Rise of subsale market shows Malaysia’s resilience

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Malaysia’s secondary market for residential property has historically been a major component of the industry, making up around 80% of the total residential property market in 2019.

Did the pandemic disrupt this trend? Not entirely. While overall transactions dropped by 44.7% in the first quarter (Q1) of the year compared with last year, demand for subsale units endured.

The secondary market was affected by the lockdowns, with transactions declining during the full movement control order when physical property viewings were discouraged, but there were short bursts of recovery when restrictions were temporarily lifted.

It is likely that these short bursts will lengthen as the situation moves from pandemic to endemic. Here are three indicators that are likely to continue this year and beyond.

1. Supply and demand for subsale units remain strong in almost every state

Despite the pandemic, overall supply continues to grow across the country. The PropertyGuru Malaysia Property Supply Index, which tracks the volume of new supply coming into the market, recorded an on-year spike of 34.53% early this year, the largest volume growth since Q3 last year.

Selangor recorded the highest supply growth with an on-year spike of 49%, followed by Penang with an increase of 40.3% and Johor with growth of 17.5%. Much of the incoming supply was due to an increase of subsale listings.

Data from the National Property Information Centre reveals that the number of new launches dropped significantly from 47,178 units last year to 5,919 units in Q1 this year. In contrast, subsale unit listings on PropertyGuru increased from 93% last year to 96% this year.

With subsale units, both first-time home buyers and investors can purchase property in prime locations for a lower price. (Pixabay pic)

Transactions for subsale units dominated the Q1 2021 market. Demand soared in the Klang Valley, reaching a three-year high of 83.7% of total transactions this quarter.

Subsale transactions in Johor and Penang dropped slightly in Q1, reaching 69.7% and 80.8% respectively, but still made up the majority of sales.

2. The gap in price between subsale units and new launches is widening

Comparing price per sq ft, subsale property does tend to be cheaper than new launches. But the difference in the median transaction price between subsale units and new launches has widened significantly in the first quarter of this year, reaching a high of 36.5% for units sold in the Klang Valley and 33.8% in Johor.

Terrace houses – the most in-demand property in the secondary market – had a median transacted price of RM500,000 in the Klang Valley. In contrast, new terrace houses in the same area were bought for a median transacted price of RM600,000, a 20% increase.

3. Policies do affect the secondary market

The government has previously stated that the Home Ownership Campaign will not be extended to the secondary market as it would “increase property speculations and slow sales of new development units”. Nevertheless, other incentives and policy changes have contributed to the popularity of subsale units over the past year.

For one, subsale transactions nearly doubled after the introduction of the Real Property Gains Tax (RPGT) exemption on June 1 last year, increasing by an on-quarter rate of 90.1% between Q2 and Q3 2020.

The percentage of subsale transactions has since been on an upward trend, going from 72.9% in Q3 last year to 74.5% in Q4 and 81.2% in Q1 this year.

Government policies such as the Real Property Gains Tax exemption have an impact on the secondary market.

That said, transaction numbers are on a decline after the spike in the third quarter of last year. Market activity has still not reached pre-pandemic numbers.

As incentives like the RPGT exemption make a real impact on the market, more such incentives could spur buyer activity during this period, especially since the RPGT exemption is set to close at the end of the year.

Why buy subsale?

The popularity of the secondary market boils down to two main reasons – budget and location. The secondary market allows greater access to property in better locations, often for below current market value.

As land is used up, new developments are often located in more remote locations that are less convenient and may take investors a longer time to see a return on appreciation value.

With subsale units, however, both first-time home buyers and investors can purchase property in prime locations for a lower price.

For more insights into the top property trends of today, check out the full report here.

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