Malaysia's Property Market - Review

The Malaysian real estate market has been driven by local demand ever since, as only 2 % of all sold real estate units go to foreigners at all. Compare this with about 30 % in Singapore, where regulation only allows investment in private condominiums and a 10 % stamp duty comes on top. (The Star 3 March 2012: Malaysia real - estate shopping destination) Domestic demand is usually seen as a good sign, since it decreases dependencies on international money, especially when investors suddenly try to pull-out. In this context, it might not surprise that the last quarter of 2011 saw a jump of 3.6 times in real estate investment transactions, but certainly the listing of a major REIT contributed most of it, some RM 3.54 bil or USD 1.12 bil. 

Property Stock in selected States of Malaysia 2007-2011

While in Kuala Lumpur the incoming supply of new units is just about 38,000 for last year, with existing stocks of about 410,000 units, you can see in the tabble above that states such as Selangor have 136,000 units coming in on a stock of more than 1 mio. units. (Malaysia Property Inc Jan 2012: property quotient) This small comparison shows already the main problem. 

Selangor and Greater Kuala Lumpur

Kuala Lumpur with a limited space of 243 sq km, but 1,6 mio. citizens has little land to develop. However, the demand is rising to live in this buzzing city with its jobs and high living standard. Obviously, we can understand certain price hikes out of this situation. Nevertheless, Selangor is profiting, too. As the direct neighbour of Kuala Lumpur, Selangor has already more than 5 mio citizens. Morever, there is also a vast area of 8,100 sq km to be developed. Cities such as Petaling Jaya, which are in close proximity to Kuala Lumpur have seen a steady rise of real estate prices. For the convenience of staying close to the capital, but paying less, more and more people were pouring into Selangor. This also explains the rise in incoming supplies for Selangor, where many new residential and commercial projects are in the pipeline. Similar developments can be found in regions such as Penang or Johor. While Penang State has a densely populated island with enormous real estate prices, it also offers cheaper commercial and residential land on the mainland. Finally Johor as a real estate hotspot profits from its neighbourhood again. 

Iskandar in Johor and close to Singapore

With a direct connection to Singapore, the relatively cheap real estate in Malaysia attracts the attention of Singaporeans. They become cross-border commuters, but leave quite some Sing Dollars on Malaysian soil.We shall not complain about this situation, since massive development projects all over the country, such as Iskandar, are profiting from rich neighbourhood and foreign investments. Moreover, the Malaysian government tries to attract more foreigners to boost growth within these projects. Nevertheless, we were talking about a bubble and I started wondering, if the rich neighbourhood might calm down the effect of oversupply and therefore prices still go up.

MY Property Overhang 2011 (compl.)

If you look at the statistic in the diagram, we have quite some overhang in many different sectors. Certainly, the residential sector is by far the worst issue. There we can find an incredible overhang valued some RM 4.9 bill. by the end of 2011. Interestingly, one of the main points in the statistics worth mentioning would be the fact that the amount of units went down, while the value of the overhang went up. I have to admit that this development could have many explanations, including units being revalued, but it could also be a part of the swing to luxury projects. In addition, we would need to look at the units under construction and planned, as above only completed projects are represented. While sales is slightly going up, we still need to acknowledge that counting in the completed, constructed and planned projects some 100,000 units are not sold yet, worth several billion MYR. (NAPIC Dec. 2011: Property Market Status Report Q4 2011) What shall we make out of this?

On the one hand, I outlined before that we have seen price hikes, which seems to be surprising in regard to the high-value oversupply. On the other hand, sales is improving and foreigners slowly stream into Malaysia, who are willing to pay premium prices. So are the rich kids spoiling property prices? Let us take a look at this matter. In that context, I will also provide information on the general market prices and what is currently happening....stay tuned for my next post.