An article in the Guardian caught my attention – Ghost Towers: Half of newly built towers fail to sell.
Some points from the article:
- half the 1,900 ultra-luxury apartments built in London last year failed to sell
- they lie empty even as first-time buyers struggle to find an affordable home
- a record 3,000 unsold luxury new-build homes (usually priced at over 1m pounds)
- rich overseas buyers have slowed to a trickle
- construction began last year on 1,900 apartments (more than £1,500psf) but only 900 sold
- high-end apartment is 2,000 sq feet; so selling for £3m
- another 14,000 unsold apartments £1,000-1,500psf
- UK average price is £211psf
- luxury housing glut would take three years to clear
- but developers have 420 towers (at least 20-storeys) in the pipeline
- 58% of demand in London is for homes priced below £450psf, but only 25% of homes being built are at this price
- Developers turning to local buyers
Now just substitute pounds with ringgit (without converting), and isn’t that pretty much what is happening in Malaysia?
Check out this quote:
Henry Pryor, a property buying agent, says the London luxury new-build market is “already overstuffed but we’re just building more of them”.
“We’re going to have loads of empty and part-built posh ghost towers,” he says. “They were built as gambling chips for rich overseas investors, but they are no longer interested in the London casino and have moved on.”
Pryor says developers of luxury blocks lining the Thames have failed to sell homes despite offering discounts, incentives and freebies – including free furniture, carpets and curtains and even cars.
Another real estate investment firm boss says:
He says hundreds of Asian investors who had bought London developments off-plan in 2015-16 in the hope of making a quick profit by selling apartments on closer to completion have instead lost hundreds of thousands of pounds.
“We need ‘affordable’ one- or two-bedroom apartments priced at £500,000. We don’t need swimming pools and empty rooftop bars with no one living at home to buy drinks at them. There’s just way too many £1.5m-£2m-£3m flats that all look the same.
I remember reading some time ago that many of the foreign buyers of London property were Malaysians and Singaporeans.
Now lets see if homes in Peninsular Malaysia are really affordable. A common measure is that average price of homes should not be more than three times the annual income level.
House price-to-income ratio
6.9 – KL
6.3 – Penang
6.2 – Malaysia
5.1 – Selangor
4.8 – Terengganu
4.7 – Pahang
4.5 – Johor
4.3 – Kedah
4.0 – Perak
Perlis – 3.3
And the most affordable state is:
2.4 – Malacca
(Source: The Edge, 23 October 2017)
Let’s look more closely at why house prices are beyond the reach of many in KL and Penang:
What Penang residents can afford
B40 – RM118,000 (for the bottom 40% of the people)
M40 – RM230,000 (for the middle 40%)
T20 – RM442,000 (for the top 20%)
Average – RM195,000
Actual Penang prices (end-2016)
Terraced houses – RM447,000
High-rises – RM340,000
All Penang houses – RM410,000
So the lower-income group can only afford homes priced at RM118,000 and the middle class just RM230,000. These folk make up 80% of the population. Are there enough homes below RM150,000 for the bottom 40%. Or below RM250,000 for the bottom 80%? You see the mismatch?
Similarly for KL.
What KL residents can afford:
B40 – RM192,000
M40 – RM380,000
T20 – RM727,000
Average – RM327,000
Actual KL prices (end-2016)
Terraced houses – RM759,000
High-rises – RM479,000
All KL houses – RM749,000
Source: The Edge, 23 October 2017
Why are house prices so high?
Here are some factors that could have led to higher property prices:
- Influx of easy money with quantitative easing in the US led to hot money pouring into the property market here
- Influx of large numbers of foreign buyers eg Singapore property players and China buyers
- Low interest rates prompt buyers to buy in the hope of achieving a higher return
- Quandrupling of densities in Penang from 30 homes/acre to 128 homes/acre pushed up land prices across the state. These higher densities were supposed to encourage developers to build more affordable homes, but did that happen?
- Allowing reclaimed land to be treated as freehold (when there is a strong legal argument for treating them as leasehold) further pushed up land prices
- Higher land prices, accompanied by higher densities, have both contributed to higher house prices
- Sale of state land to developers for mostly high-end housing instead of state development corporations managing it.
- Planning for more reclaimed land, which will inevitably result in more high-end housing.
- Developers building for wealthier overseas buyers in the hope of reaping higher profits
- Leaving the housing market to full blown market forces. The result: developers prefer building for wealthy overseas buyers so that they can reap maximum profits
Final thought: For every home completed and unsold in Malaysia (20,867 in all in the first half of 2017), there are 3.2 more homes under construction and unsold (68,245 homes in all). And the overhang? 14,776 homes. (Source: The Edge, 4 December 2017)