Malaysia’s real estate market has undergone many economic phases (both ups and downs) in the past twenty years. There was a 9.4% and 2.3% drop in the Malaysian Housing Price Index (HPI) in 1998 and 1999 due to the 1997 Asian Financial Crisis. However, going by the 18-year property cycle principle, the country’s real estate market is expected to return to a higher growth/recovery phase in the coming years. Although, with the recent COVID-19 crisis, it is important to take a closer look at what can be expected.
Covid-19 Effects on Malaysia’s Real Estate Market
Due to the COVID-19 pandemic and the MCO, most sectors (from aviation and tourism to oil and gas and real estate) have been severely affected. Companies in Malaysia and worldwide have been forced to limit or halt physical operations, pushing some people to work remotely indefinitely.
According to Bank Negara Malaysia (BNM), the country’s GDP growth is projected to be between -2% and 0.5% in 2020, while the World Bank recently revised Malaysia’s GDP growth from 4.5% to -0.1%. This time around, recovering from the downturn will be difficult as the country has both the pandemic and the economic crisis. Therefore, the downturn in Malaysia’s real estate market, like other sectors of the economy, will likely be here for a while as economic recovery is estimated to take many months to years.
Before the COVID-19 hit Malaysia, its real estate market was already experiencing a prolonged slowdown due to residential property overhang. The country’s real estate property transaction was reported to drop in volume and value between 2015 and 2017, before recording a marginal increase in 2018. The root cause of Malaysia’s modern sluggish property market could be associated with the country’s imbalanced housing supply-demand system, which remains largely unresolved.
Based on data from the National Property Information Center, 31,092 overhang residential units with a total value of RM18.77 billion as of the third quarter of 2019. There were just 10,897 units worth RM4.92 billion in 2015. Therefore, with or without the outbreak of COVID-19, market sentiment was deemed low in the near to medium term. The ongoing property overhang is likely to take twelve years to restore to its lowest level.
Amplifying Malaysia’s Real Estate Problems
The outbreak of COVID-19 has amplified the existing issues facing the country’s real estate market. Malaysia was already going through the worst economic recession in its history, where according to the Department of Statistics Malaysia, the country’s GDP was found to grow at just 0.7%, the lowest GDP growth recorded since Q3 of 2009.
The pandemic has also hit the country’s real estate market quite hard due to several measures implemented to curb the virus. As a means to contain the spread of the virus, the country has initiated a partial lockdown measure, known as the Movement Control Order (MCO). This, in turn, has contributed to a decrease in the number of home seekers and has caused a delay in property listings and transactions. Due to the MCO, several real estate companies have scaled down their physical operations to show compliance. Also, developers and builders find it challenging to meet completion deadlines due to interruptions in the supply chains.
With people temporarily staying away from buying luxury and big-ticket items during this critical time, we’ve seen a crucial change in consumers’ behavior. The short-term effect of COVID-19 was an immediate drop in sales. The long-term impact of COVID-19 will likely lead to a total transformation in the way people work, shop, and live, thereby changing the associated real estate requirements.
Malaysia’s real estate market has been hit hard due to the COVID-19 pandemic. The MCO has forced Malaysians to stay at home and pushed real estate firms to put a break on property transactions. Even if the MCO is lifted, the reality of the matter is that it’ll take the country’s real estate market some time to fully reactivate and recover from these losses.
However, not all is doom and gloom, as the growth trajectory is projected to improve from Q2 onwards. This improvement is expected to be driven by global demand, where the International Monetary Fund (IMF) has revised upwards forecast by 0.3 percentage points to 5.5%. With vaccine rolling-out which in the coming months, we can expect to see how the Malaysian economy and market as a whole will change.