Property ‘oversupply’ in Penang – but not for middle-income group

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Despite soaring prices in the state, Penang, especially the northeast district of Penang Island, appears to have a large property supply overhang. So why are the middle-income group on the Island finding it so hard to locate affordable housing?

Graphic: Stuart MacDonald, Penang Institute

Those findings were contained in an October 2011 research paper ‘Supply and demand in the Penang housing market: Assessing affordability’ by Stuart MacDonald of Penang Institute. Stuart observed: “Ten years later (Population and Housing Census 2010) the census showed that the number of households in Penang had increased to 385,658 (a 35.3% increase since 2000) while the number of housing units increased to 468,278 (a 21.4% increase), which still leaves an excess of 82,620 housing units; or 21.4% more housing units than there are households.”

It is important to analyse the overhang, he adds. “Understanding this oversupply is essential, the number of unsold properties does not explain such a significant oversupply, and this needs to be unpicked to establish the reliability of the Housing and Population Census data which raises a number of questions about an ‘oversupply’, are these properties vacant e.g. unsold or on the open market or are these properties owned by people not recorded by the Census e.g. absent landlords, foreign owners or institutions, those renting to students or medical tourists.

Let’s look at the overhang by district. Here you will see that the largest overhang is, not surprisingly, in the Northeast District (Timur Laut) of Penang Island.

Graphic: Stuart MacDonald, Penang Institute

Now let’s look at the housing supply distribution by affordability:

Graphic: Stuart MacDonald, Penang Institute

Writes Stuart:

From this analysis we can see that lower income groups have few housing options and even middle income groups have few options on the island. Only the 4th income quintile (upper middle income) can afford a condominium on the island, while family sized property remains out of reach for even this group. Each income quintile however has significantly more housing options on the mainland, however larger family sized properties, such as 2 or 3 storey terraced property only become affordable for those in the 3rd and 4th income quintiles. Figure 24 (the graph above) further demonstrates the distribution of housing units by district and by quintile affordability, and it is clear that the 3rd and 4th income quintiles have far fewer housing options.

And if nothing is done, the situation will get even more grim. I suppose this is what happens when you allow developers to have a field day building high-end homes as they please for God-knows-who:

By 2014 based on current growth rates in house prices and income, the lowest income quintile will no longer be able to afford a flat in Seberang Perai Utara or a low cost house in Barat Daya. The 2nd quintile income group will no longer be able to afford a flat in Timur Laut or a low cost house in Barat Daya. While for the 3rd quintile (RM2,700 – RM3,800), a single storey semi detached property in Seberang Perai Utara becomes unaffordable by 2014 based on current growth rates. The upper middle income quintile (4th) will no longer have the option of a condominium or single storey terraced property in Barat Daya by 2014 as these will have increased out of affordable range. In Seberang Perai Utara, the only district where a detached house is affordable for this income quintile, this also will no longer be affordable by 2014 on current trends.

Summary

If house price inflation continues on the past five years‟ historical rates and wage rate inflation remains as it has done over the past few years, especially for middle income groups, the issue of house price affordability will become more acute. People‟s housing options across the first 4 income quintiles are reducing and will continue to reduce if house price inflation continues. The overall impact of this is to push lower and increasingly middle income groups off the island towards the mainland. Those with families have even fewer options. The concern should be what impact this will have, not only on the lower and aspiring middle classes (socially), but also the economy of Penang and its environment, as the workers essential in transforming Penang into a high income and knowledge economy are forced into long commutes and increasing congestion, making Penang a less desirable place to live.

In developing more affordable housing, housing policies should extend beyond providing basic living accommodation, and should also be about ensuring that people have access to jobs, have a high quality of life and can minimise their negative environmental impacts and recue their cost of living. „Affordable‟ housing requires a definition which is sustainable moving forward, so that property is not simply developed which is smaller and smaller but fits within the median house price to median income ratio. „Affordable‟ housing should be defined by its suitability for families, access to amenities, sites of employment and connections to public transportation networks. It should be as „green‟ as possible, helping to make property affordable into the future, as cost of living continues to rise, as resources continue to become more scarce.

Conclusions

The extent to which the housing supply and demand factors are well understood in Penang is unclear. There is argued to be a mismatch of housing stock with demand, with significant oversupply. Condominiums are argued to be in oversupply on the island, while low cost housing is argued to be sufficient in three of the five districts, yet money is being invested in low cost housing in these areas7. Oversupply suppresses rental prices (which assessment rates are calculated on), depresses the prices of unsold property and will have a larger negative impact on property prices should there be a housing market deflation. The prices of prime properties in Dubai for example have fallen by 50% or more since the debt crisis of 2009 where there was a significant oversupply, and so caution should be taken.

Housing data needs to be collated and examined in much greater detail, and at a lower spatial level, and house price rises and affordability need to be much better understood. Future policies and development approvals need to be evidence-based as Penang is in danger of affecting future economic development if issues of housing supply and demand are not rapidly linked to wider development strategies. Penang state government should initially invest in developing its knowledge and understanding of the state housing market, so that it may further develop a robust housing demand model informed by a wider range of demand factors.

