Oversupply and shortfall! So much mismatch between supply in demand has caused the property market to stall

Oversupply-Vs-Shortfall The 2021 Property Exciting Foresight

Since the COVID-19 outbreak crashed into our daily lives, the Malaysian property industry, already shadowed by oversupply due to the staggering numbers of overhang and unsold residential units, has done its best to observe, adapt and re-invent itself. 

Welcome To The New Normal! 

Travelling, social events and dining out have become a rare luxury and, we all, have learned how to work, study, play & live within the boundaries of our own homes. However, how all this New Normal is and will affect the real estate likes of Malaysians and how could the Market outlook be for 2021. Still a threatening oversupply or, who knows, a possible shortfall?

DOSM and NAPIC Reports: How Data Can Help Understanding The Oversupply/Shortfall Paradigm!

Recently, the Department of Statistics Malaysia (DOSM) has released a very interesting publication “Household Income and Basic Amenities Survey Report 2019”. In it DOSM (Department of Statistics Malaysia) highlights an intriguing series of key data that, as investors or even as own use home buyers, we should always understand, analyse and combine to make better investment decisions based on the real market situation in terms of oversupply and/or shortfall.

We will go through the whole report in one of the next articles but, for now, what interests us the most is to find an answer to the questions in everybody’s mind: What is going to happen to the real estate market? How and when will it rebound from the “oversupply sand-trap”? How will the demand, if any will be available, move in future? and many more. 

To reply to these pressing questions, let’s walk through together 6 strategic set of information, understand and finally combine them.

People, the first data set to look at to read the potential demand for residential units

The Malaysian population has been and is growing. The current natural grow rate stands at 0.6% and, while waiting for the final counting to be completed by the MYCensus 2020,  is estimate to be at 32.7 million as at December 31st, 2020. Follow the link to see the interactive pyramid and have some fun seeing what are the forecast for the next 20/30 years.

Households: The Property Demand Generator

Malaysian households are shrinking! As at 2019 they are made up of 3.9 members from the previously recorded 4.1 members, in 2016. In other words, dividing the population by the 2019 household size (3.9) it is possible to estimate that Malaysia has a total of 8.4 million households.

Urban Vs Rural: Why People Are Migrating Towards Urbanized Areas.

DOSM also reports that the per-household income in urban areas, currently at RM8,635 per month, is 42% higher than the rural one. This income gap, added to the demand for better education and healthcare services, has and is pushing households towards urban areas.

The internal migration is confirmed by the fact that the Malaysian urbanisation rate has been rising steadily to 76.2% in 2019. By combining the population data above with this information, it can be said that 24.9 million Malaysians are, today, living in urban areas. 

Analysing the migration historical data, it is also possible to estimate an additional 4% to 6% increase in the urbanisation rate by the year 2030. This trend will progressively bring, within this decade, an additional (using an average 5%) 1.7 million Malaysians, or 436,000 households, towards all the important urban areas of Malaysia (i.e: Kuala Lumpur and Greater KL, Selangor, Penang, Seremban, Ipoh, Kuantan, Malacca, Batu Pahat and Johor Baru). 

Reading the paragraph above through the “real estate lens”, we can foresee a strong increase of demand for houses as all the 436,000 new urban comers will be potential buyers or tenants! It seems there will be a future with a much lower and less threatening oversupply.

Malaysian Home Ownership

The “Urban Home-ownership”, from the DOSM findings, stood at 74.5% in 2019. If we combine this information with all the data above, it results in 6.4 million families living in urban areas, out of which, only 4.8 million actually own the place they call home.

Residential real estate investors should be happy to know that there is a huge basket, of 1.6 million households, who are and will be potentially renting a home within all the major urban centres in the country. Apparently this goes against the idea of current oversupply of residential units!

Majority of them are from the B40 and M40 groups and this will help defining a value-range for the type of dwelling they will be looking for.

Wealth or Income Distribution: The Key to Understand Property Purchasing Power

Another key finding, which the survey report highlighted, is the share of population by brackets of income (which in the end determines the actual purchasing power and, eventually, defines property affordability numbers).

Another key finding, which the survey report highlighted, is the share of population by brackets of income (which in the end determines the actual purchasing power and, eventually, defines property affordability numbers).

