Residential property prospects a mixed bag in 2023

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CBRE WTW says landed real estate is expected to show continued resilience this year.

PETALING JAYA: Sluggish growth is expected in the residential property sector for 2023 with both demand and supply side factors contributing to the sector’s muted prospects.

The increase in borrowing costs owing to overnight policy rate (OPR) hikes and supply chain disruptions are affecting both buyers and developers, said CBRE WTW Valuation & Advisory chairman Foo Gee Jen.

“Households are suffering from a fall in disposable incomes. Whilst developers are faced with increased material and labour costs,” he said in the property consultancy’s 2023 property market briefing recently.

Data on loan applications shows that the challenging economic environment is affecting Malaysians disproportionately.

Loan applications for 2022 outstripped pre-pandemic levels, with 329,000 applications in the first nine months compared to 196,000 in the similar period in 2019.

“Whilst pent up demand for residential real-estate is a factor behind the figures for 2022, there is still a shortage in availability of property for lower wage earners,” Foo added.

However, he noted policies by the government in Budget 2023 encouraging homeownership for low and middle-income earners, such as stamp-duty exemptions and allocations under the Housing Guarantee Credit Scheme were positive steps in the right direction.

Reducing compliance costs for developers was another measure the government should address to bring down property prices, he said. Compliance costs are the expenses incurred to comply with various policies, guidelines, standards and regulations.

“The higher the cost of compliance, the higher the cost of development and this in turn is passed onto the consumer, reflected in the final selling price. And ultimately this hurts lower earners in society first,” he added.

Upbeat luxury residential sector

The luxury residential sector continues to thrive, with the existing supply of luxury units in Kuala Lumpur increasing to 68,200 as of Q3 2022. This has been aided by the relaxation of Covid-19 measures, resulting in an uptick of foreign travel into the country.

In addition, the introduction of the Premium Visa Programme in October last year will continue to boost demand for luxury property in upmarket localities.

CBRE WTW MD Tan Ka Leong said landed real estate is also expected to show continued resilience this year.

“The growing depletion of land banks in the KL, Selangor and Penang means individuals who are intent on procuring landed properties are prepared to pay more,” he said.

High-rise impediment

In contrast, high-rise properties look set to restrain growth of the property market in 2023. Significant overhang of high-rise developments and a fall in their average transacted price – as low as 19% in KL alone – has left the segment in a supply-demand imbalance.

Foo said that the economy was currently afflicted by laggard wage growth, resulting in increased disparity of real-estate affordability.

“There must be greater equivalence between the growth in income and growth in prices. If we are to move towards being a high functioning society, output of workers must be reflected in their wage growth,” he noted.

He urged the government to pay closer attention to the nexus between wages, prices, and inflation.

This would ensure that Malaysians were better able to afford residential property at a time when global uncertainty and cost of living pressures threaten to exacerbate inequalities in society further.