By using population forecasts, household income data, and stock volumes within „affordable‟ price ranges (data collected for this paper) we can see a huge mismatch in the supply and demand for property on the basis of income groups. Significant caution needs to be taken with this rough calculation, as many factors are not considered or controlled for8, however it does start to identify the potential scale of the issue. Each income quintile has 76,024 households (20%), therefore:

 The low income group, the 1st and 2nd quintiles (which has a household income of less than RM2,700 per month) is made up of 152,048 households who can afford property costing under RM150,000. According to NAPIC stock and transaction data, there are 306,896 properties with an average price which is under RM150,000, which is double the number of households for which this stock is within the affordability range. If stock volume remains as it is today, using the PSP population forecast for 2020, there will still be an oversupply of 116,420 units for this income group.

 The middle income group, the 3rd and 4th quintiles (which has a household income of between RM2,700 and RM6,200) is also made up of 152,048 households (40%) who and can afford property between RM150,000 and RM350,000, of which, according to NAPIC there are 81,966 units, half the required units for this income group, and by 2020 this undersupply will grow to 108,510 units if current stock remains the same.

This crude analysis starts to display the problems in supply and demand, with middle income groups likely forced into sub optimal housing choices by a lack of supply in the market, which then drives up the price of available housing, and explains why a low cost house in Timur Laut is an average of RM355,000.

Housing demand models should consider the needs of all groups within society, and the affordability gap for middle income groups in the 3rd and 4th quintile may well act as an inhibitor of future economic development, as these groups seek employment opportunities in locations where property is more desirable/affordable.

Stuart makes three important recommendations:

  • develop a housing research function;
  • develop a robust housing demand model; and
  • drawing on best practice, develop a robust set of affordability indicators, including economic, social and environmental indicators.

Let’s hope his recommendations are heeded.

Stuart’s full paper can be found on the Penang Institute website.

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kingkong

If you want a big Mercedes car or want to talk a lot and big, go ahead. This is a demo cracy country. Those developers have to borrow money from the bank and if they cannot sell, they still have to serve their loans or even if they are loaded, their money is tied up. It looks so stupid as not knowing the financial matters and talk nuts. Banks may make silly mistakes like what happen in Greece and USA cincai lent money to others.

tunglang

But greedy developers are the culprits creating this housing problem even though it ‘seemed’ they are taking huge (uncalculated?) risks. Any business is risk taking, not only the developers, for God’s sake. Doing it right is far off the mark in this property development case causing other related consumer problems like speculation, over borrowing, refinancing to buy an extra home, extinction of affordable housing, Kia Su impulsive buying without real purchasing power & greed for the rich-man’s Bing Chui lifestyle. Not to mention the environmental degradation with potential risk of disasters or loss of life, esp. those living near /… Read more »

Speedy Gonzalez

kingkong
u forgot is someone cincai and bankrupt, who will have to tanggung ?
rakyat money to bail the banks out !
so check the balance of your epf regularly !

ong eu soon

According to NAPIC, in Penang island there are140 units of condominium/apartment out of 895 units launched in the first quarter of 2012 remain unsold, worth total RM162.5 million. Which mean the super condo/apartments have no taker, yet we have the Bayan Mutiara project which promised to go big, huge and expensive. Who is the planner and what kind of vision lgE really has?

ong eu soon

31 hillslopes projects above 250ft plus 38 hillslope projects below 250ft, all this will further contribute to the oversupply. Yet we don’t know how many none hillslope projects were approved in the last 4 years. All together there will be a lot of properties development going to take place. This is probably the vision of lgE which is short sighted, as he seem to forget to ask development for whom. The worst decision is to build low and medium cost home in Seberang Perai Selatan which is also suffered from oversupply. A lot of low cost housing have no taker.… Read more »

ong eu soon

With the oversupply, we should ask lgE why he is wasting our scarce land banks by simply approving properties projects for speculative trading.

Sze Tho

Here we go again. Private land can and shall be developed by the owner, so long as the legal requirements are met. You seem to have no understanding of this concept. If you have an axe to grind with LGE, come up with something better instead of this recycled nonsense. The issue here is about the property scene and the perceived oversupply. A similar situation exists in the Klang valley. Your pompous simple minded opinion is to deny and revoke approvals that were already given. Do you pretend to ignore the legal implications? Or are you deliberately misleading fellow readers… Read more »

Gerakan K

LGE will deny this and approve more HIGH END projects. Poor people have no place in Penang.

Andrew I

Why you so worried? You can afford a nice pad since BN is giving you and your wife so much khang tau.

tunglang

Is Lynas one of them?
No wonder why some sundry shops cater to gravy train schedules behind back doors!

