House prices in Malaysia continue to rise, albeit at a slower pace following anti-speculation measures.

In the first quarter of 2014, Malaysia’s nationwide house prices rose by 8% (4.35% inflation-adjusted) from the same period last year, to MYR276,668 (US$86,027), the lowest year-on-year growth since Q4 2010, based on figures from the Valuation and Property Services Department (JPPH). In a quarterly basis, house prices increased 1.65% (0.73% inflation-adjusted) in Q1 2014.

By property type:

• For terraced houses, the average price rose by 8.2% (4.4% inflation-adjusted) during the year to Q1 2014
• For high-rise residential properties, the average price surged 9.1% (5.3% inflation-adjusted)
• For detached houses, the average price rose by 8% (4.3% inflation-adjusted)
• For semi-detached houses, the average price increased 6.6% (2.9% inflation-adjusted)

 

Malaysia’s residential construction activity is now declining. In Q4 2013, residential building plan approvals were down by 13.5% y-o-y to 33,859. Likewise, housing starts also dropped 13.6% and completions plunged by 15.8% over the same period.

Newly launched residential units totaled 48,617 in 2013. The total housing stock stood at 4,725,109 units by end-2013.

Property demand indicators were mixed. The total value of residential property transactions rose by 6.3% to MYR72.06 billion (US$22.4 billion) in 2013 from a year earlier, according to JPPH. However, the total volume of residential property transactions fell by 9.7% to 246,225 over the same period.

Recent anti-speculation measures are expected to continue to impact transactions volumes.  But property prices in upcoming areas/hotspots are expected to continue rising, partly because the market overhang has diminished according to Knight Frank.

The Malaysian economy is expected to expand by a robust 5.2% this year, from an average real GDP growth rate of 5.7% from 2010 to 2013.

House prices still below Asian crisis levels

Amazingly, house prices in Malaysia are still below pre-Asian Crisis 1997 levels. They rose rapidly in the early 1990s in two particularly dramatic surges – in 1991 house prices rose 25.5% (20.3% in real terms), and in 1995 they rose 18.4% (14.4% in real terms).

After the Asian Crisis, prices of luxury detached Kuala Lumpur houses then slumped 39% between 1997 and 1999. However, Kuala Lumpur´s house prices since then have significantly outperformed the rest of the country, especially after the economic downturn of 2008-2009, when the property market was revitalized with the help of the Greater Kuala Lumpur Plan, targeting developing key locations, including the latest “The MRT Project”.

The 2013 prices rises, with Kuala Lumpur´s house price index rising by 14.4% (nominal), shows that Kuala Lumpur retains its status as a market leader. Kuala Lumpur´s housing market is now red-hot, with strong price rises.

In 2012 Kuala Lumpur house prices rose 11.1% (9.3% in real terms)

2011: up 12.2% (8.7% in real terms)
2010: up 12.2% (10.3% in real terms)
2009: up 2.5% (-3.1% in real terms)
2008: up 4.5% (-0.7% in real terms)
2007: up 7.9% (5.8% in real terms)
2006: up 5.3% (1.6% in real terms)
2005: up 6.5% (3.4% in real terms)

In contrast national price rises have been more muted. Before this year´s 10.7% national price rise (7.78% nominal) the following price rises were seen:

In 2012 the national Malaysian house price index rose 11.8% (9.9% in real terms).

2011: up 9.9% (6.5% in real terms)
2010: up 6.7% (4.9% in real terms)
2009: up 1.5% (0.9% in real terms)
2008: up 4.7% (a fall of 0.7% in real terms)
2007: up 5.3% (3.2% in real terms)
2006: up 1.9% (a fall of 1.7% in real terms)
2005: up 2.4% (a fall of 0.6% in real terms).

By property type, nationally, during the year to Q3 2013:

• The average price of terraced houses rose by 7.8% y-o-y to MYR 238,337 (US$ 72,697).
• The average price of detached houses increased 15.1% y-o-y to MYR 458,858 (US$ 139,960).
• The average price of semi-detached houses rose by 14.7% to MYR 421,622 (US$ 128,602).
• The high-rise price index soared 13.7%, to an average price of MYR 248,567 (US$75,817).

Low interest rates are encouraging mortgage borrowing

The average lending rate fell to 4.56% in December 2013, significantly below historic rates. The Overnight Policy Rate (OPR) is at 3%. This is despite the base lending rate (BLR) being raised in December 2011 to 6.53%, where it remains.

These low interest rates explain why, despite many curbs, mortgage lending is still surging in Malaysia. In July 2013, Bank Negara Malaysia (BNM) introduced new policies to reinforce responsible lending practices.

• The new maximum home loan period was reduced to 35 years, from the previous period of 45 years.
• The maximum personal loan period was shortened to 10 years from 35 years.
• Pre-approved financing products are no longer possible.

 

Aside from these three new policies, the BNM introduced stricter lending guidelines on January 1, 2012, requiring mortgage eligibility assessments to be based on net income, considering:

• Statutory deductions for tax;
• Employees Provident Fund (EPF) contributions, and;
• All other debt obligations.

Yet despite all this, outstanding housing loans in Malaysia increased by 10.7% in 2013 to MYR 271.2 billion (US$ 82.7 billion), about 27.3% of GDP.

To make home-buying possible for people on low and medium incomes and young people, in July 2011 the Malaysia People’s Housing (PR1MA) Bill 2011 was launched. Developers are as a result switching from high-end developments to mid-range ones to lure first time buyers with easier financing and reduced stamp duty for houses below MYR 400,000. Borrowers with monthly income up to MYR 7,000 per month qualify for the scheme.