After years of being lulled by market sweet talk, Malaysians are waking up to a massive real estate glut, writes Anil Netto.
Visitors to Penang Island looking at the big corporate signboards and glossy posters dotted all over the island would be forgiven for thinking they had stumbled onto a developers’ paradise.
The names of prominent well-connected developers are conspicously plastered on roundabouts and bus stops all over the island.
But behind the illusory facade lies a more disturbing story. The flashy publicity material, complete with fake smiles, paints a fantasy lifestyle beyond the dreams of many ordinary folks. The joke going around is that many of the homes being built are not mampu milik (affordable) but just mampu tengok-je (only for public gawking).
As bulldozers grunt and piling is hammered into the earth at new sites, gleaming half-occupied condo skyscrapers stand forlornly in the distance leaving many to wonder who will fill up their empty suites.
As if Malaysia’s RM1 trillion national debt is not enough. It has finally dawned on Malaysians that developers have landed up with an alarming property glut of over 50,000 completed but unsold units – a rise of 213% over the last five years – worth RM36bn.
In the residential sector alone, developers have built 45,000 completed but unsold homes – a jump of 281% over the last five years. In ringgit terms, the numbers are scarier – a staggering 635% rise in the value of unsold homes or RM30bn worth of unsold homes.
Worse could come. A further 123,234 residential and commercial units were apparently under construction and unsold at the end of 2018.
This sounds like serious trouble. So how will those responsible – the politicians, the planners, the bankers and the developers – resolve this glut? By the looks of it, the attitude seems to be just pretend it doesn’t exist and build, build, build!
Indeed, today’s Star reported that the environmental impact assessment for the massive 4,500-acre three-island project off the southern coast of Penang Island has been given the green light. This was soon rubbished by the state government.
But few harbour any doubt that the approvals are a foregone conclusion (given the pattern seen during the reclamation along the northeast coast) and work will start with earnest by mid-2020. Sadly, the environmental impact assessment process is often just a formality.
Never mind the enormous glut, never mind the worried fishermen who will lose their livelihoods, never mind the erosion of food security in Penang as fish supplies dwindle and prices soar. This has all the makings of a college-level case study in bad planning, of what happens when politicians and developers cosy up to each other. It also shows precisely what the politicians, planners, developers – and even environmental assessors – think of coastal sustainability, food security and sane planning: not much.
Both Penang and Johor have been reclaiming vast areas of land from the sea to build more expensive homes targeted mainly at wealthy foreigners who can afford them.
Obviously this mounting stockpile of unsold homes and other properties is not large enough for the politicans and developers. So the three-island project in Penang plans to build more homes and office for over 400,000 more people.
There’s one big snag though. No one knows where these 400,000-plus people are coming from, given the declining total fertility rate in Penang – which now stands at just 1.5 children per woman (well below the population replacement rate of 2.1).
What’s more, only 20% of the homes on these three islands will be “affordable” (affordable to whom?).
The only logical conclusion is that these homes are being built for the wealthy, mainly foreigners: China and now Hong Kong seem to be the likely target markets. These homes will be built on land reclaimed from the sea, gobbling up the Commons belonging to the public. In this way, profits will be privatised to the developers and contractors while the public bears the social and environmental costs and the loss of fisheries.
Nobody can say they didn’t see this massive property glut in the country coming. Driven by greed and the quest for more profits, state governments and developers refused to see the looming storm clouds.
Five years ago, I asked if Malaysia’s property bubble was about to burst.
Since then, we have persistently called out developers (for building an excess of expensive housing that few could afford to buy) and analysts (for talking up the market with their rosy predictions).
In an article for Aliran in 2017, for instance, I observed:
Even today, property gurus are still talking up the market, despite the visible evidence of so many unoccupied high-end homes and commercial or retail lots pointing to a slump. Hardly anyone in the property sector will use the S-word (Slump) or the G-word (Glut)
(Look at) the way our governments have loosened the property market and are pandering to developers who are building high-end homes – but for whom? They are even allowing them to reclaim land, creating artificial islands, Dubai-style, to build such high-end homes – again, for whose benefit?
But did they care? No, they continued with their building frenzy. Build, baby, build! Along the way, the provision of housing was turned from a basic need to a commodity that developers and “investors” could speculate in.
To this end, the Penang state government refused to gazette (enforce) the Penang Island Local Plan, which was approved by the city council in 2008. The lack of an enforceable local plan allowed the state to arbitrarily and haphazardly increase permissible densities, sending land prices – and developers’ profits – soaring.
Now it is judgement time. But instead of allowing developers to face the music from the collective folly, we see more pandering to developers – extensions in the waiver of the 3% approval fee for high-end property transactions and exemptions for stamp duty.
We hear calls from those involved in the property sector to loosen Malaysia My Second Home (MM2H) requirements so that more foreigners, especially those from China, can buy these unsold properties that few locals can afford. Others are calling for a lowering of the eligibility threshold of homes prices for foreign buyers.
Banks are being pressured to ease the terms and conditions for housing loan eligibility, itself creating other problems – when the main issue is the wrong kind of homes are being built.
Why should rules be changed to save developers who were building too many expensive homes well beyond the reach of most Malaysians – thus creating an enormous glut – while reaping lucrative profits? Why not leave it to market forces to pressure housing prices downwards now that supply of high-end housing clearly exceeds demand – so that more locals can afford these homes?
Stung by news of this glut, the Penang government has assured the public that the state will have 110,000 affordable homes by 2025. But as always, the big question is how “affordable” are these homes – and affordable to whom?
Meanwhile, it is full-steam ahead to reclaim more land and continue building expensive properties for elusive buyers like there is no tomorrow. How sad is that.