Malaysian real estate market shrinks in 4th quarter

Taken from a great Malaysian Blog i.e. Malaysia-Finance Blogspot as commented by Chong Jin Hun on 22 April 2009 that is worth reading...

The latest findings by Malaysia’s Valuation and Property Services Department (JPPH) did not come as a surprise, considering that the man in the street has been fed scores of less-than-optimistic updates on the nation’s real estate fraternity in recent months.

These days, it is not unusual to read or hear about local developers embarking on marketing initiatives to sustain sales.

This comes against a backdrop of rising unemployment and tighter financing policies which have hurt consumers’ purchasing ability. Waning demand aside, the massive supply of properties from aggressive launches in previous years has also aggravated the ongoing downcycle in the local property sector.

In a nutshell, while JPPH’s latest property market report for 2008 was preceded by a slew of other industry updates, findings by the real estate arm of the Finance Ministry has to a certain extent added clarity on the nation’s real estate sector dynamics against the broader landscape.

The key message, as JPPH director-general of valuation Datuk Abdullah Thalith Md Thani puts it, is that the real estate industry is facing a rough patch in 2009. 

Following three quarters of consecutive growth in 2008, the home property market registered a decline of 17.8% and 20% in transaction volume and value in the fourth quarter compared to the previous quarter.

“On the whole, the property market looks set on the path of moderation in 2009 with prices and rentals correcting, and construction activities easing slightly. 

“However, it is unlikely that prices and rentals will plunge in the coming year,” Abdullah Thalith told reporters here on April 21 at the launch of the department’s latest property market report by Deputy Finance Minister II Datuk Chor Chee Heung.

Abdullah Thalith said construction activities would continue, although at a slower pace, as builders capitalised on cheaper construction materials and ample supply of labour. However, demand for real estate may decrease as potential buyers adopt a wait-and-see attitude. 

“We must look at all the indicators. Perhaps, it is industrial (properties),” said Abdullah Thalith, when asked which real estate sub-sectors would be vulnerable in the ongoing downturn.

According to JPPH’s latest property market report, the country’s real estate transactions in 2008 registered an annual increase of 9.9% to 340,240 deals from 309,455 in the previous year. Transaction value rose 14.5% to RM88.34 billion from RM77.14 billion.

The growth in transaction volume was led by agriculture land and commercial properties, while the rise in transaction value was spurred by development land and agriculture real estate.

Residential properties made up the bulk or 63.7% of total volume and 46.8% of transaction value. All states registered an increase in volume except for Putrajaya, Kelantan and Melaka. 

The decline in the primary market is worth noting. According to JPPH, the number of newly launched houses fell 7.3% to 48,830 units in 2008 from 52,664 in 2007 while residential property overhang rose 9.1% to 26,029 from 23,866 units.

Analysts have raised the red flag on the Malaysian real estate sector. 

OSK Research Sdn Bhd analyst Mervin Chow said the local sector, already embroiled in a supply cycle which could last beyond 2009, would not be able to effectively absorb the incoming supply of properties at existing valuations.

“This will exert immense downward pressure on rental rates and real estate prices. The correction in the sector is likely to bottom only in 2010, if not later, until market prices find a new equilibrium at the lower levels,” Chow wrote in a report last month.