Malaysia after the Home Ownership Campaign: What’s next for aspiring buyers?

The comedown from pandemic-era stimulus measures in Malaysia weighs heavily on an electorate of property seekers ready for change

Semi-detached residences, multi-storey terraced homes, and superlink houses tend to perform with sales of at least 80 percent within a short period of launching. AbamjiwaAl-hadi/Shutterstock

The rich and rakyat alike are united by a desire to bring equilibrium to the market forces that govern the real estate sector in Malaysia.

From the vulnerable B40 income group to the T20 earners, Malaysians have—over the course of a pandemic—come to understand how state intervention goes a long way toward matching property seekers with the country’s surplus of homes.

Financial easing policies fuelled a burst of exuberance in the property market in 2021. The country registered 300,947 real estate transactions worth MYR144.87 billion (USD33 billion), up 21.7 percent in value from 2020, according to the National Property Information Centre (NAPIC).

When the policies ended, prospective buyers promptly retreated into their shells.

GDP was up 3.1 percent in 2021 after it tumbled 5.6 percent in 2020. Unstable incomes or sources thereof deterred property purchases, according to 47 percent of property seekers surveyed for a recent consumer sentiment study by PropertyGuru Malaysia. The property marketplace’s Demand Index contracted by 2.4 percent quarter-on-quarter in the first three months of 2022, following a 44.05 percent quarterly drop in Q4 2021.

“Property seekers have taken a ‘wait-and-see’ approach since the pandemic as the nation continues its journey to recovery,” says Shylendra Nathan, former. country manager for Malaysia at PropertyGuru Group. “Affordability issues, inability to secure financing, job security, and overall economic stability are some of the external factors influencing homebuyers’ decisions. These factors, coupled with the lack of government initiatives to spur home buying, will continue to deter property seekers from making significant purchasing decisions.”

Further dampening purchasing confidence, Bank Negara Malaysia has hiked the overnight policy rate from 1.75 percent to 2 percent in response to rising inflation and the swiftening depreciation of the ringgit.

“With the return of demand, we expect to see a bottleneck for vital commodities such as raw materials, which may continue to push prices upwards,” predicts Nathan. “In addition, with Malaysia’s current large volume of unsold housing units, there may be a final opportunity to snap up properties before a possible hike in development costs.”

Property seekers have taken a ‘wait-and-see’ approach since the pandemic as the nation continues its journey to recovery. Affordability issues, inability to secure financing, job security, and overall economic stability are some of the external factors influencing homebuyers’ decisions

Yet, of the 180,702 homes left unsold in Q3 2021, around 75.4 percent of them cost above MYR300,000, the maximum price of affordable housing in the country, according to data from Bank Negara Malaysia. Completed homes that remained unsold for more than nine months after their launch, also known as the residential overhang, rose 24.7 percent year-on-year in 2021 to 37,000 units worth MYR22.79 billion, an increase of 20.5 percent in value, NAPIC reports.

High-rise properties made up most of the overhang at 20,505 units, with Selangor holding the highest overhang volume overall at 6,095 units, followed by Johor at 6,089 units. Of the 2,936 newly launched homes in Q1 2022, landed properties made up all sales—no high-rise units were sold.

Financial easing policies fuelled exuberance in the property market in 2021, but buyers in Malaysia have since retreated into their shells. ESBProfessional/Shutterstock

Semi-detached residences, multi-storey terraced homes, and superlink houses tend to perform with sales of at least 80 percent within a short period of launching, reports independent property advisor Prem Kumar, formerly the deputy managing director of the consultancy Jones Lang Wootton.

“On paper, condos obviously indicate better financial viability, but in terms of actual sales, the landed properties are doing very well,” he says. “People are willing to pay between one to two million ringgit for good landed houses.”

Developers have proactively managed their inventory levels in response. Those that do go ahead with vertical launches have consolidated their efforts behind smaller condominium units of 800 square feet to 1,000 sq. ft. in sellable space around the pricing region of MYR500,000.

