However, despite the better economic growth recovery projected for 2022, the National Property Information Centre (Napic) has cautioned that the environment still remains challenging.
“The health of the residential sector is paramount to the overall performance of the property market,” Napic says in its 2021 property market report.
“The transition to the endemic phase of Covid-19 starting April 1, 2022, will see the lifting of restrictions of business operating hours and the reopening of country borders, which is expected to further improve domestic economic activities and entail better prospects for the leisure sector,” it adds.
Napic emphasises that the transition phase is a much-needed boost for the local property market.
“This will translate into better occupancy of hotels apart from creating employment opportunities for the locals.
“Nevertheless, the environment will remain challenging for the retail and office sector as more new supply enters the market in the near future.”
As the industry normalises and adapts to the new norms of working from home and market digitalisation, Napic says the office and retail sectors may continue to face downward pressure in 2022.
“On the development front, major ongoing infrastructure projects are expected to spur economic activities and the property market in the long run.”
As the economy is set to be on the right trajectory, Napic says the property market’s performance is expected to be on a similar track.
Accommodative policies
“The accommodative policies, continuous government support and execution of all planned measures outlined in Budget 2022 and proper implementation of strategies and initiatives under the 12th Malaysia Plan are expected to support growth in the property sector,” it says.
According to Napic, the residential sub-sector led the overall property market activity in 2021 with a 66.2% contribution in volume.
There were 198,812 transactions worth Rm76.90bil recorded in the review period, which was an increase of 3.9% in volume and 16.7% in value year-on-year.
The improvement was supported by the uptrend recorded in Kuala Lumpur (4.9%), Selangor (10.7%), Pulau Pinang (16.3%) and Perak (3.2%). Conversely, Johor recorded a decline in market activity by 2.4%.
The primary market saw fewer releases of new launches. There were nearly 44,000 units launched in 2021, against 47,178 units in 2020.
Napic says the decline was expected as developers held back on the new launches due to the softening property market and increasing numbers of unsold inventories.
Sales performance was moderate at 39.3% in 2021.
A property analyst says the property market will, as always, continue to be driven by the residential sub-sector.
“Even without the Home Ownership Campaign (HOC), there is renewed enthusiasm among purchasers and buyers – something that was lost over the last two years as a result of the Covid-19 pandemic.”
To help spur the property market, the government introduced the HOC in June 2020 under the Penjana initiative.
The campaign ended on Dec 31, 2021. Many industry observers and property players believed that the HOC was indeed a huge help to the market and urged the government to extend the campaign period into 2022.
Following the conclusion of the HOC, Hong Leong Investment Bank (HLIB) Research says the “tables have turned” in favour of the affordable housing segment.
Comparative advantage
“Prior to the introduction of the HOC, the affordable housing segment enjoyed stamp duty exemption for property value up to RM500,000.
“With the introduction of the HOC, the affordable segment lost its comparative advantage as the stamp duty exemption was extended to property value up to Rm1mil,” it says in a recent report.
HLIB Research notes that in 2021, when the HOC was still in place, the percentage of residential transactions below RM500,000 had declined, likely due to home buyers rushing to take advantage of the HOC campaign before it ended on Dec 31.
“With the ending of the HOC, the tables have once again turned in favour of the affordable housing segment, as purchases in this category will continue to enjoy stamp duty exemptions.
“Even during the HOC campaign, the affordable housing segment was still the most demanded segment, comprising more than 75% of the number of residential transactions.”
Citing the Statistics Department, HLIB Research says as much as 20% or 580,000 households from the M40 households had shifted to the income limit of the B40 group in 2020.
“The broadening base of the lower-income group, coupled with the rising living cost from inflationary pressure, especially on the food cost, will bolster demand within the affordable home segment, as home buyers will likely opt for affordable housing due to income constraints.”
Meanwhile, RHB Investment Bank says inflationary pressures and the timing of the election could swing sentiment.
“On the macroeconomic front, we are also cautious on rising inflationary pressure, which may potentially dampen household disposable income.”
Apart from the expected increase in interest rates in the second half of this year, the research house points out that food and consumer product prices are also on the rise, which is in line with commodity prices.
“Given that the market has just recovered from last year’s lockdown, demand for property may be negatively affected if inflationary pressures worsen further, as property is deemed a big-ticket item that is considered non-discretionary.”
Given the conclusion of the state elections in Melaka, Sarawak and Johor over the last six months, RHB Investment Bank says some political parties are calling for the next general election to be held soon.
“Historically, the performance of most property stocks tend to be lacklustre six months prior to an election, possibly due to the uncertain outlook and potential policy changes after an election.
“As the next general election is due by July 2023, we think speculation will be rife in the coming months on the timing of the event.”
Rising building costs
HLIB Research notes that building materials costs have been rising persistently since 2021.
“From what we gathered, key raw materials such as steel and cement have risen more than 20% on a year-on-year basis.”
Under such a rising cost environment, the research house says property developers that will fare relatively better are those that outsource their construction work to third parties.
“This is as their construction cost will be locked in at a lower cost (amid the rising cost environment) when the job is outsourced.”
For new launches, HLIB Research says developers will likely be able to outsource the jobs at competitive prices.
Competitive job tenders
“This is because new job tenders among contractors will likely be very competitive (due to fewer job tenders available), as developers are more cautious in their launches due to the subdued property sentiment.”
In order to secure jobs to ensure positive cash flow, HLIB Research says contractors may be willing to sacrifice some margin to win job tenders from developers.
“Besides this, developers that enjoy high take-up rates in their launches are also those that are likely to have better pricing power, enabling them more flexibility to adjust selling prices to sustain their margins.”
RHB Investment Bank also acknowledged that major commodity prices, such as crude oil, steel bars, copper and aluminium saw significant price hikes.
“The resulting price increases in cement, sand, tiles and related products collectively added to the surge in total construction costs.”
Assuming the uptrend in commodity prices persists over the next six-to-nine months, RHB Investment Bank says developers will tend to be more prudent with their launches.
“Developers will likely resize or redesign, as well as maintain the selling prices and affordability of their products or look for alternative construction materials that are cheaper in an effort to mitigate cost pressure.”
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