Of Property Overhang and Mounting Household Debt.

By Dr Dzulkefly Ahmad, Member, PAS Central Working Committee.

Property Overhang as reported by Napic (National Property Informational Centre) for the third quarter of last year was supposedly a cause for alarm. Then there was an overhang of 20,286 residential, 5,450 shop and 619 industrial units worth a whopping RM5.3 billion.

Of the 6,401 new residential units launched during the third quarter, which was a far cry from the 14,588 units launched in the previous corresponding quarter, only 20.2% found buyers.

If the RM5.3 billion overhang failed to deter the enthusiasm of the NEM planners, let’s consider what is in the pipeline.

The Finance Ministry also reported another 44,954 residential, 4,605 shop and 794 industrial units were under construction as of the third quarter. Projects approved but yet to be implemented comprised another 14,993 residential, 1,011 shop and 872 industrial units.

The massive overhang constitutes not just a financial burden to the developers and their financiers, most of whom are financial institutions, but is also a waste of resources, much worse, contrary to the 40% carbon emission reduction intensity of GDP as vouched by the Prime Minister in Copenhagen, December 2009.

More recently, Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent in the fourth quarter of last year. For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Quite ironically while a glut is emerging, prices of residential property have surged by as much as 35 per cent in the past year, far above income growth and giving rise to concerns that the market is becoming unsustainable.

Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.

While the notion of property is usually resisted by developers and the KPKT, valuers and observers may have to nod when it come to property ‘hotspots’ in Penang and Kuala Lumpur.

While prices keep going up, the economic returns decline. This, in return, contributes towards distorting the economy and plunging the country ever deeper into a frightening ‘economic bubble’.

On the back of the emerging property bubble, the revelation of a ballooning household debt, comprising mainly house mortgages, cars loans and personal financing such as credit cards, debit cards which stood at an all time high of RM560 billion as at Aug 31, 2010 from Bank Negara Malaysia data is surely a cause for alarm.

The rapid growth in household debts now poses a threat to the economy and exacerbates the vulnerability and instability to the financial sector.