Malaysia Housing Sector Health Assessment
THE Malaysian housing market is languishing after booming in 2010-2015. Although house prices have continued to rise since 2015, a gradual slowing of the pace prevailed throughout the 2015-2020 period. This was partly attributed to the implementation of various cooling measures to curb speculation since 2014, as well as the global economic slowdown that began in early 2018 due to trade tensions between the United States and China. , followed by the pandemic-induced recession in early 2020.
Additionally, the country’s housing market has been marred by persistent issues such as excess inventory in progress, rising cost of doing business, declining household affordability, rising household debt, the tightening of credit standards which seriously affected buying sentiment; and, therefore, contribute to a market slowdown.
That said, the country’s housing market is not yet at the high-risk, low-reward proposition; not even at the risk of a bubble against the 10 most valuable real estate markets in the world. Indeed, with a real estate ratio as a multiple of GDP of 2.19 – a similar indicator to the price/earnings (P/E) ratio of a particular stock, which gives investors an idea of the potential future return over the long term. run – the size of the country’s real estate market is considered moderate and quite manageable. Moreover, despite high household debt to GDP (73.4% in June 2021), Malaysian households are generally relatively less exposed to the real estate sector; given that the country’s household housing stock in multiples of GDP is on the lower end (1.4) compared to other countries (see the table).
While this should signify a positive growth condition for the housing market, real estate developers may find it difficult to maintain consistent expansion due to current challenges in local and global economies. More importantly, the country’s major real estate markets like Penang, Kuala Lumpur, Johor and Selangor have started to show an inflection point in growth, where the high growth phase characterized by the instinct for speculation and rapid expansion of investment volume is becoming less and less widespread. in these markets. Rather, these markets are driven by these rational demands emphasizing self-staying and self-occupying, lifestyle and upgrading, and higher quality consumption.
As with the rest of the markets where the supply is still lower than the demand, the market expansion in volume is expected to continue due to the intensification of the urban agglomeration process, the increase in household incomes and the decreasing household size. In this sense, investors interested in the Malaysian real estate market should be sensitive to such domain differentiation in each individual local market, in order to establish a long-term productive real estate investment strategy and management mechanism.
Rationally, the downsides are limited and the current valuation of the Malaysian real estate market is favorable for long-term investment, given that the fundamentals of the housing market remain intact, due to the continued economic growth, the increase in the population, growing demand for better quality of life and improved infrastructure.
This article was written by MKH Bhd’s Director of Research and Product Development, Dr. Foo Chee Hung, and Leverage Value Sdn Bhd’s Real Estate Analyst, Wong Gee Way.