Malaysian house prices continue to rise, albeit at a slower pace

 

Malaysia house pricesThe Malaysian housing market remains strong, though house price rises are now slowing sharply, mainly due to stricter lending guidelines.

The national house price index rose 7.29% during the year to end-Q3 2012 (5.86% inflation-adjusted), the lowest year-on-year increase since Q2 2010, according to the Valuation and Property Services Department (JPPH). On a quarterly basis, house prices actually fell by 1.8% in Q3 2012 (-2.11% inflation-adjusted), the first quarterly drop since Q4 2008.

Kuala Lumpur has the country’s most expensive housing, with average house prices of RM497,535 (US$164,241), followed by Sabah and Selangor, with average prices of RM382,414 (US$126,239) and RM372,499 (US$122,966), respectively.

By property type, nationally:

  • The average price of terraced houses rose by 7.8% y-o-y to RM211,957 (US$69,969) in Q3 2012
  • The high-rise price index soared 9.6% during the year to Q3 2012, to an average price of RM206,973 (US$68,324)
  • The average price of detached houses increased 4.8% y-o-y to RM375,202 (US$123,858) in Q3 2012
  • The average price of semi-detached houses rose by 5.7% to RM359,849 (US$118,790) over the same period

Selangor saw 13.4% house price increases over the same period (10.8% inflation-adjusted), followed by Sabah (9.8%), Terengganu (8%), Pulau Pinang (7.9%), Negeri Sembilan (7.2%) and Sarawak (7.1%). Kuala Lumpur’s house price index rose 2.4% y-o-y to Q3 2012 (0.1% inflation-adjusted). Pahang and Perak had the lowest y-o-y price growth, at 1.4% and 1.9%, respectively.

Residential construction is buoyant

Housing approvals rose 47.4% in 2012 to 235,249 units, according to the Ministry of Housing and Local Government.  The value of residential construction work rose 24.9% on the year in Q4, to RM5.76 billion (US$1.9 billion).

From 2002 to 2012, the “Malaysia My Second Home” (MM2H) programme attracted 19,488 foreign buyers, mostly from China, Bangladesh, Britain, and Iran. 1,659 properties worth RM1.5 billion (US$495 million) were purchased under the programme from 2007 to 2012.

While the Overnight Policy Rate (OPR) has stayed at 3%, in January last year the BNM implemented restrictive lending guidelines. Housing loan eligibility must now be based on net income, not gross.  The BNM has also lowered the loan-to-value (LTV) mortgage cap on third house financing from 90% to 70%. The Real Property Gains Tax (RPGT) was also re-activated by the government.

Housing slowdown ahead

The Malaysian property market is expected to see slower growth in 2013. The upcoming general elections, expected in April 2013, are adding to the uncertainty.

“Residential properties will still do well in terms of numbers.  For certain areas, prices will increase. But overall for this year, there will be an adjustment in terms of prices, which are expected to moderate,” said Faizan Abd Rahman of Valuation and Property Services Department at the Ministry of Finance.

This was supported by Tang Chee Meng of Henry Butcher Malaysia, who said that residential property prices in Malaysia will continue to rise in the coming months, but at a slower rate—possibly in single digits.

Malaysia’s economy expanded by 5.6% in 2012, following 5.1% growth in 2011 and 7.2% in 2010. This year’s GDP growth is projected at more than 5%, partly driven by the ongoing implementation of projects under the Economic Transformation Programme (ETP).

Malaysian house price growth

House price rises in Malaysia have rarely outpaced inflation , but Kuala Lumpur home prices have outpaced those elsewhere:

In 2011 the national Malaysian house price index rose 9.9% (6.5% when adjusted for inflation).

2010: up 6.7% (4.9% in real terms)
2009: up 1.5% (0.9% in real terms)
2008: up 4.7% (a fall of 0.7% in real terms)
2007: up 5.3% (3.2% in real terms)
2006: up 1.9% (a fall of 1.7% in real terms)
2005: up 2.4% (a fall of 0.6% in real terms).

In 2011 Kuala Lumpur house prices rose 12.2% (8.7% in real terms)

2010: up 12.2% (10.3% in real terms)
2008: up 2.5% (-3.1% in real terms)
2008: up 4.5% (-0.7% in real terms)
2007: up 7.9% (5.8% in real terms)
2006: up 5.3% (1.6% in real terms)
2005: up 6.5% (3.4% in real terms)
2004: up 6.5% (5% in real terms).

House prices are still below pre-Asian Crisis levels. They rose rapidly in the early 1990s with two particularly dramatic surges – in 1991 house prices rose 25.5% (20.3% in real terms), and in 1995 they rose 18.4% (14.4% in real terms).

Malaysia house prices

After the Asian Crisis, prices of luxury detached Kuala Lumpur houses fell 39% between 1997 and 1999.

After the economic downturn of 2008-2009, the property market was revitalized with the help of the Greater Kuala Lumpur Plan, targeting developing key locations, including the latest “The MRT Project”.

Stricter mortgage guidelines

Since January 1, 2012, BNM has implemented stricter lending guidelines. Mortgage eligibility assessment will be based on net income, considering:

  • Statutory deductions for tax;
  • Employees Provident Fund (EPF) contributions, and;
  • All other debt obligations.

Malaysia housing loans

The new guidelines have already impacted lending, with lower residential loan approvals in February 2012. The approval rate was below 50%, compared to over 62% in mid-2008, according to CB Richard Ellis (CBRE-Malaysia).

Outstanding housing loans reached MYR 222.2 billion (US$69.9 billion) in 2011, around 26.1% of GDP, up 11.8% from a year earlier.

