By Joseph Wong
In the age of information, how did the domestic property market end up with a significant disparity between the demand and supply of homes? Despite a pressing need for homes, there is still an excess of roofs that exceed the means of the average individual.
The National Property Information Centre (Napic) statistics consistently reveal a substantial number of unsold residential properties. While the figure has been gradually decreasing, the reduction is slow, with 26,286 still unsold units reported in 2Q2023, only a slight decrease from 26,872 units in 1Q2023.
The sluggish reduction in unsold residential units can be attributed in part to developers slowing down launches after the Covid-19 pandemic, cautious of the sluggish property market. However, with more launches planned for 2024, there is a possibility that the number of unsold units could spike again.
A critical question arises: Are the new units aligning with the preferences of homebuyers? Property developers have expressed concern about the lack of accurate data to drive the industry's growth.
Napic, while a vital information source, faces criticism for lagging behind, with its data becoming outdated even before it is released. As previously experienced by the industry, this disconnection between meeting societal needs and fulfilling bottom-line requirements has led to a persistent proliferation of overhang in property sub-sectors, particularly in the office segment. And the effect was worsened during the pandemic when countless offices shut down as a result of social distancing, now better described as physical distancing.
Market observers attribute the asymmetry in the domestic property market to the lack of information among developers. Despite the existence of data from various sources, the cost of obtaining the necessary information for informed decision-making is prohibitively high for many small to medium organisations in Malaysia.
An anonymous property observer in 2018 revealed that Napic charges 60 sen per raw data, such as information on a house transaction, making it financially burdensome for most organisations to access the required data for trend analysis and real estate development decisions. This pricing might have risen since then.
The observer notes that the relevant bodies holding information seem to profit from the information gap in the market, and the data provided is only valid for six months. While acknowledging Napic's annual Property Market Report, available to the public for a small fee, it is deemed too lagged to be of practical relevance.
Malaysia currently lacks a comprehensive database capturing housing supply and demand, incorporating crucial information such as household income, characteristics and preferences, hindering the alignment of home supply with demand requirements.
Lack of data, lack of planning
A property observer concurs, emphasising that the root cause of the market overhang largely stems from the failure to conduct thorough market feasibility studies. He explains, "The issue lies in the lack of adequate data for conducting market feasibility studies, such as information on income levels, household income and absorption rates. Developers often perform a price and product comparison survey along with a planning report, rather than a comprehensive market feasibility report."
The deficiency in demand data impedes a detailed examination, exacerbated by the absence of coordination among local councils, even in close proximity. "Oftentimes, policymakers are unable to make evidence-based subsidy decisions, relying on insufficient housing demand and supply data," the observer said.
Malaysia's lack of information on demand-side data indicators remains to this day. This deficiency can result in misdirected subsidies that do not effectively reach the intended population segment, influenced by factors such as housing cost, location or subsidy design, among others.
Transparent ecosystem makes a conducive environment
It is widely acknowledged that enhanced access to data could instigate actions and interventions leading to an improvement in the pricing structure of affordable housing in Malaysia. Robust housing data accessibility has the potential to diminish information asymmetry in the market, establishing a transparent marketplace where buyers and sellers can autonomously transact and agree on fair prices without third-party interference.
A transparent market ecosystem would naturally ensure that government programmes and interventions effectively target the right households on a large scale. The transparency it fosters would prove mutually beneficial to all parties involved.
This transparency enables governments to refine housing policies and subsidy programs, ensuring a more efficient allocation of fiscal subsidies through real-time data on housing stock, deficits, household composition, needs, demands and constraints.
Access to more comprehensive data allows governments, investors, developers and researchers to identify housing needs and gaps in the housing value chain by location, income segment and household type for better planning, investment and provisioning of affordable housing.
Moreover, it provides data for the private sector and researchers to innovate by creating open-source housing platforms that can subsequently benefit the public sector, allowing governments to test housing policy scenarios through simulations before implementation.
The World Bank identified the absence of core housing indicators, particularly related to quantitative and qualitative housing deficits, on the websites of relevant government housing agencies such as the Ministry of Local Government Development, Napic and the Department of Statistics Malaysia (DOSM).
Quantitative housing deficit, or the backlog of homes, can be calculated as the number of households minus the number of existing housing units, plus the number of new household formations minus the estimated housing stocks.
Housing needs should be distinguished from housing demand, which is generally influenced by personal preferences, capacity to pay, housing supply and price point, among other factors.
Elaborating on qualitative housing deficit indicators, they refer to housing improvement or extension needs related to sub-standard housing due to poor construction quality, lack of basic services such as water, sanitation and electricity, or overcrowded living conditions.
Tracking quantitative and qualitative deficits by income segments and geographical areas enables governments to set more precise housing targets. Without housing deficit data, it remains uncertain how effectively the government's volume targets set in its Malaysia Plan address the actual housing deficit needs.
Applications equipped with predictive and trend analysis functionalities
The use of housing applications is increasingly prevalent for predicting trends and understanding the preferences and demands of residents in various locations.
Housing specialists emphasise that an integrated database alone is insufficient, as technology applications are crucial for predicting trends, providing insights and facilitating informed decision-making. They describe an integrated database as flat and stress the need for applications that can predict trends and offer deeper understandings.
As an example, some countries utilise creative applications, leveraging data from sources such as census data, transport data, social media and even Google analytics to provide a comprehensive view of living in a particular area. These applications offer information on transportation options, local amenities like parks and bakeries, sports facilities and safety and security measures in the area.
In China, an application utilises big data from Alibaba and Hangzhou Municipality to connect landlords with tenants, ensuring a high level of assurance through advanced data usage. Landlords can assess the financial capacity of potential tenants and the Smart Rental Housing application allows tenants to verify property ownership.
In the United States, the Housing and Urban Development Department (HUD) created the Location Affordability Index (LAI), which models the estimated percentage of household income spent on housing and transportation. This index identifies locations where affordability is strained, using household survey estimates and satellite imagery. The LAI allows planners to analyse affordability discrepancies at the neighbourhood, city and regional levels, aiding policymakers and developers in making informed decisions about affordable housing investments.
Malaysia, sadly, lacks the usage of such integrated databases to spearhead the property industry further. While it can be said that many successful property developers can create a strong following, it begs the question of how much more effective they could be if all the necessary information were on their laps to ensure that every Malaysian can achieve his or her dream of owning a home.
Stay ahead of the crowd and enjoy fresh insights on real estate, property development, and lifestyle trends when you subscribe to our newsletter and follow us on social media.
