News: Residential market activities down in 1H 2020, says Bank Negara

Oct 15, 2020

Malaysia’s residential property sector saw market activities drop during the first half of 2020, while non-residential properties posted depressed rental yields and above-average vacancy rates, reported Bernama citing Bank Negara Malaysia (BNM).

The central bank noted that while house prices, a measured by the Malaysian House Price Index (MHPI), remained in the positive territory, its growth was slower at 1.1% in 1H 2020 compared to the 2.2% increase registered in 1H 2019.

“Market activity weakened considerably, with both volume and value of transactions falling sharply during the period,” said BNM in its Financial Stability Review – First Half 2020 as quoted by Bernama.

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The launch of fewer housing projects in Q2 2020 further dampened market activity. Notably, the number of units launched in Q2 was only around one-fifth of 2019’s quarterly average at 3,911 units.

The number of unsold homes, on the other hand, continued to be high at almost 170,000 units, of which 67% are still under construction and 73% are priced above RM300,000.

The bank expects the Covid-19 pandemic to “increase risks of a broader decline in house prices due to a deterioration in income and weaker demand conditions, and this, in turn, would increase risks to financial stability, given that loans for the purchase of residential properties account for the bulk of banks’ total property-related exposures”.

BNM expects several factors to mitigate this risk, which includes extending 80% of housing loans for owner-occupiers to substantially reduce the likelihood of loan default among borrowers.

“Second, the bulk (85%) of borrowings for investment purchases are associated with higher-income borrowers earning more than RM5,000 per month,” it said.

It noted that such borrowers are usually more resilient to income shocks, hence, are unlikely to sell their properties at a loss if they are still able to service their loan.

“Third, speculative activity in the housing market has remained subdued for some years now, with prices in some segments already having moderated significantly from exuberant valuations in the past,” it said.

BNM also expects the recent overnight policy rate (OPR) cuts as well as the reintroduction of the Home Ownership Campaign (HOC) to continue to support housing demand, especially within the primary market as seen in the robust recovery in loan applications growth for the acquisition of residential property in June, mainly within the affordable segment.

“The automatic loan moratorium and targeted repayment assistance also provide vulnerable borrowers with some relief and will limit property foreclosures that could put pressure on house prices,” said BNM.

Over at other property segments, the central bank shared that the banks’ exposure continued to be low and largely performing.


Image source from Bank Negara Malaysia


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