What to expect from Malaysia’s residential market in the near term

There is pent-up demand but overall interest is likely to be subdued.

According to Knight Frank, the COVID-19 infections in Malaysia show no signs of abating despite  the accelerated national roll-out of vaccines. The spike in positive coronavirus cases has led to the  reimposition of MCO 2.0 in January 2021, followed by MCO 3.0 and full lockdown (FMCO) since May  2021.  

The reopening of the economy is expected to be gradual as the vaccination drive continues to be  ramped up under the four-phase National Recovery Plan (NRP). The country's gross domestic product  (GDP) growth for 2021, which was previously projected at between 6.0% and 7.5%, is expected to be  revised lower due to the adverse impact of the prolonged pandemic on various economic sectors. This  is according to Knight Frank Malaysia’s latest publication, the Real Estate Highlights 1st half of 2021,  (“REH”) which feature the findings of the property market performance across Klang Valley, Penang,  Johor Bahru and Kota Kinabalu.  

Sarkunan Subramaniam, Managing Director of Knight Frank Malaysia highlighted, “the residential  market will continue to self-correct amid challenges brought on by the COVID-19 pandemic. There  were fewer completions and launches in 1H2021 as the strict containment measures delay  construction works, project delivery and completion of real estate transactions. In the secondary  market, no property viewings and on-site surveys have been allowed since June. 

“However, there appears to be pent-up demand in the housing market evident by the short burst of  recovery in market activity when movement restrictions were temporarily lifted. For the remaining part of 2021, we believe the overall interest in the residential sector is likely to remain subdued until  the health crisis is brought fully under control, Keith Ooi, Deputy Managing Director of Knight Frank  added.” 

During the review period, the high-end condominium market in Kuala Lumpur continues to undergo  price correction due to weaker demand albeit rising inventory, both existing and newly built. Similarly,  in the tenant-led market, rentals remain under pressure due to weaker leasing demand. 

To uplift the residential market, several key property-related policies and incentives have been  announced under the various stimulus packages such as the extension of the Home Ownership  Campaign (HOC) until 31 December 2021 as part of the PEMERKASA+ Package and reintroduction of  the 6-month moratorium on bank loans for all individuals and SMEs under the PEMULIH Package.  

Other accommodative policies include the current record low-interest-rate environment with OPR  remaining at 1.75%, the exemption of Real Property Gains Tax (RPGT) for up to three residential  properties for Malaysian individuals until the end of 2021 and the uplift of a 70% margin of financing  limit for the third housing loan onwards during the HOC period.  

“Looking ahead, there is a window of opportunity as the deployment of vaccines is accelerated to  allow the gradual reopening of more economic sectors under the National Recovery Plan. The  resumption and commencement of new mega-developments, supported by improved infrastructure,  will boost economic activities and also aid in the recovery of the property market” said Subramaniam 

On a positive note, the HOC has been successful in reducing the property overhang with an estimated  34,354 residential units worth RM25.65 billion sold from 1 June 2020 to 28 February 2021.  

The prolonged pandemic has also accelerated the adoption of technology in property development  with more developers embracing digital marketing to clear unsold inventories and boost sales of newly  unveiled products. 

Subramaniam added, “the general buyer focus has now shifted from investment towards creating a  haven to live, relax and work in comfort due to the ‘Stay at Home’ orders amid the various phases of  MCO.” Thus, potential buyers and investors who have the financial capability may be enticed to enter  the housing market - to buy a home for their own stay, for an upgrade, for investment etc. - taking  advantage of the price discount, attractive deals, stamp duty exemption as well as the current low interest-rate regime. 

The COVID-19 pandemic has also fuelled demand for residential properties especially new landed  housing outside the city – in established and upcoming suburbs with good connectivity where prices  are more affordable and competitive. With the potential shift to hybrid work arrangements post pandemic, buyers are seeking ideal living spaces with a higher emphasis on functionality and comfort. 

The economy is still in its recessive phase and market confidence is expected to return gradually by  early 2022 as buyers and financiers are all on cautiously optimistic mode. The property market is  widely expected to start recovering on the back of a more positive outlook (following recent  acceleration in vaccine drive) and strong interest from domestic investors shifting from the stock  market to safer and less volatile alternative investment products” Ooi concluded.