditions such as the current wave of inflation,” Tong said. told the press.

While inflation increases the cost of owning a property, it is at the same time a tool to hedge against inflation.

“To control inflation, Bank Negara Malaysia has no choice but to raise the OPR (overnight policy rate). However, the central bank is [raising the OPR] gradually and slower than some Western countries, so local buyers will not immediately feel a significant impact. In fact, our interest rate is still relatively low [compared to others] in the region,” he said.

According to market research conducted by Rehda, 48% of developers do not plan a 2H2022 launch, mainly due to unfavorable market conditions (31%) and other reasons (25%).

“There were 150 respondents among Rehda members in Peninsular Malaysia who participated in the survey prior to the announcement of the 2023 budget and the dissolution of parliament. A key finding was that almost half of those surveyed did not were not planning to launch anything at 2H2022 due to market uncertainty and other reasons, such as delay in receiving approval from authorities and projects still in the planning stage,” explained Tong.

Other concerns include a lack of suitable product and land reserve (11%), a higher number of unsold goods (9%), commercial constraints (9%), a lack of demand from buyers in the location of the project (8%) and affected by the pandemic (2%).

The survey also indicates that developers are more conservative when it comes to sales performance, with 66% of respondents launching new projects in the near future expecting take-up rates for their projects to be 50%. or less in the first six months of launch.

“To drive sales, most developers focus on helping buyers with the first 10% [of the property price, that is the] advance payment. They also aggressively engage in digital marketing and virtual technology, and enhance product innovation and creativity,” Tong said.

53 respondents launched new projects in 1H2022, with sales performance 45% lower than 50% in 2H2021. It should also be noted that the total number of units launched in 1H2022 decreased to 7,843 from 10,665 in 2H2021. The property type with the most sales in the first half of this year was 2-3 storey townhouses in Seremban, Negeri Sembilan and Jasin, Melaka.

“The demand for land ownership is increasing [with the reopening of the economy] as people are looking for more living space and don’t mind moving out of the city center as working from home is more common these days,” Tong said.

Unsold units

Some 55% of respondents reported having unsold residential units, with 86% of them having unsold residential inventory that represents 30% or less of their units launched. “The majority (29%) of unsold residential units were priced between RM500,001 and RM600,000, which is also the most popular price range for new launches,” Tong said.

He added that the top three reasons for unsold residential units were rejection of final finance loan, unreleased bumiputera lots and high price/low demand or interest.

“The top three reasons for loan denial were buyer income ineligibility, lower finance margin and poor credit history. The survey report also shows that 31 of the respondents had 21% to 30% loan rejection over sales, meaning these developers had to sell a unit up to three times before it was finally sold. “, he explained.

Tighter loan approvals indirectly contributed to the higher cost of doing business. The overall cost increased by an average of 17% in 1H2022.

To fix the problem, some developers have launched a hiring freeze, reduced perks or benefits, and cut salaries. On the production and delivery side, most developers opted to reschedule the launch of planned projects, reduce the scale of launches, and delay projects due to low demand.

“Delaying launches is not a healthy trend for the overall real estate market because it means the supply of affordable housing will be lower. And by reducing the scale of launches, developers will lose economies of scale , which means the cost of completing a project will be higher,” Tong explained.

An increase of more than 20% in the average price of aluminum, glass, steel, metal products, copper and crusher was observed in 1H2022, which contributed to the increase in the launch cost of a new project, he continued.

“The cost of construction has increased by an average of 18%. The main measures taken to deal with the rising cost of building materials are increasing the price of property, followed by reducing the profit margin, using more cost effective materials, launching innovative designs and building smaller units,” he said. “Interestingly, adopting IBS (industrialized building system) is the least preferable measure (44 respondents) to solve the problem.”

Tong said that IBS “cannot solve all the problems” in the real estate industry as it is still a relatively expensive way of construction compared to the conventional construction method, mainly due to a lack of quality. ‘economies of scale. “The economy [on cost] is insignificant at the moment…developers are using IBS more to save time on the build.

Concluding the session, Tong shared that the majority of respondents were generally more positive about the housing market outlook in 1H2023, with only 25% being pessimistic/very pessimistic, compared to 34% in 2H2022. .

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