Structural Changes Needed By Housing Sector To Overcome Challenges

1 / 1

Structural Changes Needed By Housing Sector To Overcome Challenges

A couple of industry sources believe structural changes must be made to the housing sector if it is to overcome its current predicament. 

While the sources wanted anonymity, Lee Heng Guie, Socio-Economic Research Centre (SERC) executive director, noted that a full-fledged recovery in the sector will only happen two to three years from now.

He said this is due to the affordability issues, concerns over the economic prospects, large property overhang and cautious sentiment, reported The Star.

Read here: Who are the top developers in Malaysia! 

“An external shock-induced economic slowdown in the domestic economy would weigh on the already cautious and weak buyers’ sentiment, and hence, result in further weakening property sales,” Lee replied when asked if Malaysia would suffer a double whammy if external factors bring in an economic slowdown.

“The persistent property overhang and weak property sales will also drag down the construction sector.”

He said the government is committed to ensuring there is enough supply of affordable units so that house ownership is promoted.

Lee added that in fact, developers have reduced prices by 20% to 30% to help move unsold stock and ease cash flow.

Another anonymous industry source says the current problem affecting the sector is more than lending and financing, although banks must improve their methods for risk assessment.

Additionally, a low rate of loan impairment does not translate to the absence of risk. Bank Negara revealed that it was seeing a slight uptick in loan defaults in 2018, which has continued in 2019.

Qaiser Iskandar Anwarudin, Bank Negara’s financial surveillance department director, said these defaults involved those having variable income and properties valued above RM500,000.

Because of the swirling external concerns along with the different challenges faced by the sector, the anonymous source believes banks must set up their risk assessment tools.

“When the spread between rental yield and interest rate narrows, the banks should take note. They may suspect, or even know, that there is something wrong so they dare not lend further. They say that their exposure to a particular sector is already too high,” said the source.

The source says while this is from the viewpoint of banks and lending institutions, valuers must also step up.

Valuers know that the interest rates and rent yield have narrowed and have taken that fact into consideration.

The problem is, if the valuer gives a very low valuation, the bank will do an impairment, which in turn will result in the valuer basing the work on a comparison method.

The source sees this as a bad thing as valuations based on this method is as good as the previous day’s valuation.

Another industry source believes housing is a social issue and the government wants house ownership promoted.

“Having a roof does not mean you have to own it. You can rent. The government wants to promote this too in their Rent To Own initiative,“ said the source.

According to the source, it is understandable why the government supports the housing sector, but developers must handle their businesses with the proper calculations.

 

Check out these latest project reviews today!  or read our Guides to learn all about the property buying, selling and renting tips. We also have some helpful tips for you!