Higher property prices decreasing M'sian's ability to afford homes - analyst

The rapid increase of property prices in the country suggests that the number of Malaysians able to afford homes may have decreased, as the household median income rate has not doubled over the past years, said MyProperty Data Sdn Bhd.

It said its analysis revealed that houses priced RM300,000 and below recorded in 2000 comprised 86.14 percent or 35,226 transactions out of a total of 40,896.

In 2009, the figure was 65.31 percent (42,985 out of 65,816 transactions), and in 2019 it was only 32.37 percent (11,173 out of 34,518 transactions), with the median age of buyers between 32 to 35.

MyProperty Data chief executive officer Thor Joe Hock said this showed that, fundamentally, Malaysia is facing issues with affordability, and not the number of affordable homes, as inflation seems to have accelerated since the market peak of 2011.

"As a data provider analyst, where we use big data technology studying over 5,000 development launches past and present, we found that property developers were just merely reacting to the situation, and dropping prices straight away may not be the best answer today because if we correct the prices across the board, we will probably see a further contraction in our economy due to the correlation.

"To elaborate, when people's homes go up in value, they can start to unlock equity from their home, because as price value increases, they can go back to the bank and refinance, and are possibly able to purchase something else, perhaps renovating their home, buying a new car, etc," Thor told Bernama.

Because cutting down prices in a sudden move is a challenge, he suggested that to gradually correct the market, it is important to understand the fair market value of the properties by leveraging the use of big data, especially for financial institutions and relevant authorities, which is overlooked particularly in the primary market.

He also noted that from an analysis of over 5,000 development launches past and present, 45 percent of projects were 'overpriced' by over 10 percent and some by as much as 80 percent.

Out of those numbers, which were derived from the housing and local government ministry records, about 160 developments are due for completion in 2021.

He said overpricing leads to further inflation as developers are now benchmarking against what other nearby projects are being marketed for.

Left unchecked, this will result in spiralling inflation, exacerbating an already severe affordability issue, as prices are now benchmarked against inflated (pre-discount) prices.

Overpricing also relies on the bank extending a bigger loan amount than the property is worth, which is akin to taking future equity growth today, rather than in three to six years.

"Fundamentally, there is a serious need to value these houses better to control property prices from overpricing.

“In particular, we think the ones that need the most help are the middle-income group, as we found out that those properties ranging between RM500,000 to RM1.2 million tend to be overpriced, especially those located in city areas within the Klang Valley, Penang, and Johor Bahru,” he said.

He said that currently, new developments do not need to be valuated as it is not a requirement of the central bank, Bank Negara Malaysia (BNM). However, for every sub-sale property, a proper property valuer is necessary to assess the value of the property.

“Simply put, a combination of right market pricing plus innovative financing such as the Cagamas My First Home Scheme (SRP) will provide longer-term viability.

“This will allow for sustainable price and equity growth over the medium to long term,” Thor added.

The Cagamas SRP scheme was first announced in the 2011 Budget by the government to assist young adults who have just joined the workforce to own their first home.

It allows young adults to obtain 100 percent financing from financial institutions, enabling them to own their first home without the need to pay a 10 percent down payment.

- Bernama