Malaysia lending rates

A low and steady base lending rate (BLR) has encouraged loan growth. From May 2006 to October 2008, Bank Negara Malaysia (BNM) pegged its lending rate at 6.72% but adjusted it downward to its present 5.51% in August 2009.

As the Malaysian economy strengthened, the BLR rose from 5.76% in March 2010, to 6.53% in March 2012. The OPR was raised by 25 basis points to 3% in May 2011, and remains today.

Average lending rates fell from 4.94% in May 2011 to 4.74% in March 2012.

New anti-speculation laws

In July 2011, the Malaysia People’s Housing (PR1MA) Bill 2011, was launched to assist low and medium income and the youth buying their first homes. Developers are currently teaming up with the PR1MA scheme, switching from high-end developments to mid-range ones to lure first time buyers with easier financing and reduced stamp duty for houses below MYR 400,000. Borrowers with monthly income up to MYR 7,000 per month qualify for the scheme.

Some anti-speculation measures:

Increasing housing license project deposits of 3% of total estimated project cost have been introduced, and a MYR 500,000 fine, plus maximum of three-year jail term for developers who abandon their projects have been proposed by the Housing and Local Government Ministry.

The government has reactivated the Real Property Gains Tax (RPGT), taxing gains on real property disposals at 5%, if sold between the first and the fifth year. In the Budget 2011, the RGPT was raised to 10% from 5% for the first two years to help curb speculation. The tax regime of 5% will be imposed on the third to fifth year. No tax will be imposed on property sold after the fifth year.

Foreign buyer restrictions back!

The Malaysian government has partly retreated from its December 2006 liberalization of foreign property purchases. Effective January 2010, the price floor below which foreign buyers can buy is hiked to MYR 500,000 (US$145,383), twice the previous level.

Foreign purchases above MYR 500,000 (US$145,383) are placed under the “purview of the State Authorities” under the new regulations, with approval expected to take one to two months.

The REHDA opposed the new restrictions, arguing that “the restriction might impact residential property acquisition by foreigners in the country, as the number of properties priced above MYR 500,000, especially outside the Klang Valley areas, are limited.

“The ruling may be applicable to properties in Kuala Lumpur areas, but we should also consider other states with lesser price ranges,” said Datuk Ng, president of REHDA in a statement.

“This is definitely not the right time to restrict the property value to be purchased by foreigners.”

Housing over-supply?

Malaysia has an active condominium market, especially in Kuala Lumpur, Johor Bahru, Kota Kinabalu, Kuching and Penang. Condominium price rises are expected to moderate in 2012, but continue trending up, according to C.H. Williams Talhar & Wong,

Malaysia housing approvals

The over-supply of high-end condominiums remains a concern, despite high demand. CBRE projects that around 2,300 units of high-end condominiums will be completed in 2012, half located in the Kuala Lumpur City Centre (KLCC).

Meanwhile, the supply of terraced houses, semi-detached, cluster houses, and bungalows remained strong in 2011, with around 66 projects with 5,400 units launched, according to C.H. Williams Talhar & Wong.

In total, around 54,557 properties were unsold at end-2011, down 2.3% on the previous year, and down 34.9% from the 2004 peak of 83,811 units. There was a 62.3% decline in house launches during the year to Q4 2011.

Yields have been falling

Rental yields in KL have moderated, and ranged from 4.75% to 6.27% in October 2011. They have slightly fallen from the 5.5% to 8.7% range recorded in October 2009, according to the Global Property Research. Bungalows have relatively lower yields, ranging from 2.6% to 3.32%.

Kuala Lumpur’s average rent on high-end residential areas was down by 1.4% y-o-y and 1.0% q-o-q to RM 3.40psf (US$ 1.07) per month in Q1 2012.

KLCC had the highest rents at an average of RM 3.91psf (US$ 1.23) per month, followed by Bangsar (RM 3.26psf per month) and Mont’Kiara (RM 3.03psf per month), according to CB Richard Ellis (CBRE-Malaysia).

The government’s Economic Transformation Programme (ETP) has helped to increase the demand for luxury condominiums in Klang Valley, which caters mainly to foreigners, according to C.H. Williams Talhar & Wong.

However, incoming supplies of high-end condominiums, with half of new completions located in the KLCC area, are is likely to further downward pressure rents, even through the newer launches may be priced higher than the existing ones.

Malaysia’s rental market is small. Only 6% of the housing stock is in the private rental sector. About 85% of the total stock is owner-occupied, while government-provided housing accounts for 7% of the stock.

The Malaysian economy remains buoyant

Malaysia gdp inflation

Malaysia’s economy expanded by 5.6% in 2012, after GDP growth of 5.1% in 2011 and 7.2% in 2010, according to Bank Negara Malaysia.

The economy is expected to remain bullish this year, with GDP growth projected at more than 5%, partly driven by the ongoing implementation of projects under the Economic Transformation Programme (ETP), based on government forecast.

In December 2012, consumer prices increased 1.2% from a year earlier, the slowest pace in almost three years. In 2013, the annual inflation rate is expected between 2% and 2.5%, mainly due to the implementation of minimum wage policy, bonus payments to civil servants and cash handouts ahead of elections.  A new minimum wage was introduced giving private sector workers in peninsular Malaysia a monthly minimum salary of MYR 900 (US$ 297), while workers in the Sarawak and Sabah will receive MYR 800 (US$ 252).

Bank Negara Malaysia has kept its overnight policy rate (OPR) unchanged at 3% for ten consecutive meetings.

The nationwide unemployment rate rose to 3.3% in December 2012 from 2.9% in the previous month, according to Department of Statistics Malaysia.