The first consideration has to be made on the ten sub-categories in which the 32.7 million Malaysians have been reclassified by MYSumber in July 2020.

The ten sub-categories, each one made up of 10% of the whole population or 3.7 million people, combined with the income share findings by DOSM, shows that Malaysia still has a long way to go in terms of balancing, in a sustainable way, its wealth distribution.

There is a huge gap between the bottom 10% earner group, “B1” equal to 3.7 million Malaysians, share of 2.4% of the wealth compared to the top 10% earners, T2 also equal to 3.7 million Malaysians, enjoying a whopping 30.7% share of wealth! 

In actual numbers, this means that each household of the bottom 10% group, B1, survives with RM38,200 a year, or RM3,300 per month. 

At the same time, the top group, T2, enjoys RM488,642 per year which translates into RM40,720 per month. Each household of this group can spend in one month what a similar household, from the bottom one, needs to survive for a whole year!  

If we relate these data to property, the outcome is a possible confirmation of oversupply towards the highly priced residential units while, eventually, they show a shortfall of dwellings priced toward the lower end of the values.

Combining People & Income Data With Property Numbers 

Finally, to have a better understanding of the current situation of the Malaysian property market, has come the time to crunch some data on the existing stock and future supply of residential property in Malaysia. Only in this way, we might be able to finalise a possible “making-sense” outlook scenario about the “Property Puzzling Riddle” and to give a “value-range” to the two weight, oversupply and shortfall, on the “property-libra” . 

The data published by NAPIC, the national agency recording all property transaction data in Malaysia, show that existing housing stock (completed property) in the first half of 2020 stood at 5,775,095 units. 

Now, maybe not many know that NAPIC’s data exclude most of the property in rural areas, wooden-houses in farming areas and squatters’ living quarters. This means that, in the projection analysis that we will do in a short while, we shall consider the above total number of completed dwellings only related to the urban household population of 6.4 million.

This table represents a summary of what the above data-highlights have been showing to us and the final numbers are definitely presenting a quite positive outlook for the property market, compared to what many have been, a bit dramatically, painting as a “Property End-game” due to the huge oversupply of dwellings.

This is what I call “connecting the dots between economic, demographic, income and property data to make sense in property investment”.

As Propenomist I have been kept on saying, for the past several years, that Malaysia still has a significant shortfall of residential property more than the, very much shout about, drammatic oversupply!. 

The latest surveys and researches conducted by Propenomist, have also showed that the majority of this shortfall is within a price range of RM200,000 to RM700,000 while the oversupply is either for values above RM1,200,000 or caused but a wrong choice of location for projects.

In Conclusion, it is definitely safe to say that Malaysia still has a healthy demand for residential property concentrated within the bottom and the middle earner groups. 

Furthermore, the demand for residential units shall be combined with the actual purchasing power of households which, as per these two last tables, is very different on a state-to-state basis. In the same way we all should read the oversupply information, provided by NAPIC, by values and always checking the location.

Welcome to the New Normal, where Affordable has become the New Sexy! Shifting the investors’ attention towards the RM200k – RM700k class of values, shall definitely help providing better, more sustainable and inclusive housing solutions to the whole country while, at the same time, the industry stakeholders shall look for oversea buyers for the highly priced residential units and, eventually, reduce their oversupply numbers!

But, you might be asking, what about the pandemic and the new lifestyle which comes along with it, together with all the threats related to job cuts, income uncertainty and so on? 

How will the pandemic affect the real estate market supply & demand in 2021 and beyond? And, how the pandemic is changing the way people have been looking at real estate in the past, where the new “likes” will be? Last but not least, might there be the risk for a further increase of the oversupply?

Have a look at this simple infographic above explaining how the Propenomy model works and should be looked at when deciding about investing in real estate.

Most importantly, stay tuned as, in the forthcoming weeks, more data packed articles will be published here allowing all to have a clearer medium term understanding of the future real estate market direction and, finally, to get a reply to all your unanswered questions. 

We always like to hear from our readers, feel free to drop a comment below or drop a comment below to let Propenomist know what would you like to have information about. He will do his best to get an article uploaded about it soon.

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