Unsold homes still growing by the number – need we worry?

It’s hard to shake off the perception that unsold homes is indicative of a property bubble that is about to burst. It really depends on whether there are still units priced under the affordable category.

Some continue to believe they will be rich when the market crashes because they do not own a property currently but will buy as soon as a super-duper opportunity presents itself.

However, according to Bank Negara Malaysia (BNM), the number of unsold homes in the property market is continuing to grow.

In brief, 80% of the unsold housing units in the market are priced above RM250,000.

In earlier reports, BNM said that affordable properties based on median household income should be priced not more than RM282,000.

The current number of unsold units increased to 146,196 as at end of Q1 2018. It was 129,052 at end-September 2017.

Weighing in on the issue, BNM said, “Imbalances observed in the property market continue to persist.”

Before everyone starts to assume that the property market is therefore negative, this is what BNM says about the current market situation.

“Nevertheless, sustained demand for affordable housing, particularly from first-time home buyers, and prudent underwriting practice in lending to the property market and related sectors are expected to mitigate risks of a broad-based price correction.”

In fact, the quality of borrowers is pretty high (even if compared to advanced countries). About three-quarters of new loans approved were to borrowers with debt service ratios (DSR) of less than 60%.

The ratio of household debt-to-GDP moderated to 83.8% in 2Q18 versus 84.2% in 2017.

Overall total impaired loans (net of individual impairment provisions) fell 10% to RM16 billion from RM17.8 billion in 2017, comprising 1% of total net loans compared to 1.1% last year.

Here are a few conclusions that can be made.

Overall, the property market is doing fine. There are still no indicators of an impending property bubble burst. Looking at the non-performing loan numbers, it shows that people are paying their loans on time.

There are also no signs of a huge number of desperate owners based on these numbers. This means that jobs continue to be available and those who have lost their jobs will be able to find another quickly. This explains why they can still pay their loans.

If anyone’s waiting for a good deal, better start looking now because the number of marketing campaigns by all developers is rising.

It’s prudent to look at property investment on a longer term rather than two to three years down the road.

Huge rebates are not healthy if the property price you pay after the rebate is still way higher than all the properties nearby. Stay savvy even if there’s an opportunity.

This article first appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.