Malaysia's property prices may decline on supply overhang, says Moody's

Source: Xinhua| 2017-11-27 14:04:27|Editor: liuxin
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KUALA LUMPUR, Nov. 27 (Xinhua) -- Moody's Investor Service said Monday it expects a material decline in Malaysian property prices as market valuation adjusts to reflect the lack of demand in the event of a protracted period of supply overhang.

The rating agency said in its credit outlook report, the suspending new property development will not correct the oversupply situation over the next five years, when property projects now in development enter the market.

"The increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks' asset quality," it said.

The report came after the Malaysian government imposed a freeze order on Nov. 1 on new development of shopping malls, commercial complexes and condominiums priced above 1 million ringgit (242,895 U.S. dollars), to address oversupply in the property market.

Moody's also said, these developments are credit negative for Malaysian banks, and the quality of housing loans with high loan-to-value (LTV) ratios are most at risk.

According to Bank Negara Malaysia, the banking system's total loan exposures to property segments with acute oversupply (i.e., commercial property and high-end high-rise residential) account for 8 percent of total bank lending, and the impaired loan ratios for the segments are low at 1.1 percent to 1.2 percent.

Moody's estimated from its rated banks in Malaysia that 20 percent to 30 percent of mortgages booked each year have LTV ratios of 90 percent or higher at the time of origination.

It is noted that much of the new supply is in Malaysia's key states, include Kuala Lumpur, Penang and Johor, where supply-demand imbalances in various segments of the property market, including residential housing, commercial office and retail shopping complex, have occurred since 2015.

Johor has the largest share of unsold residential units in Malaysia (27 percent), followed by Selangor (21 percent), Kuala Lumpur (14 percent) and Penang (8 percent), according to the report.

Meanwhile, the vacancy rates for the commercial office could rise to 32 percent by 2021, from 24 percent in the first-quarter, considering the large development projects such as Tun Razak Exchange and Bukit Bintang City Centre in Kuala Lumpur that are underway.

On the retail shopping complex segment, total retail space per capita has increased sharply in key Malaysian states over the years, and now surpasses regional markets such as Hong Kong and Shanghai, said the report.

"The large incoming supply of retail space will exacerbate the oversupply situation and raise the vacancy rates across Kuala Lumpur, Penang and Johor from current levels of 13 percent to 30 percent," it said.

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