There are mainly two factors affecting price change: demand and supply. Prices will rise if demand is relatively higher than supply. What about other factors that affect the price change in a property market? Let’s take a look at all these factors one by one in hopes of finding some insights into the outlook on Malaysia property price in year 2016.
Primary Factors: The Fundamentals
The recent trend in household formation is favorable. Such claims are premised on the rising number of registered marriages. The net figure stands at 176,526 in 2012 versus 128,937 in 2001 (see chart 1). That is an annual average growth of 3.1%. With this in mind, the demand for residential property especially for owner occupied is likely to remain visible. This is also reflected in the first-half 2014 Property Industry Survey by the Real Estate and Housing Developers’ Association Malaysia (REHDA), which found that local buyers are still leading the current property market, making up 80% of the total purchasers, and of that, 85% are buying for self-dwelling.
On the other hand, the increasing real income growth projected by Bank Islam (see chart 2) is also supporting the desire and readiness of home buyers to own a home. Residential properties price between RM200,001 and RM500,000 continued to lead the market, especially in Selangor, Johor and Perak (see charts 3 and 4).
In long term, the demand for residential property in Malaysia looks solid with an annual population growth rate of around 1.6% (by world bank 2013), which is one of the highest in the region of South East Asia.
Chart 1: The Number of marriages net off the number of divorces
Chart 2: Real income growth (* E= estimated)
Chart 3: Budget to purchase
Chart 4: Property sales composition by states in 2014
While the numbers of units launched and sold in the market may indirectly reflect the current picture of demand and supply in the market, the actual current and future supplies dictate the forthcoming direction of the market, given a relatively steady domestic demand. According to National Property Information Centre (JPPH), total supply of residential properties is still increasing at a rate of 3.3% quarterly in the second quarter of 2015 (see chart 5). Future supply is slowing down at a quarterly growth of 0.8% (see chart 6). Overall supply for the next 2 to 3 years is still on the uptrend, although there is sign of slowing down in new planned supplies.
Chart 5: Current supply of residential units
Chart 6: Future supply of residential units
As part of the continuous Malaysian Plans over the years, supply of residential property is deliberately allowed to surpass the demand in order to increase home ownership rate, which currently still barely meet 50%. Strong demand for residential properties is in the less than RM500,000 category but high cost of construction and land have prompted developers to focus on the higher end of the market. This supply-demand mismatch in the property market in Malaysia results in a constant surplus of property stock in the market.
According to REHDA, unsold units of residential property increased by 64% in the second half of 2014 from 57% in the first half of the same year. Recent survey by the institute found that the number of unsold units increased to 78 percent in the first half of 2015. The unsold units are mainly located in the states of Johor, Selangor, Penang and Kedah, and mostly within the RM500,001 to RM1 million price range.
This uptrend of unsold units is not a very good sign as the stock growth inched up while the sales growth slowed down. This marked an oversupply condition in 2014 (see chart 7). Data from JPPH also showed that the oversupply condition is worsening in 2015. Quarterly growth rate of unsold units increased by 3.8% in the second quarter from 2.5% in the first quarter of 2015 (see chart 8).
Chart 7: Newly launched residential property sales growth vs. completed residential property stock growth
Chart 8: Unsold residential units
About the authors:
This article is contributed by KCLau and Dr. Ong Kian Leong, both the co-founders of the first ever online property investment course for Malaysians, called Property Method (www.PropertyMethod.com).
KCLau is a financial educator who had published 6 books and co-created more than a dozen online financial courses. His popular personal finance blog is one of the most visited websites in the financial blogosphere. He also hosts regular and free financial training online featuring various financial experts. You can get free training by visiting www.KCLau.com.
Dr. Ong Kian Leong (commonly addressed as Dr. OngKL), is the creator of GoFinanceTM, a tool that allows investors to accurately evaluate if an investment is worth investing as well as worth financing for maximum return. Claimed by himself as a student in the life-long learning journey, he is also the master trainer of Property Method and the blogger behind www.REIJB.com (Real Estate Investment Blog).