Market analysis in Malaysia 2014

House prices in Malaysia continue to surge, despite anti-speculation

measures.
In Q3 2013, Malaysias national house price index rose by 10.1% (7.8%
in real terms) year-on-year. This years price rise, nationally, was only
slightly lower than last years, which was 11.9% (10.4% in real terms).
Kuala Lumpurs house price index rose especially dramatically, with
nominal prices up by 14.4% (11.9% in real terms). Kuala Lumpur has the
most expensive houses in the country, with an average house price of
MYR 620,758 (US$ 189,342). It is followed by Sabah and by Selangor,
with average prices of MYR 413,187 (US$ 126,030) and MYR 405,826
(US$ 123,784), according to theValuation and Property Services
Department (JPPH).
House prices also surged in Johor (20.4%), Pulau Pinang (14.3%), and
Negeri Sembilan (6.3%). Selangor and Perak had the lowest annual price
growth at 4.3% and 3.7%, respectively.
Recent anti-speculation measures are expected to lessen transactions
volumes. But property prices in upcoming areas/hotspots are expected to
continue rising, according to Knight Frank. Partly because the market
overhang has diminished - the number of housing units launched in Q3
2013 fell to 3,736 units, 74.5% lower than the 14,662 units launched
during the same period last year. The number of houses sold, relative to
stock, was 18.7% in Q3 2013, up from 15.3% in Q2 2013, and 12.5%
from the previous year.

House prices still below Asian crisis levels

Amazingly, house prices in Malaysia are still below pre-Asian Crisis
1997 levels. They rose rapidly in the early 1990s in 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).
After the Asian Crisis, prices of luxury detached Kuala Lumpur houses
then slumped 39% between 1997 and 1999. However, Kuala Lumpurs
house prices since then have significantly outperformed the rest of the
country, especially after the economic downturn of 2008-2009, when the
property market was revitalized with the help of the Greater Kuala
Lumpur Plan, targeting developing key locations, including the latest
The MRT Project.
The 2013 prices rises, with Kuala Lumpurs house price index rising by
14.4% (nominal), shows that Kuala Lumpur retains its status as a market
leader. Kuala Lumpurs housing market is now red-hot, with strong price
rises.

In 2012 Kuala Lumpur house prices rose 11.1% (9.3% in real terms)
2011: up 12.2% (8.7% in real terms)
2010: up 12.2% (10.3% in real terms)
2009: 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)
In contrast national price rises have been more muted. Before this years
10.7% national price rise (7.78% nominal) the following price rises were
seen:

In 2012 the national Malaysian house price index rose 11.8% (9.9% in
real terms).
2011: up 9.9% (6.5% in real terms)
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).


By property type, nationally, during the year to Q3 2013:
The average price of terraced houses rose by 7.8% y-o-y to MYR
238,337 (US$ 72,697).
The average price of detached houses increased 15.1% y-o-y to MYR
458,858 (US$ 139,960).
The average price of semi-detached houses rose by 14.7% to MYR
421,622 (US$ 128,602).
The high-rise price index soared 13.7%, to an average price of MYR
248,567 (US$75,817).
Low interest rates are encouraging mortgage borrowing
The average lending rate fell to 4.56% in December 2013, significantly
below historic rates. The Overnight Policy Rate (OPR) is at 3%. This is
despite the base lending rate (BLR) being raised in December 2011 to
6.53%, where it remains.


These low interest rates explain why, despite many curbs, mortgage
lending is still surging in Malaysia. In July 2013, Bank Negara Malaysia
(BNM) introduced new policies to reinforce responsible lending practices.
The new maximum home loan period was reduced to 35 years, from
the previous period of 45 years.
The maximum personal loan period was shortened to 10 years from
35 years.
Pre-approved financing products are no longer possible.


Aside from these three new policies, the BNM introduced stricter lending
guidelines on January 1, 2012, requiring mortgage eligibility assessments
to be based on net income, considering:
Statutory deductions for tax;
Employees Provident Fund (EPF) contributions, and;
All other debt obligations.


Yet despite all this, outstanding housing loans in Malaysia increased by
10.7% in 2013 to MYR 271.2 billion (US$ 82.7 billion), about 27.3% of
GDP.

