Moody’s forecasts sharp decline in Malaysia property prices

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US credit rating agency Moody’s Investors Service in a new country report expects a substantial decline in property prices in Malaysia in the event of a protracted period of supply overhang.

The warning was voiced shortly after a study by the Malaysian central bank came to the conclusion that oversupply in the higher-priced property segment in the country was on its highest level in a decade, which, in turn, triggered the government to drastically restrict new building approvals for such developments across the country.

However, Moody’s said in its credit outlook report for Malaysia that suspending new property developments will not correct the oversupply situation at least over the next five years because during that time span property projects now in development will continuously enter the market.

“The increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market, and this poses a risk to Malaysian banks’ asset quality,” the report said.

Moody’s also found that 20 to 30 per cent of mortgages booked with Malaysian banks each year have loan-to-value ratios of 90 per cent or higher at the time of origination, which could imply a “credit negative” scenario for banks in case of a strong price correction.

Much of the new property supply is in Malaysia’s key states, where supply-demand imbalances in various segments of the property market, including residential housing, commercial office and retail shopping complexes, have occurred since 2015. These states include Kuala Lumpur, Selangor, Penang and Johor, which the central bank has warned will likely have the largest property market imbalances in the future.

Johor has currently the largest share of unsold residential units in Malaysia (27 per cent), followed by Selangor (21 per cent), Kuala Lumpur (14 per cent) and Penang (8 per cent), according to the report.

In terms of office space, Moody’s predicted that vacancy rates for commercial offices could even rise to 32 per cent by 2021 from 24 per cent in the first quarter of this year, due to large development projects such as the Tun Razak Exchange and Bukit Bintang City Center in Kuala Lumpur adding supply to the market.

Total retail space per capita has also increased sharply in key Malaysian states in recent years and now even surpasses regional shopping havens such as Hong Kong and Shanghai, said the report.

“The large incoming supply of retail space will exacerbate the oversupply and raise vacancy rates across Kuala Lumpur, Penang and Johor from current 13 per cent to 30 per cent,” it noted.

“Other than the recent government measure targeted to limit new property developments, it remains unclear what additional measures the Malaysian authorities would take to ensure the existing excess supply in various property segments and new supply entering the market can be effectively deployed and utilised,” the report concluded.

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Reading Time: 2 minutes

US credit rating agency Moody’s Investors Service in a new country report expects a substantial decline in property prices in Malaysia in the event of a protracted period of supply overhang.

Reading Time: 2 minutes

US credit rating agency Moody’s Investors Service in a new country report expects a substantial decline in property prices in Malaysia in the event of a protracted period of supply overhang.

The warning was voiced shortly after a study by the Malaysian central bank came to the conclusion that oversupply in the higher-priced property segment in the country was on its highest level in a decade, which, in turn, triggered the government to drastically restrict new building approvals for such developments across the country.

However, Moody’s said in its credit outlook report for Malaysia that suspending new property developments will not correct the oversupply situation at least over the next five years because during that time span property projects now in development will continuously enter the market.

“The increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market, and this poses a risk to Malaysian banks’ asset quality,” the report said.

Moody’s also found that 20 to 30 per cent of mortgages booked with Malaysian banks each year have loan-to-value ratios of 90 per cent or higher at the time of origination, which could imply a “credit negative” scenario for banks in case of a strong price correction.

Much of the new property supply is in Malaysia’s key states, where supply-demand imbalances in various segments of the property market, including residential housing, commercial office and retail shopping complexes, have occurred since 2015. These states include Kuala Lumpur, Selangor, Penang and Johor, which the central bank has warned will likely have the largest property market imbalances in the future.

Johor has currently the largest share of unsold residential units in Malaysia (27 per cent), followed by Selangor (21 per cent), Kuala Lumpur (14 per cent) and Penang (8 per cent), according to the report.

In terms of office space, Moody’s predicted that vacancy rates for commercial offices could even rise to 32 per cent by 2021 from 24 per cent in the first quarter of this year, due to large development projects such as the Tun Razak Exchange and Bukit Bintang City Center in Kuala Lumpur adding supply to the market.

Total retail space per capita has also increased sharply in key Malaysian states in recent years and now even surpasses regional shopping havens such as Hong Kong and Shanghai, said the report.

“The large incoming supply of retail space will exacerbate the oversupply and raise vacancy rates across Kuala Lumpur, Penang and Johor from current 13 per cent to 30 per cent,” it noted.

“Other than the recent government measure targeted to limit new property developments, it remains unclear what additional measures the Malaysian authorities would take to ensure the existing excess supply in various property segments and new supply entering the market can be effectively deployed and utilised,” the report concluded.

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