KUALA LUMPUR (Nov 17): The imbalances in the property market pose significant risks to the overall market in the event of a shock, said Bank Negara Malaysia (BNM) governor Tan Sri Muhammad Ibrahim as he briefed the media on the country’s economic growth for the third quarter.

Muhammad explained that while financial sectors’ exposure to this space is within a comfortable level, the oversupply in some of these segments could cause negative spillover effect to the broader economy.

Among the segments in the property market that were highlighted are high-rise condominiums, office space and retail malls.

“We have raised these issues for more than a year. Exposure of financial sector within this area is within a comfortable level. But if we’re not careful, the oversupply could have a negative impact on the economy,” he said.

Muhammad pointed out that the supply-demand imbalances in the property market has increased since 2015, pointing to the decade-high of unsold residential properties, with the majority of unsold units being in the above RM250,000 price category.

“The large number of unsold properties is due to the mismatch between the prices of new launches and households’ affordability,” he added.

For office space, there are also high office vacancy rates, especially in the Klang Valley. BNM’s report shows that the incoming supply of 38 million square feet of office space could exacerbate the glut.

According to Muhammad, the office vacancy rate in Klang Valley is projected to reach an all-time high of 32% by 2021, far surpassing levels recorded during the Asian Financial Crisis.

Similarly, in the retail space, it is expected that 140 new malls will enter the market across key areas such as Klang Valley, Penang and Johor, which could worsen the oversupply moving forward.

Despite of these threats, the banking system has remained supportive of housing financing, especially for first-time home buyers. In the first nine months of 2017, RM121.6 billion of new housing loans were approved by the banks, benefiting close to 300,000 borrowers. Of this, 60% were for the purchase of houses priced below RM500,000.

Source : http://www.theedgemarkets.com/article/bnm-governor-highlights-imbalances-property-market-significant-risk-overall-economy-event