How are House Prices in Penang Performing during the Pandemic?

By Ong Wooi Leng

October 2021 FEATURE
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MALAYSIA’S PROPERTY MARKET is expected to continue to be sluggish throughout 2021. As Covid-19 cases continue to hit record-breaking highs, many potential homebuyers across primary and secondary housing markets are, however, on the lookout for the best deals.

But is this the best time for a property purchase, when prices are vulnerable to pandemic-related uncertainties?

Positive Growth in Housing Supply

Penang has seen an increase in the supply of residential properties. Notwithstanding MCO 2.0, the state’s existing residential stock climbed by 2.5% to 533,272 units in Q1 2021, with 1,449 newly completed residential units, compared to the 520,293 units recorded during the same period last year. A majority of the completed projects are high-rise condominiums and apartments located in the districts of Seberang Perai Utara and Seberang Perai Tengah.

In the Timur Laut district, 1,674 high-rise units are being constructed as of Q1 2021. However, this incoming supply is expected to slow down as the price of building materials continues to surge, potentially increasing overall house prices.

An increased supply of houses is observed in the secondary market as well. Chairperson of the Malaysian Institute of Estate Agents (MIEA), Penang Branch, Veronica Ong explains that “this is primarily due to the economic conditions and to reduce possible financial strains faced by property investors, which has resulted in slightly more secondary properties to be released in the market.”

Moderated Growth in House Prices

Just before the pandemic, house prices were already trending downwards. Following the lifting of MCO 1.0, they fell to a new low in Q3 2020 in major Malaysian cities (Figure 1). After a slight recovery in Q4 2020, they dipped again in Q1 2021 during MCO 2.0, with KL being the worst hit, at -3.1%.

In Penang, the prices for terrace and detached houses are comparatively more stable than for high-rise residential units and semi-detached houses. To illustrate, the average price for a terrace house registered a growth of 2.1% to RM484,169 in Q1 2021 from RM478,364 in Q1 2020. Conversely, prices for semi-detached houses slumped by about 3% to RM709,780 in Q1 2021. Prices also dropped by 2.3% for high-rise units to about RM330,000; this has been attributed to the overall decline in unit prices in the Island.

Two implications are worth noting here. Firstly, the rising house prices reflect an increased demand for houses, especially in Seberang Perai where the trend is expected to sustain in the foreseeable future. The terrace house-price index on the mainland has thus far remained solid, with a 2.6% y-o-y increase compared to a negative growth of 0.3% in the Island.

Secondly, the plunge in property prices also indicates an oversupply, resulting from an increased number of overhang properties. In Q1 2021, Penang had the second-largest number of overhang property units after Johor (6,001 units), at 4,477 units – an increase of 47% since Q1 2020. The majority of unsold residential properties, which comprises about 46% of total unsold completed units, are concentrated in the Timur Laut district, followed by the Seberang Perai Tengah (23.2%) and Barat Daya (22.5%) districts, respectively.

Condominiums / apartments made up the highest number of unsold units in Penang, accounting for about 83% in the first three months of 2021. Over half of them are in Timur Laut. Nearly a quarter of the unsold residential units are priced at more than RM1mil, followed by properties between RM300,001-RM400,000 (21.3%) and RM400,001- RM500,000 (10.5%), respectively.

To cushion the impact of plummeting property demand, the federal government introduced the House Ownership Campaign (HOC) 2020-2021, to encourage the purchase of new residential properties priced between RM300,001- RM2.5mil, with total stamp duty exemption for houses below RM1mil for transfer of ownership and instruments on securing loan. This scheme also includes a minimal 10% discount from purchasing property prices. Coupled with a low interest rate and competitive loan packages, the package was favourably received by potential homebuyers.

In Q1 2021, the number of transacted residential properties increased significantly by about 33% to 3,657 transactions, up from 2,748 recorded in 2020. The total value of transactions swelled by 52.6% annually in Q1 2021. This surge was primarily driven by the increased demand for houses, particularly terrace houses, in Seberang Perai Selatan. “The demand for houses in the secondary market, especially from first-time homebuyers, is increasing due to the exemption of full stamp duty and the adjustment in house prices.”

Mixed Trends for Existing High-rise Properties

According to the National Property Information Centre (NAPIC), high-rise residential properties show a diverse trend in price performance. Table 1 presents the change of prices for high-rise apartments and condominiums in the Timur Laut and Barat Daya districts.

In the secondary market, prices for high-rise residential properties in Barat Daya are observed to have plunged even more than those in Timur Laut. In 2020, most high-end condominiums above the RM1mil price tag in Timur Laut saw a decrease in average prices, with the exception of Logan Mansion, Mira Residence, Quayside Condo and The Cove.

Meanwhile, the average prices for condominiums in Barat Daya – with almost all ranging not more than RM800,000 per unit – fell by 2-10% in 2020. Only three condominiums, The Clovers, Fiera Vista and Ideal Vision Park, registered stable prices.

Generally, shifts in house prices depend heavily on the location and the popularity of community amenities. According to MIEA, “now is the best time to invest in properties in Penang as prices are soft in the secondary market, and the sales package in the primary market is also very attractive coupled with the support of government incentives and all-time low interest rates.”

Immediate Reopening of the Real Estate Sector

A prolonged lockdown with uncertain recovery measures is a threat to Malaysia’s economic growth. If the situation persists, there will be more economic hurdles to vault over, not just for the estate agents, but for buyers and sellers as well, as house prices may continue to soften.

“Given its nature, the real estate sector is considered low risk for virus infection. It is important to understand that agents work individually and not in groups. In many cases, a single agent meets either one or two purchasers or tenants to show the property and as such, requires a much simpler SOP compliance. A recent survey conducted among our members found that the percentage of inoculated agents is greater than the national average.”

In 2020, the construction sector was the hardest hit in Malaysia except for Kedah, Perlis, Kelantan, Terengganu and Sarawak. Johor experienced the largest contraction in construction output at 37.7%, ahead of Sabah (29.1%) and Melaka (26.9%).

Penang’s construction sector makes up 2.1% of the state’s GDP, but experienced its worst contraction last year at 15.5%, resulting from a significant drop in the construction of buildings (23.3%), while civil engineering and specialised construction activities rose by 10.7% and 4%, respectively.

Ong Wooi Leng

heads the Socioeconomics and Statistics Programme at Penang Institute. Her work lies in labour market analysis and socio-economic development.