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Bank Negara: Housing market activity improves heading into 2022

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Some improvements in housing market activity are visible heading into 2022, although the number of unsold houses remained high at 180,702 units in the third quarter (Q3) of 2021.

 

Disruptions caused by the pandemic partly contributed to the slower clearance of unsold housing stock despite ongoing home purchase incentives, said Bank Negara Malaysia (BNM) in its Financial Stability Review (FSR) for Second Half Review 2021.

 

Nonetheless, the high number of unsold houses continues to reflect pre-existing affordability issues, which have worsened since the onset of the pandemic as consumer incomes were affected.

 

In this regard, the supply-side adjustments have continued with more housing launches shifting towards lower and mid-price market segments.

The share of property launches priced at RM500,000 and below increased significantly in the third quarter of 2021 (Q3 2021: 88.1 per cent; H1 2021: 67.7 per cent; 2015-2019 average: 65.9 per cent).

 

This should help to cap a further significant increase in unsold housing stock, said BNM.

 

Nonetheless, the bulk of new launches remains beyond the affordable price segment, with only 35.6 per cent of new launches since 2015 priced below RM300,000, indicating further room for price and supply adjustments to improve overall housing affordability.

 

However, broader reforms to improve housing affordability remain critical to contain the debt burden of households and mitigate risks of future financial hardship.

 

Meanwhile, market activity is expected to improve in the fourth quarter (4Q) of 2021 driven by the resumption of economic activities. Correspondingly, higher loan applications were recorded across all price segments in the second half (H2) of 2021.

 

The significant increase in loan applications in the final two months of 2021 coincided with the Home Ownership Campaign that ended on Dec 31, 2021.

 

Improving employment prospects and the low interest rate environment would further support housing demand.

 

Demand for housing was largely driven by owner-occupiers, with 57.3 per cent (H1 2021: 55.8 per cent) of approved housing loans in the second half of 2021 granted to owner-occupiers.

 

In the commercial real estate (CRE) sector, BNM said the shift towards flexible working arrangements and the accelerated pace of digitalisation arising from the pandemic will continue to transform how physical spaces are utilised.

 

These trends could exacerbate existing oversupply concerns in selected CRE segments such as office and retail spaces.

 

Direct linkages between the CRE sector and financial system are largely contained, thereby substantially mitigating risks to financial stability.

 

However, further progress in resolving excess supply remains important given the high multiplier effects of the construction sector on the broader economy. Large planned incoming supply of office and retail spaces continues to pose risks.

 

For Malaysian real estate investment trusts (REITs), which are mostly funded by large institutional investors such as pension funds, this remained a nascent and small market, representing less than 3 per cent of total Bursa Malaysia market capitalisation.