NuProp Team

Industrial Problem: Property overhang yet prices surge?

Hey Kawan, what is this graph you looking at?

Hey Owluu, this is the graph of market equilibrium. Simply say, if supply increases, prices usually get lower. Right?

True. Then, what happens in our real estate industry?

Fact: Increasing Property Inventory

The property in Malaysia is actually overhanging. The supply is bigger than the demand in Malaysia as new projects are developing everywhere.

Why are developers still developing projects in this circumstance?

Sometimes, it is out of the developer’s control, especially the public-listed ones. They have to continue launching as they need to maintain their profit forecasts and not to affect their share price.

Then why not they build a more affordable house?
Isn’t it easier for them to sell before they launch more?

That is 1 of the problems too, the developers are often ignoring the demand of the buyers. But we can’t make the developers take the whole responsibility for this. There are other authorities too.

Hmm… I see. What are the factors that caused this issue? 

Let me show you the data of this study named "OVERSUPPLY CAUSES OF DOUBLE STOREY TERRACE HOUSES IN JOHOR BAHRU". I think the result of this study is applicable everywhere in Malaysia too.

Fact: Increasing Property Price

Expensive house price is still the no. 1 factor according to this study.
It seems unhealthy lah bro.

Yes, we can say it's a speculative situation. The developers took advantage of the soaring demands for medium-cost houses by increasing house prices significantly in order to reap large profits.

No wonder the house prices are rising non-stop.
Then, I think investing in property should be very rewarding, don’t you think so?!

Buy your own house first Owluu, haha. When we see the overhang situation by the house type, serviced apartments & SOHO have a bigger ratio than before. Yes, these are mainly investment purposes rather than own stay.

Didn’t the government regulate anything?

There are some regulations for foreign buyers. The government increased the minimum price threshold to RM1 million in 2014, then recently reduced the minimum price threshold to RM600,000 again.

Yeah, I can see their tries and errors. No ways to just drop the price?

I know that sounds great, Owluu. If the housing price just drops without a plan, it would rather be a disaster for some stakeholders. For example, when housing prices fall, consumers are more likely to default on their home loans, causing banks to lose money.

The Power of Stakeholders. Where do you stand?

Everyone is focusing on their profit only. Seems like I need to be rich first in order to become richer to start investing in property. What can we all do to make the property industry healthy and green?

Good question. To make this industry healthier, every stakeholder must take a step forward. We, buyers, are actually the biggest stakeholder. We should increase our literacy to evaluate the property properly.

So do I need to read articles or newspapers every day? 

Hahaha, it sounds good. But, you should still be careful with the information. Because some are commercialized for sellers, right? It’s still tricky to know the hidden facts.

Hmm... no wonder it is hard to get the information I need when I am browsing about a property by myself.

Media, bank, etc... they are all in a team with the developer and serve them well. Homebuyers are basically an isolated island here.

Should I give up DIY to find my house and rely on an agent?.

It's your choice, Owluu. But you know their business model, right? We should understand some authorities lack intellectual capacity or are intellectually dishonest.

Yeah, I understand. Personally, I should keep on educating myself about this industry.

Further Insights

From now on, it's too hard for Owluu. Let me drop you some insights you should aware of about this industry:

Aggressive Lending From Banks

Generally say, after the subprime crisis in 2008, governments around the world decreased the interest rate to stimulate spending. Then, housing loan (mortgages) became their new frontier from corporate sectors. 

They helped many home-buyers to purchase property even though the housing price has been kept increasing. "Easy own" as advertised by many. 

However, the aggressive lending from banks eventually lifted property prices and created a speculative bubble - as it triggers the developers to supply more. This led to Malaysians having one of the world’s highest household debt-to-GDP ratios at more than 80%.

STB System for Developer

In Malaysia, most developers adopt to STB System as the housing delivery system in their development.  

STB (Sell Then Build)
BTS (Build Then Sell)
The developers are allowed to collect money from potential home-buyers before the houses being constructed

The developers must complete a housing project before they can sell it to the home-buyers

This STB system allows more developers (even the newly started companies) to enter this industry as they can reduce the bridging finance borrowed from the bank or lending institutions.

However, there are many issues coming from unethical developers who implemented STB System; defect problems, late delivery, difficulties in getting Certificate Fitness for Occupation (CFO) and land titles approval, and abandoned projects. Unlike BTS System, the risk is shared between developers and lending banks only.

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