Lower threshold price for foreign buyers may not fix Malaysia's property glut

Residential apartments under construction in Johor on Feb 26, 2019. Johor, located just a few kilometres from Singapore, has 51,000 unsold properties. PHOTO: REUTERS

KUALA LUMPUR - Malaysia's plan to lower the minimum price at which foreigners are eligible to buy homes is meant to tackle the property glut, but analysts warn it could create a property bubble instead.

The government announced last Friday (Oct 11) it will lower the threshold price from RM1 million (S$327,000) currently to RM600,000 per condominium unit, in a bid to reduce the number of unsold apartments - worth RM8.3 billion in total - in Malaysia's major cities.

Mr Azrul Azwar, chief economist of conglomerate Johor Corporation, said the move could instead encourage developers to build more high-end high-rise properties priced above RM600,000 each, as well as spur property owners to jack up their prices in the secondary market, leading to a bubble.

"Developers should be compelled by market forces to bring down their selling prices as part of corrective measures to bring the oversupplied high-rise residential property market back to equilibrium," he said.

He added that the government should instead punish property developers with hefty fines for unsold units.

The new policy has also roused fears of a "foreign invasion" of buyers from Singapore, Hong Kong and China.

Johor, located just a few kilometres away from more developed Singapore, has 51,000 unsold properties, of which between 60 per cent and 70 per cent are priced at RM600,000 and above.

Mr Azrul notes that the new policy could reduce much of the southern state's property overhang.

It is "almost certain to open the floodgates for Singaporeans to snap up urban high-rise properties in Johor that would cost them less than S$200,000. The lower price floor is likely to help reduce much of its property overhang but at the cost of a 'foreign invasion' particularly from Singapore, Hong Kong and China," he told The Straits Times.

Finance Minister Lim Guan Eng has clarified that the lowered threshold is only applicable for existing condominium and apartment units that are still unsold and will only apply from Jan 1, 2020, until Dec 31, 2020.

"It does not include new projects that are yet to be launched. This measure is expected to benefit the property sector without affecting the interest of Malaysians," Mr Lim said.

Experts have also accused the government of pandering to developers' profit motives with this policy, by encouraging them to build more high-end condos that most Malaysians cannot afford.

Figures from the Knight Frank real estate consultancy show that 602 condo units were completed in capital Kuala Lumpur in the first half of this year, resulting in a cumulative supply of nearly 57,000 units. In the second half of this year, a further 7,197 units will enter the market.

"The pace of growth in transaction volume appears to lag behind incoming supply. Thus, the mismatch between supply and demand continues to widen," it said in its report titled Real Estate Highlights - 1st Half 2019.

Opposition leader Ismail Sabri Yaakob said Malaysia should emulate the Hong Kong government, which has proposed to charge developers a 200 per cent tax on the estimated annual rental value of unsold units.

"This is a better alternative to control oversupply of unsold properties, hence, ensuring developers build houses based on requirements and demand, not profitability and greed," he said on Monday.

Prime Minister Mahathir Mohamad on Tuesday said the new policy is aimed at averting an economic crisis.

"We have to sell them or developers will get into trouble. And overhang in property will result in a national crisis, which has happened in Hong Kong and Tokyo due to overdevelopment," he said.

Join ST's Telegram channel and get the latest breaking news delivered to you.