More: Where Gen Z and millennials stand now on the property ladder

“Pre-pandemic, developers did not want to admit or accept the fact that we were having either an oversupply or overhang,” says Kumar. “The pandemic helped the market to come to the realisation that things must be done to absorb the oversupply. Developers became more conscientious about market fundamentals…It’s no longer like, ‘I can put anything on the market, and it will sell.’”

Malaysia has addressed the overhang as far back as 2011 with initiatives like the Skim Rumah Pertamaku or My First Home scheme. But nothing has riveted the public imagination like the Home Ownership Campaign.

Originally set to end in June 2020, the initiative had since been extended several times, with pandemic-weary property seekers lapping up the hefty price reductions and stamp duty exemptions on the instruments of transfer and loan agreement. Loan applications surged in November and December 2021 as buyers maximised the final two months of the campaign, Bank Negara Malaysia noted. The campaign ultimately contributed to MYR47 billion in residential sales after discounts.

Also well received last year was the six-month moratorium on loans, part of the MYR150-billion National People’s Well-Being and Economic Recovery Package (PEMULIH).

Ismail Sabri Yaakob was sworn in as Malaysia’s third prime minister in 18 months in 2021. Analysts say that investors are holding off on plays until the country achieves more political stability. zmpixes/Shutterstock

Sellers are now left to replace the bygone stimulus measures with their own set of incentives for homebuyers, balanced with a shrewd sense of optics. “Developers don’t want to be seen bringing down prices by themselves because they don’t want to erode confidence in the market,” says Kumar.

Even though pandemic relief spending widened the government’s fiscal deficit to 6.4 percent of the GDP in 2021, the government is not gunning for all-out austerity just yet. Budget 2022, in fact, surpasses its predecessor with an allocation of MYR332.1 billion, the largest in Malaysian history. The budget notably abolishes the five percent real property gains tax on properties being disposed in their sixth year.

Next year could see the passage of the Residential Tenancy Act, offering a long-awaited legal framework protecting renters and landlords. The legislation comes at a time of marked financial insecurity for property seekers, many of whom have resorted to deferring purchases for rentals. PropertyGuru Malaysia’s rental demand index rose 93.27 percent year-on-year in Q1 2022, led by a 111.23% jump in high-rise rentals.

Yet libertarian critics found one provision in the measure, requiring deposits to be parked with a government agency, to be high-handed, if not tone-deaf. In a nation still struggling with eroding public trust due to corruption scandals of recent years, the provision came across as another way for officials to meddle with laissez faire.

Chinese demand for Malaysian homes remains a shadow of itself from five years ago when mainlanders supported developments across the southern state of Johor.

“A free market is important at the end of the day,” admits Kumar. “But in some instances, it could be viewed as not so good because people just start building and building. It means that we end up in situations like offices being overbuilt and so much of spaces being vacant, including condominiums and apartments.”

Many buyers are pausing their homeownership journey until the conclusion of the 15th Malaysian general election (GE15), reports PropertyGuru Malaysia. To investors, a leader with a clear mandate would be reassuring.

“They would like to have the political legitimacy that goes along with being elected,” states William Thomas, director of The Economist Corporate Network, in a recent economic update. “The business leaders we’ve talked to in Malaysia have said, in some cases, ‘I don’t really care what the result is. I just need a result. I need some stability and that’s going to be helpful.’”

More: Setting the pace with Economist William Thomas

The majority of the electorate still view real estate as a hedge against inflation. Fifty-three percent of homeowners look to buy property in addition to one they already own over the next year, according to PropertyGuru Malaysia.

Even with movement control orders being dismantled in the endemic phase of the contagion, the residential market could take an entire year to recover from the bottom of the property cycle. Cautious optimism glints ahead, however, and a peak run is not implausible in the next three to five years.

“It’s a transition period as far as the residential market is concerned,” says Kumar. “It’s really a bottoming out of the market. The way I see it, most things are pointing towards gaining greater momentum moving forward.”

The original version of this article appeared in Issue No. 173 of PropertyGuru Property Report Magazine. Write to our editors at [email protected].