By Khairie Hisyam
Bank Negara’s measures to arrest recent surges in residential property prices are working, said the central bank, as aggregate house price growth moderated last year.
In its Financial Stability and Payment Systems Report 2014, Bank Negara said aggregate house prices recorded three consecutive quarters of slower growth since the last quarter of 2013 and expects the fourth quarter of 2014 to retain the same moderating trend based on preliminary data.
“Wide-ranging measures to address property market issues are moderating growth in aggregate house prices,” said Bank Negara. “The intended effects … have become more apparent.”
Worry over escalating house prices especially in major urban centres had gripped Malaysians in recent years as affordability concerns rise. An emerging theme is what is termed the middle-income trap: Malaysians in the middle-income group do not qualify for low-cost housing yet cannot afford comfortable homes within city areas.
To arrest the escalating trend Bank Negara had previously announced, among others, measures specific to the property market aimed at curbing speculative purchases, seen as a contributing factor to rising prices.
Among others these include the implementation of loan-to-value (LTV) ratio capping property financing to 70% of purchase price for third residential property buys onwards; an upward revision of real property gains tax (RPGT) as well as the prohibition of controversial developer interest-bearing scheme (DIBS).
“Credit-induced speculative purchases of residential properties remained in check,” said Bank Negara. “The number of borrowers with at least three outstanding housing loans – used as a proxy for speculative purchases – moderated further (by growth rate) during the year, increasing by 2.9% (2013: +5.3%; 2010: +15.8%).”
In the larger pool of borrowers, this group accounts for 3% of total housing loan borrowers, added the central bank.
Urban centres
In addition the moderating trend of aggregate house prices is observed across all house types and major employment centres, said Bank Negara.
According to the Financial Stability and Payment Systems Report 2014 released today, several major states saw the growth pace by percentage fall to single-digit percentage by the third quarter of last year based on preliminary data.
Selangor saw a 5.4% growth rate in aggregate house prices in the third quarter compared to 10.9% in the first quarter whereas Johor’s growth rate moderated sharply from 14.7% in the first quarter to 3.4% in the third quarter. Penang’s growth rate slowed from 16.1% in the first quarter to 6.5% by the third quarter.
Overall, the average growth pace of aggregate house prices for the nation more than halved over the first nine months of 2014, going from 9.6% in the first quarter to 4.6% in the third quarters.
Softer secondary market
Meantime activities in the secondary property market dipped again last year after several years of strong activity, said Bank Negara, as new supply boost activity for the primary market.
Citing data from the National Property Information Centre (NAPIC), a unit of the Ministry of Finance, Bank Negara said the volume of residential property transactions in the secondary property market declined by 3.3% in the first nine months of 2014.
This follows the decline in 2013 at 2.3% year-on-year over the same nine-month period.
“Correspondingly the share of secondary market transactions was lower, accounting for 77.3% of total residential property transactions (2013: 82.8%),” said Bank Negara. “In contrast, the volume of transactions in the primary market increased by 32% (2013: -33.7%).”
The volume growth seen in the primary sector is consistent with increased supply of new residential properties including affordable housing units under various Putrajaya initiatives for first time homebuyers, added the central bank.
“Some private developers are also beginning to introduce more affordable housing units in response to strong demand while preserving margins by building smaller-sized units,” said Bank Negara.
Bridging supply gap
Going forward Bank Negara expects the gap between supply and demand for affordable housing to be smaller, which in turn would further reduce upward pressure on house prices.
In its report, the central bank said demand, calculated by proxy using average transacted units, still outstrips new supply of houses and this keeps upward pressure on house prices despite easing growth of house prices.
Driving demand for affordable housing is Malaysia’s relatively young population and labour force alongside increased urbanisation, said the central bank, and the demand at present is “beyond what can be met by the incoming stream of new supply”.
“The demand-supply mismatch is expected to improve with more of such houses (affordable houses) being built by the private sector and following the implementation of Government initiatives coordinated by the National Housing Council which was established in January 2014,” said Bank Negara.
These initiatives include plans to build 150,000 additional affordable and low-cost houses in various locations nationwide, said Bank Negara, as well as the implementation of rent-to-own schemes for the lower income group previously announced by the housing ministry.
“The consequent narrowing of the demand-supply mismatch should further ease price pressures,” said Bank Negara.
“This includes the planned construction of 150,000 additional affordable and low-cost housing units in various strategic
In August 2013 housing minister Abdul Rahman Dahlan said in a speech that this gap stood at about 40%, quoting data from the Department of Statistics Household Income Survey 2012.
Abdul Rahman said that approximately 80% of Malaysians earn below RM6,954 per month, and that this group can only afford houses priced at RM300,000 and below based on the credit line of 30% of net income at the current base lending rate (BLR) of 6.6%.
In comparison, National Property Information Centre (Napic)’s 2012 report stated that only 31.7% of all new housing units launched were priced below RM250,000, said Abdul Rahman. “This shows that there is imbalance between the demand and supply of houses towards the right target group in Malaysia.”
“There still exists a serious gap of about 40% between the provision of affordable housing below RM300,000 compared with the demand,” said Abdul Rahman. “Of concern is the fact that income growth has not been keeping in tandem with (rising house prices).”
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