Market mismatch slows once-booming private property market in Penang, Malaysia
24 February, 2019
Discounts, lucky draws and freebies were everywhere at property fairs across Penang over the first weekend of the Chinese New Year period.
Rebates of up to 11 per cent, free furnishings as well as car park lots for ready-to move-in units, and financing of up to 95 per cent were offered in "ang pow packages" to suit the festive mood.
Yet, property agents interviewed by Channel NewsAsia said sales were slow.
This is a far cry from the boom times just a few years ago.
A mismatch between properties offered in Penang and what people want to buy, coupled with unfavourable economic conditions nationwide is locking the once booming market into a slowdown, which insiders say has lasted about half a decade.
To address the malaise, banks and developers are coming up with innovative solutions to make it easier for buyers to secure loans.
Hope may be on the horizon, with foreign investors and overseas Malaysians positioned to enter the soft market.
According to the National Property Information Centre (NAPIC), Penang has among the highest figure for property overhang in Malaysia.
In the third quarter of last year, some 3,216 units were unsold after completion.
These make up 24 per cent of properties launched, with the bulk of the overhang comprising units worth RM500,000 (US$122,963) or more.
Back in the third quarter of 2013, only 342 units were unsold after completion.
‘DEVELOPERS HAVE THEMSELVES TO BLAME’
The state government says that the high stock pile in the private property market is due to developers not doing their homework, building homes which people cannot afford.
“Why build one unit worth RM3 million, when you can build 10 worth RM300,000 each, which will get snapped up?” Mr Jagdeep Singh Deo, the state councillor in charge of housing said to Channel NewsAsia.
According to Mr Jagdeep, there are around 40,000 Penangites queuing for affordable housing - including those built by the state government.
As of January, only about 10 per cent of privately-built affordable homes are completed or near completion, state data shows.
This, he said, indicates that developers have gotten things wrong, thinking there is weak demand in the affordable segment.
Tellingly, the Penang Development Corporation’s (PDC) booth was the busiest during the Penang leg of the Malaysian Property Expo earlier this month.
PDC, a state firm with housing developments under its belt, also oversees and promotes affordable housing built by private developers.
A total 30 per cent of residential units built by a developer must be in the affordable range of less than RM300,000.
Such is the level of interest for affordable housing that PDC ran out of flyers containing the list of available units midway through the expo.
However, developers do not agree with Mr Jagdeep’s assessment.
Mr Toh Chin Leong, the Chairman of the Penang chapter of the Real Estate Housing Development Association said the property companies have done their homework.
“Developers are businessmen. We look at the market, we look at how the people can afford … We will not want to go into the market and price ourselves out,” he said.
Mr Toh also said there is little data on actual demand for affordable housing.
In fact, the recent relaxation of affordable home purchases criteria in Penang implies that sales in this segment are slow, he added.
The state government has raised the income ceiling of those who qualify for homes priced at RM300,000 or less, among other measures to spur the market.
DIFFICULTY SECURING LOANS
While the state government and developers hold different views regarding market mismatch, they do concur that there is a financing bottleneck.
On the surface, the issue is confounding.
Households with incomes of up to RM10,000 per month should easily afford to pay the RM3,000 a month to service a 90 per cent home loan for an affordable home costing RM300,000.
Yet, an estimated seven out of 10 loan applicants are rejected.
With national household debt at 84 per cent of GDP, Malaysia has among the highest levels in Asia. Stagnating wages have forced households to rely more on credit.
These additional financial commitments make extending the customary 90 per cent home loans a “risky” endeavour for banks, Mr Jagdeep noted.
This is why the state government raised the income ceiling for purchases of homes worth RM200,000 to RM300,000 to RM12,000 a month, he said.
Already, developers are offering rebates of up to 11 per cent to draw in buyers.
Those with more financial muscle are also offering differential loans. For instance, SP Setia has offered no interest loans of 30 per cent of the buying price for those who come up short.
Sunway Properties also guarantees financing of up to 95 per cent for its Cassia development in Batu Maung, a residential neighbourhood in George Town.
INNOVATIVE FINANCING MECHANISMS
Banks have gotten into the act, by working with the developers to market excess stock.
Such schemes are typically funded by low-interest loans borne by the developers. The loans are underwritten by banks seeking to support the increasingly cash-strapped property companies.
Other forms of support include the banks purchasing homes from developers and leasing the units out to prospective homebuyers.
Maybank for instance, has a Houzekey scheme for the Eco Meadows and Eco Terraces developments in Penang.
These innovative financing schemes seek to drive sales in a segment where developers are hurting the most - the mid-range segment with properties priced between RM400,000 and RM1 million.
According to NAPIC, transactions for this segment in Penang contracted by about 20 per cent in the last quarter.
Some developments, like Prestige V by PLB Homes in Batu Maung, have units unsold several years after completion, despite the nine per cent rebate on offer.
“Many buyers have issues with other commitments, so they can only secure up to 70 per cent loans from the bank. This means they have to put up some RM20,000 upfront and most can’t do that,” a PLB representative said.
BUYER’S MARKET
Those interviewed said it is a buyer’s market for now.
A software engineer, 33, who wanted to be known as Siew Kin, said she has been looking to upgrade to a mid-range condominium with better facilities.
She is taking her time and leaning towards the sub-sale market, defined in Malaysia as completed units put up for sale by private owners.
She said this allows her to better assess the build quality and maintenance standards before committing to the deal.
To top it all off, prices are going down. “One property was listed for RM750,000 but now it has gone down to RM500,000,” she said.
Mr Lee Chee Heng, marketing manager at New Bob Realty said prices are dipping in the sub-sale market because investors who bought during the boom times some five years ago are now seeking to cash out, and reinvest in places like Vietnam where prices are still going up.
“I’m constantly on the phone with my Singaporean clients, who are checking how the market is because they want to sell (their properties in Penang),” he said.
Mr Lee said such investors had swept up newly-launched properties several years ago in hope of doubling their worth in five years.
“Before, we say that one client will bring in repeat business of five times. They stood to gain RM250,000 on a property bought for RM1.5 million within just six months and they reinvest that in another purchase,” he said.
These investors are reluctant to hold on to Penang properties due to unfavourable rental yield.
Wages in Penang remain lower than Kuala Lumpur. Coupled with a middling population of 1.7 million, Penang’s rental market is not particularly robust.
Even for luxury properties of more than RM1.5 million, Mr Lee said rent can be as low as RM2,500 a month, resulting in negative yield.
FOREIGN BUYERS, OVERSEAS MALAYSIANS TO THE RESCUE?
Can those based overseas give Penang’s private property market a boost?
Foreign owners make up about five per cent of the market but hold high value units, thanks to measures imposed to reduce speculation.
Starting 2015, on the island, foreigners can only buy high-rise properties worth RM1 million and landed properties worth at least RM3 million. They also have to pay a three per cent approval fee to the state government.
Since then, Mr Lee estimates the number of foreign buyers has halved.
This month, the state government is waiving the approval fee - a discount of RM90,000 for properties worth RM3 million.
For overseas Malaysians, Mr Lee said, ringgit depreciation makes mid-range properties, which foreigners are not allowed to buy, a bargain for long-term investment.
“The flipping era is over, but there will definitely be appreciation over the years.
“For the price of HDB flat in Singapore or less, you can buy a sea-frontage condominium in Penang.
“If you have the cash, buying property in Penang is a much better option than keeping it in the bank where you only earn less than one per cent of interest over time,” he said.
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