2019 Household Income Survey: What it tells us about Malaysia’s property oversupply

The newly released HIS report by the Department of Statistics Malaysia sheds some light upon the overhang and oversupply issue that is currently plaguing the local property market.

This article was first published as "2019 Household Income Survey: What it tells us about Malaysia’s property oversupply" on iProperty.com.my

Overhang and oversupply are two very different terms. Simply speaking, overhang (or unsold units) is a cyclical problem due mainly to the unmet housing demand in association with the varying economic performance, housing preferences, market sentiment, credit accessibility and so on.

Property oversupply, on the other hand, is a structural problem where the number of houses is in excess of the number of households, as a result of a failure in complying with the housing planning policy, guidelines, and other determinations as contained in the development plans.

Embed from Getty Images

What is the history of property overhang in Malaysia?

The definition of overhang has been changing over the years. Let’s look at a summary of the various definitions used over time:

1999: The total number of housing units remained unsold after it was launched for sale (irrespective of whether the unit is completed, under construction, or not constructed yet)
2000-2002: The total number of unsold units for more than 9 months after it was launched for sale (including completed units, under construction and not built)
2003 onwards: The total number of completed housing units with Certificate of Completion and Compliance (CCC) and remained unsold for more than 9 months after it was launched for sale.

Past experience suggested that the severity of overhang varies with the country’s housing policy and economic performance. One can see that overhang always remains there, and to a large extent, its impact to the housing industry relies on the local market condition, which is mainly driven by the favourable lending policy, market optimism from the buyers upon future capital appreciation from property investment, as well as the drumming-up market sentiment from the developers.

While people are unlikely to commit to big and long-term spending right now due to the uncertainties posed by COVID-19, one must recognise that once the vaccine is found or natural immunity is built up, the take-up rate of property will be sure to revive, leading to the reduction of overhang and unsold units in the market.

What must the government do to tackle the property oversupply issue?

This problem points towards the issue of lack of coordination in planning, and the inability to tackle the effective demand in the market using existing data. It cannot be solved simply by freezing new developments, as such an attempt will tend to exacerbate the problem – when supply reduces, the demand will increase, leading to the shortage of houses that pushes up the house prices.

The solution that has to be developed, at this moment, is to increase the housing supply responsiveness through the establishment of an integrated housing database that consolidates data from multiple agencies at federal, state, and local levels. The current property industry is still relying on data that is biased, historical, and oriented towards approvals. The information obtained from the existing data tends to be on “what has been approved” instead of “what is being built”. Besides, such data is not supported by up-to-date statistics such as demographic and households’ expenditure, thereby hindering its usefulness in reflecting the effective demand of the current market.

A better quality information flow on property can help industry players to gauge market trends, especially in a specific local area. By having these data accessible to all the industry players, a better understanding on how new launches perform in matching the local affordability level is achieved; and hence, an adequate supply and diversity of housing opportunities can be made available in the country.