Bank Negara's dire warning for the property market

Bank Negara has characterised Malaysia's property market as one with an oversupply of non-affordable homes and idle commercial space.

In the central bank's quarterly bulletin yesterday, the report also indicated that Malaysia had an undersupply of affordable homes.

"This situation could worsen if the current supply-demand conditions persist. Within the country, Johor is poised to have the largest property market imbalances (highest number of unsold residential properties and potentially the largest excess supply of retail space).

"As such, it is timely for all parties to act now to mitigate any potential risks to macroeconomic and financial stability," said Bank Negara.

The number of unsold residential properties is currently at decade-high, primarily due to a mismatch between new housing launches and what households can afford to pay, the bank added.

The central bank's quarterly bulletin said there were 130,690 unsold residential properties as of the first quarter of this year.

"This is close to double the historical average of 72,239 units per year between 2004 and 2016.

"About 83 percent of the total unsold units were in the above RM250,000 price category," said the central bank.

Most of these units were high-rise properties and almost entirely priced above RM250,000. These properties are mostly located in Johor (27 percent of total unsold), followed by Selangor (21 percent), Kuala Lumpur (14 percent) and Penang (eight percent).

The report noted that between 2016 and the first quarter of this year, only 21 percent of new launches were priced below RM250,000, meaning that new residential properties were out of reach of 35 percent of Malaysian households.

Making matters worse was the fact that median household income was increasing at a slower rate than median house prices.

Commercial glut

As for commercial properties, Bank Negara said the office vacancy rate in the Klang Valley has increased from 20.9 percent in Q1 2015, to 23.6 percent in Q1 this year.

"This is higher than the national average of 18.1 percent, and more than three times the regional average of 6.6 percent.

"The incoming supply of 38 million square feet of office space could exacerbate the glut," said the central bank.

The bank projects a record vacancy rate of 32.8 percent by 2021 – surpassing that of the levels seen during the 1997 Asian Financial Crisis.

"In other words, if current supply-demand dynamics persist, one in three offices in the Klang Valley could be vacant in 2021," said the central bank.

There is also an oversupply of shopping complexes, with 140 new shopping complexes scheduled to be completed by 2021, across the Klang Valley, Penang and Johor.

The central bank also noted that in 2016, Penang had the highest retail space per capita in the country (10.5 sq ft per person), followed by the Klang Valley (8.2) and Johor (5.1).

"In higher-income regional cities such as Hong Kong SAR and Singapore, prime retail space per capita is only 3.6 and 1.5 sq ft per person respectively.

"While Penang currently has the highest prime retail space per capita, it will be overtaken by Johor by 2018," read the report.

Banks getting wary

Meanwhile, Bank Negara said banks continue to provide mortgage loans, mostly to first-timers buyers of houses below RM500,000.

However, banks are more cautious in lending to commercial property buyers, as shown by lower loan approval rates.

"The banks' current exposure to the commercial property segment remains small, accounting for 5.1 percent of total bank loans," read the report.

Bank Negara believed that banks are able to withstand a slowdown in the property segment.- Mkini