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KUALA LUMPUR (Oct 14): Housing market activities fell in the first half of 2020 (1H20), while non-residential properties experienced above-average vacancy rates and depressed rental yields, Bank Negara Malaysia said (BNM).
The central bank said that house prices in the residential property segment, measured by the Malaysian House Price Index (MHPI), continued to post positive, albeit slower growth of 1.1% in 1H20 compared to with 2.2% in the same period last year.
“Market activity weakened considerably, and both the volume and value of transactions fell dramatically during the period,” he said in his Financial Stability Review – First Half 2020 released today.
BNM said the lower number of housing projects launched during the second quarter further slowed market activity, and that the number of new units amounted to only about a fifth (3,911 units) of the quarterly average in 2019.
Meanwhile, he said the number of unsold homes remained high at about 170,000 units, with the majority still under construction (67% of unsold units) or priced above RM300,000 (73%).
“The pandemic may increase the risks of a broader fall in house prices due to deteriorating incomes and lower demand, and this, in turn, would increase the risks to financial stability, given that loans to residential property purchases account for the largest share of banks’ total property-related exposures, ”he said.
Therefore, he said, several factors are expected to mitigate this risk, including the extension of 80% of loans to homes that are owner-occupied, which substantially reduces the likelihood that borrowers will default on their loans.
“Second, most (85%) of investment purchase loans are associated with higher income borrowers earning more than RM5,000 per month,” he said.
In general, he said, these borrowers are more resilient to income shocks and are unlikely to ditch the losing properties if they could continue to service their debt.
“Third, speculative activity in the housing market has been subdued for some years, and prices in some segments have already moderated significantly from exuberant valuations in the past,” he said.
Additionally, BNM said that recent overnight policy rate (OPR) cuts and reintroduction of the Homeownership Campaign15 (HOC) should continue to provide some support to housing demand, particularly in the primary market, as already demonstrates the strong recovery in application growth. of loans for the purchase of house in June, mainly in the affordable segment.
“The automatic loan default and targeted repayment assistance also provide some relief to vulnerable borrowers and will limit foreclosures that could put pressure on house prices,” the central bank said.
In other property segments, BNM said that bank exposure remained low and continued to outperform.
The report provides Bank Negara Malaysia’s assessment of current and potential risks to the financial stability and resilience of the Malaysian financial system to maintain its role as financial intermediary in the economy.
To see more stories from BNM Financial Stability Review, click here.
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