Based on a statement by Health Director-General Tan Sri Dr Noor Hisham Abdullah on April 1, 2022, Malaysia has now entered the ‘Transition to Endemic’ phase; a temporary stage before the country fully shift gear to endemicity.
A key highlight that distinguishes this phase and pandemic phase is the transfer of government-imposed restrictions to individual responsibility and community solidarity to curb the spread of the virus. As of May 23, 2022, Malaysia vaccination rate – number of populations with two completed doses – stood at 82.7 per cent.
Transaction volume trend (2016-2021) (Source: National Property Information Centre)
As countries around the world embrace the new normal, we’ve also seen a gradual increase in consumer’s confidence for the Malaysian residential property sector. This is largely attributed to the improved financials and job prospects.
Overall, the Malaysian residential property sector is trending in a positive direction, in tandem with further easing of restrictions and the reopening of international borders.
In 2021, transaction volume was up 1.5 per cent year on year (y-o-y) to 300,497, but still below pre-pandemic levels by six per cent. In terms of value, there was a notable increase of 21.7 per cent y-o-y to RM144.9 million recorded in 2021.
Despite the restored business sentiment in the housing industry, a disproportionate increase of value vis-à-vis volume however indicates that the market is more skewed towards the mid-to-upper priced properties. Further discussion on the market breakdown analysis is detailed in the following section.
Transaction value trend (2016-2021)
Supply and demand
Overhang accumulated in 2021
Total resident overhang jumped 24.7 per cent y-o-y to 36,863 units in 2021, overpassing about 26.1 per cent from the pre-pandemic average of 29,238 units (2016-2019).
The surge in residential overhang during the year was within our expectation as developers have been holding back new project launches as well as closures of sales galleries during intermittent lockdown periods in 2020.
Breaking down the total overhang units by price groups, the proportion of below RM300,000 price category tops the list at 31.5 per cent. The rank is followed by RM500,000 to RM1 million range (30.2 per cent), RM300,000 to RM500,000 range (25.7 per cent), and above RM1 million range (12.6 per cent).
As aforementioned, we note market sentiments are stronger, albeit skewed towards the mid-upper range (i.e., above RM300,000). This is reflected by a double-digit growth y-o-y in transaction volume for the above RM300,000 market. Only demand of below RM300,000 price category was in the red, dipping 7.3 per cent y-o-y in 2021 from the previous corresponding year.
Despite the reduced demand in the RM300k price group, sales performance for this category is the strongest compared to other price groups, standing at 93.4 per cent of total unit launched. As for other price categories, business operation is deemed healthy reflected by high double-digit sales performance during the year.
Percentage residential overhang by price range in 2021
Based on statistics, we believe that this performance will spillover to 2022, on the back of favourable economic environment. According to official statistics, the national unemployment rate stood at 4.3 per cent in 4Q21 – the lowest level since Covid-19 hit. A firmer labour market thus, is expected to further boost consumer confidence in this industry.
The housing price index (HPI) has been on an increasing trend, but at a narrowing rate since 2012 onwards.
On May 11, 2022, the central bank, Bank Negara Malaysia’s Monetary Policy Committee increased the rate by 25 basis points to two per cent – from its record low 1.75 per cent rate effective July 7, 2020 –in anticipation of improvement economic activity amid lingering cost pressures.
In light of a higher financing cost environment, combined with the inventory build-up and imminent inflationary pressures, operating environment would remain challenging for developers to reduce inventory and promote sales.
Bank remain conservative on property lending
The historical low of 1.75 per cent of the overnight policy rate (OPR) has supported some demand in housing sector. This is reflected by 31.2 per cent y-o-y increase in housing loan application in 2021, reaching an all-time high of RM349.6 billion.
However, the approval rate remains low at 34.9 per cent as at end-December 2021, and stable across time, reflecting those commercial banks remained conservative on property lending.
Budget 2022: Largest government aid in the history
The government has tabled several initiatives under Budget 2022 with allocation of RM332.1 billion – the largest budget in Malaysia’s history.
Under Budget 2022, there are four main initiatives to revitalise the national property sector. This includes:
i) RM1.5 billion allocation for B40 housing projects
ii) Abolishment of Real Property Gain Tax (RPGT)
iii) RM2.0 billion for Housing Credit Guarantee Scheme (HCGC)
iv) Optimal management of Malay reserve land.
Among the most discussed topic under Budget 2022 is the abolishment of RPGT, where there shall be no tax deduction from any gains of real property disposal by residents, permanent residents and other than companies on the 6th year of ownership onwards. According to iProperty, this campaign has been well received by property developers and expected to further strengthen the property market.
Another highlight from the budget is the introduction of HCGC. This scheme is aimed to assist gig workers and small traders who are without fixed income documentation. Through HCGC, these individuals are able to gain more access in mortgage loan/financing facilities.
Conclusion
For 2022, momentum on further improvement remains feasible, however challenging operating environment remains. The Malaysia residential property market is expected to gradually improve, on the back of firmer financial and job market.
We also view that demand for low-cost projects will gradually stabilised but continues to weigh the overall inventory build-up. However, the continued improvement in unemployment rate will provide support for this segment.
Notwithstanding the above, we note that any sudden reversal in the economic direction due to Covid-19-related issues will pose substantial risk on the sectoral outlook.
As a key takeaway, we encourage investors to remain selective in strategising investment opportunities under the bond property market, based on the pointers discussed. We’ve gathered a list of recommended bonds available under the Bond Express platform as below.
Declaration: For specific disclosure, at the time of publication of this report, iFAST Financial Pte Ltd(via its connected and associated entities) holds positions in the ECOWMK 5.850 per cent 24Mar2026 Corp (MYR) and LBSMK 6.800per cent Perpetual Corp (MYR).
The analyst who produced this report does not hold any position in the abovementioned securities.