To make home-buying possible for people on low and medium incomes
and young people, in July 2011 the Malaysia Peoples Housing (PR1MA)
Bill 2011 was launched. Developers are as a result 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.
Tighter anti-speculation measures
Some other anti-speculation measures introduced by the government:
Fly-by-night developers targeted. Housing license project deposits of 3%
of total estimated project cost were recently introduced. A MYR 500,000
fine, plus maximum of three-year jail term for developers who abandon
projects, have been proposed by the Housing and Local Government
Ministry.
Capital gains tax rises. On January 1, 2014, the Real Property Gains
Tax (RPGT) rose from 15% to 30% on properties sold within three years
from purchase.
Taxes on gains on properties sold after four to five years rose to 20% and
15%, respectively. No RPGT will be imposed on citizens for properties
sold after six or more years, while companies will be taxed at 5%.
For non-citizens, RPGT on properties sold within a holding period of up
to five years is 30%, while RPGT on properties sold within six years or
more from purchase is 5%.
The end of the Developers Interest Bearing Scheme (DIBS). The
government has forbidden banks from offering financing via the DIBS,
introduced in 2009 to boost condominium sales, where the developer paid
the interest on buyers loans during construction of a project. DIBS-
financed projects have tended to be significantly more expensive than
others, as their prices include financing costs and reflect future property
values. According to some, the schemes distorted the market, and in any
case, they certainly added to buyers liquidity.
Bulk sales. The Malaysian government will soon require property
developers to obtain permission before making bulk sales of more than
four units. The move is aimed at curbing rising property speculation, and
to give ordinary individuals an equal opportunity to buy houses.
The introduction of the new cooling measures is expected to tone down
transactions in the property market. This also extends to the leasing
market, especially in the prime locations, which, according to Knight
Frank, is also expected to continue facing challenges as an estimated
6,277 units are scheduled for completion by end-2014.
Tougher restrictions on foreign buyers
The Malaysian government has partly retreated from its December 2006
liberalization of foreign property purchases. In January 2010, the price
floor below which foreign buyers cannot buy was hiked to MYR 500,000,
twice the previous level. From January 2014 it was hiked again to MYR
1 million (US$ 302,892). Foreign purchases above the threshold are
placed under the purview of the State Authorities under the regulations,
with approval expected to take one to two months.
According to Knight Frank Malaysia, the increase in floor price is not
likely to slow the increasing demand for Malaysian property.
Aside from this pricing threshold, there are no other restrictions that
hinder non-resident foreign buyers in Malaysia. Malaysia along with
Hong Kong and Singapore is one of the Asia-Pacific countries that
imposes minimal restrictions on foreign property buyers (see Knight
Franks July 2013 Asia-Pacific Residential Review).
There has been an upward trend in Malaysia My Second Home (MM2H)
applications in recent years. The number of application approvals
increased to 3,227 in 2012, from 2,387 in 2011, 1,499 in 2010. From
2002 to 2012, the Malaysia My Second Home (MM2H) programme
attracted 19,488 foreign buyers.
As of November 2013, around 22,320 foreigners were given long-stay
approvals under the MM2H program. Most foreign buyers (out of the 122
countries) came from China (4,187 participants), Japan (2,880),
Bangladesh (2,603), United Kingdom (2,016) and Iran (1,266).
Housing over-supply?
Although there is a high demand for high-end condominiums, it is also
clear that supply continues to increase. It is not really clear if there is
oversupply, and the lag in the release of statistics doesnt make things
more transparent.


By end-2012, around 63,008 properties were unsold, a 15.5% rise from
the previous year. However, this was still way below the peak of 83,811
unsold units recorded in 2004 - a year which was not followed by house
price falls. In 2012 the condominium market saw a large number of
construction starts, especially in Ipoh, Johor Bahru, Kota Bharu, Kota
Kinabalu, Kuala Terengganu, Melaka, Penang, and Seberang Perai,
according to C.H. Williams Talhar & Wong. Overall housing approvals
in 2012 rose by 47.4% to 235,249 units. The value of residential
construction work rose 24.9% on the year in Q4 2012, to RM5.76 billion
(US$1.9 billion).
In Q3 2013 the pressure seemed to be easing, and the number of launches
drastically dropped by 74.5% to 3,736 new housing units, from 14,662
units in Q3 2012. As of Q3 2013, housing approvals declined by 22.5%
y-o-y to 140,891 units, according to the Ministry of Housing and Local
Government.
Moderate yields, small rental market
Kuala Lumpurs rental yields are moderate. Condominiums enjoy higher
gross rental yields, ranging from 4.67% for 300 sq. m. condominiums to
around 5.44% for 65 sq. m. condominiums. Bungalows have lower yields
as compared to condominiums, ranging from 3.78% to 5.04%, according
to the Global Property Guide research in December 2012.
During the second half of 2013, rents of existing high-end condominiums
in Kuala Lumpur City have remained stable, ranging from MYR 3.00
(US$ 0.92) to MYR 5.50 (US$ 1.68) per square foot (psf) per month,
according to Knight Frankslatest report.
Next to KL City, Bangsars high-end condominiums have rents ranging
from MYR 2.50 (US$ 0.76) to MYR 4.50 (US$ 1.37), followed by
Damansara Heights with rents between MYR 2.50 (US$ 0.76) and MYR
4.00 (US$ 1.22).
The governments 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.
Malaysia has a small rental market. Only 6% of the housing stock is in the
private rental sector. About 85% of total stock is owner-occupied, while
government-provided housing accounts for 7% of the stock.


Better economic outlook in 2014

The Malaysian economy slowed in 2013, expanding by 4.7%, after
experiencing a 5.6% growth in 2012. according to the Department of
Statistics Malaysia.
From 2002 to 2008, the economy enjoyed growth rates averaging 5.7%,
but growth fell sharply to 1.5% in 2009, during the global financial crisis.
In 2010, GDP growth bounced back, surging by 7.4%, and was followed
by 5.1% growth in 2011.
The IMFs forecast of 4.9% GDP growth in 2014, but the Malaysian
Institute of Economic Research (MIER) predicts growth of 5.5%,
while Bank Negara Malaysia(BNM) expects 5.1% GDP growth.
In recent months, inflation has been rising. From 1.34% in January 2013,
inflation rose to 3.4% in January 2014. The recent price hikes were partly
due to the fuel subsidy cuts implemented by the government in 2013,
which raised prices of some petroleum products and eventually lead to an
increase in consumer goods. BNM expects higher inflation in 2014,
possibly exceeding the 3.2% long-term average.
The Overnight Policy Rate (OPR) has remained at 3% throughout 2013.
However, it is likely to increase to 3.25% in Q4 2014, according to
Edward Lee, Standard Chartered Bank Southeast Asias regional head of
research.Unemployment was 3% in December 2013, down from 3.2% in
December 2012, and from 3.4% in the previous month, according to
Department of Statistics Malaysia.