Malaysian prime residential's unsold rates drop for second consecutive quarter

Overall rates fell 17bps to 3.44% in Q1.

Sales galleries were allowed to operate during the MCO 2.0 (Movement Control Order) in Kuala Lumpur, hence sales activity was not as severely impacted as it was during the 1st MCO in 2020. According to JLL, the overall unsold rate dropped for the second consecutive quarter by 17 bps to 3.44%. Sales were driven by attractive interest rate, additional rebates offered by developers during MCO 2.0 to clear the unsold inventory.

The federal bank, Bank Negara Malaysia (BNM) maintained Overnight Policy Rates (OPR) at the historical low of 1.75% since July 2020. Consequently, loan applications continued to witnessed a noticeable surge. However, the cautious loan approvals continued to prevail on account of economic uncertainty and the elevated unemployment rate.

Here’s more from JLL:

MCO 2.0 increased the challenges for developers. Implementation of stricter Standard Operating Procedures (SOPs) and mandatory testing for on-site workers impacted efficiency. Most projects that were about to complete, were postponed further due to slow progress on the construction site.

The increase in supply was driven by an earlier completed project that managed to obtain its long-awaited certificate of completion and compliance (CCC) necessary to be able to hand over the project to the buyers.

Rents and capital values record decline

Almost all submarkets recorded declines in rents. Rental decline was driven by factors such as the absence of incoming expat population due to closure of international borders, weak hiring environment and slowdown in business expansion.

Capital values also declined but at a slower pace. With attractive discounts and additional assistance provided by developers, the primary market became more lucrative to potential buyers, adding further pressure to the secondary market. Additionally, lack of renting opportunities motivated many investors to sell their properties, causing a dual pressure leading to price correction.

Outlook: Market activity likely to remain muted in the near term

With the recent spike in cases and measures taken by the government to curb the spread of COVID-19 infections, the recovery of the market is likely to be slow and delayed. Although the beginning of the immunisation programme injected some confidence in the market, the overall dampened sentiment among investors is likely to prolong the recovery process to at least 2H21.

Due to slower efficiency on construction sites, completion timelines were postponed for many projects, causing a surge in the supply forecasts for 2021 and 2022. Large incoming supply is likely to keep rents and capital values under pressure in the near term.

Note: Kuala Lumpur Residential refers to Kuala Lumpur's prime residential market.