House prices in Malaysia have spiralled in recent decades, but just how severe is the situation?
It would have been easier to say that Malaysia’s unaffordable housing crisis is bad and just end it there. If only it were that simple, but it is not.
Like the relationship status of most teenagers on Facebook, the severity of the unaffordable housing dilemma in Malaysia is perhaps best described in two words - it’s complicated.
The facts and figures
Last month, Bank Negara Malaysia (BNM) official described housing in Malaysia as being “severely unaffordable” in comparison to international standards. Based on the median multiple methodology, a house is considered affordable if the price is not more than three times the annual household income.
Housing prices in Malaysia has been described as 'severely unaffordable'.
Assuming you are married and earning RM5,000 per month as a family, your annual household income is RM 60,000 and a house three times your annual income would be affordable if priced at RM180,000. BNM’s official says the maximum affordable house price is only RM 282,000 based on the ratio and median national incomes across the country.
With the majority of new home prices falling just within the limit or above the range of affordability, there is an excess supply of properties in the market. The National Property Information Center (NAPIC) provided various statistics in its report for the first half of 2019 and the gist of the oversupply issue is:
- 32,810 units of properties are overhang units (overhang units are new and completed properties not sold after 6 months).
- 43 % of overhang units are condominiums and apartments.
- Of the overhang amount, Johor has the highest number of overhang units (18.8%), followed by Kuala Lumpur (14.9%), Perak (17.6%) and Selangor (12.9%).
- Bulk of overhang units are priced at RM201,000 to RM300,000 (22.3%) followed by homes at RM300,001 to RM400,000 (17.5%), and homes above RM1 mil (12.8%).
An international predicament
Remember when our parents compared our exam results to others, and we’d try to justify our results by saying the exam was hard and our classmates did badly too. Well before you reach for the ‘rotan’ in regards to Malaysia’s housing report card, take slight comfort in knowing that Malaysia performed similarly to other developing/developed nations.
As can be seen in the chart above, housing affordability is an issue other nations grapple with as well.
One size doesn’t fit all
Do you find the price of a cafe latte affordable and worth its value? Affordability is argued to be subjective.
Affordability is subjective and varies from person to person depending on one’s income and the value derived from the product. A RM 2 glass of ‘kopi tarik’ is affordable to all of us, but a RM16 cup of hipster coffee could be overpriced to us yet affordable to more affluent individuals.
Critics argue that to say that Malaysian properties are “severely unaffordable” as a whole would be to paint with a broad brush. In fact, the levels of household income and property prices do vary from state to state.
Despite a near similar level of household income, affordability varies between Melaka and Penang. Image credit REHDA Affordable Housing Report
Nevertheless, the median multiple approach does show that Malaysian homes are unaffordable overall. The severity of the unaffordability however differs in each state due to variations in household incomes and house prices.
Things are already improving
Image by Jon Tyson from Unsplash
While it isn’t all sunshine and rainbows just yet, there’s a chance that the worst is behind us as NAPIC’s statistics for the 1st half of 2019 show the market is beginning to correct itself :
- The percentage of overhang growth has reduced - only at 1.5% for H1 2019 compared to 18.1% for H1 2018 and 41.1% in H1 2017.
- The number of new launches is fewer compared to 2018. Only 23,591 units for H2 2019 compared to 46,617 H1 2019.
- For buyers, the Malaysian House Price Index is still in decline. A 0.9% change for Q2 2019 compared to a 14.3 % change at Q4 2012.
- For real estate agents and developers, the volume of transactions is positive. The volume of transactions (year-on-year) has increased (6.9%) for the first time since 2015.
The statistics above coupled with the various initiatives by the government such as the stamp duty exemption under the Home Ownership Campaign (HOC) begs the question - do we view the proverbial glass as half empty, or half full?
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