Malaysia Property: A tale of two worlds

• Resilient demand for residential properties despite interest rate normalisation
• Oversupply of high-rise properties remain key concern
• Improving overall supply-demand dynamics point to sustained sector recovery on a gradual basis

Stable property market

Overall property market remains resilient in 1Q23 as residential property loans grew healthily by 6.8% (vs 6.9% in 4Q22). Nevertheless, 1Q23 property prices grew at a moderated pace of 2%, marking two consecutive quarters of slower growth. The relatively measured growth has been largely expected, reflecting similar trend in Malaysia’s economic growth. We believe that sustained strength in the labour market condition will continue to underpin a steadily recovering property market.

Improving residential overhang

Residential overhang has improved considerably over the past one year (-24% y-o-y, -3% q-o-q) to reach 26,872 units in 1Q23 which is the lowest in five years. More importantly, overhang for landed residential properties has dropped to 2016 levels, signifying the successful monetisation of unsold inventories over the past few years. This has clearly paved the way for better growth prospects for landed properties-centric developers going forward.

Headwinds for high-rise properties

Inclusive of SOHO and serviced apartments, high-rise overhang has hit a record high in 1Q23, accounting for a worrying 82% of the total overhang with the bulk mainly concentrated in the Klang Valley and Johor. As affordability remains a perennial issue amid a high living cost environment, future launches in cities would see larger volume of small high-rise units in a single project which could contribute to more unsold inventory. Therefore, developers have to be more cautious with the take-up of their high-rise projects.

Banking on resilient domestic demand

While the recent rise of benchmark interest rate to pre-pandemic level of 3% may affect buying interest, we are hopeful the robust employment market with record high labour participation will remain supportive of the property market. We are confident that landed properties remain the bright spot in Malaysia’s property market due to a balanced supply-demand dynamics. We believe township developers such as Eco World, Sime Darby Property and IOI Properties could be the largest beneficiaries of the sustained recovery for landed properties.
 

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