Speedy Gonzalez

sundry shops of BN’s TUKAR transformsi program ?

i got a feeling Idris Jala hinted to us to TUKAR kerajaan with this scheme now showing on TV about changing the outlook of traditional sundry shops – and bypass traditiobal supply chain to get sundry wholesale from barang naik cronies ????

tunglang

I’ve seen it on TV – 1-Malaysia Kedai or something like that. “Quality products?”my children asked.
Next we may be seeing 1-Malaysia Kedai Gunting under franchise of Semi-Valued Corporation & gunting by Indian barbers recruited from Kerala via a Langkawi middleman, apanama dia?.

Malcolm

You can wait but I would suggest trying out housing in Sungai Petani. Good place to low-cost retirement, while not far from Penang.

syiok syiok

Malaysian middle-income trap: The popular diagnosis for Malaysia’s stagnating economic performance is that Malaysia is caught in a middle-income trap, where it is unable to compete with low-cost producers on cost, but also by not having the institutions, human resources and technological capabilities to compete with advanced economies in innovative products and processes.
A young nation: 71% of Malaysians are under the age of 40, with 34% aged between 20 and 40.

more info read :
http://hornbillunleashed.wordpress.com/2012/06/20/31091/

Haji Idris

yes we have degenerated into a trapped middle income folks. Msia once touted as one of the tigers in the east but we are now more like a kancil while other tigers have leaped to greater heights (Taiwan, Korea, Spore).
If we are a successful nation, 1BRM giveaways should be RM5K instead of RM500. After replacing my seated toilet bowl, there is hardly any sen left with RM500 given – my be just enough for a cup of kopi-o by roadside.

SELAMATKANLAH MALAYSIA

kee

Yes, selamatkan Malaysia !!!

Let’s cry buckets of tears to touch the heart of the Almighty so that we can see a new dawn in this sinking land !!!

tunglang

Idris, to have Rm500 in the pocket nowadays is like Rm100 or less in the early 80’s as a young worker. But if you drive yet stay single & don’t date, there is nothing much left before the month ends. After paying all the bills, forget about doing anything social. Go to work, keep your head low & go home like a dried up prawn. Tah pau (pack food) if needed be. For many of us (lower middle-class, soon to be lower class & no class) to have Rm500 just once in the pocket is a stretching exercise of prudent… Read more »

Yang

Tah pau also cannot tahan. Keep lots of maggie cintan mee and do home cooking

Mohd Hafiz Yusof (@_hafiz)

Great findings. And I would say the same basic scenario is happening in KL and other large cities where basically the low and middle income are squeezed due to increasing house prices

Take a drive in KL and you would see new projects are either high rise condos are luxury bungalows and semi-Ds. Rarely can we see the low-mid cost houses around KL at an affordable price for the lower income earners

aruk

wow 50% or more drop in dubai ,cant wait that to happened here.

kee

Yes, i can testify that there is an over supply of housing in Penang.

There are so many vacant units in the new housing estates. People buy to speculate !!!

Aruk, no worry, am sure, it will happen soon…

tunglang

Rainy green horned wildebeests of the Penang Serengeti Property Chase are probably the main speculators & Kia Su buyers, not genuine buyers of an affordable roof over the head. Point the fingers at the rainy-horned property gurus of everyday rain in property news of feel good speculation & fear syndrome of under supply or no new future supply of affordable (Rm85K-150K) homes. Greed induced developers have no qualms about oversupply of Rm250+K since there is a stampede in progress & easy loan offers by O’Blady banks with croc tears. They already figured out the cost & profit margin differentials from… Read more »

Yang

Kee, : I think its not the people who are speculating, its the developer who are controlling the market. An example is the low medium cost (LMC) project, Melody Homes in the new road leading to Farlim. When launched it is about 140k – 180k after accepting upgrading of which you must otherwise they will sell the unit to you. Its Ok because the project got many facilities like a condo. But the developer is using it as a 72k project selling 180k which means they do not have to build anymore 72k unit. Go to Belleview office in Farlim,… Read more »

kee

Yang, sure, the developers are greedy, but the people’s attitude and mentality also play a major part. They are so kiasu that if i dont buy now, the price will go even higher and cant afford to buy anymore in the future. i think the people also listen too much to the property agents. I always said, if the people dont buy, what can the greedy developers do. Maybe i am a bit naive on this. Having said all this, i think Penang is doing the right thing, at least, that now there is a curb on foreigner buyers. When… Read more »

Angry and Fed Up

It’s a ticking time bomb. Its already getting quite difficult to sell an apartment these days..

Super Senior

People with money speculate with property because they are not eligible to participate in those Amanah Saham that guarantees lucrative return? Anyway, affordability in Malaysia is now defined by how much loan you could get from the bank. People are now living on tomorrow’s money. Even Housing Minister Chor is saying that your house could be fully paid by the 3rd generation! The developers therefore is testing new boundary with each development as affordability to take more loan seems to have no limit. If you are at the wrong-end of the widening Ginni Coefficient, chances are that you also have… Read more »

Khairul

This is a good assessment.
Chor Chee Heung should learn from this!