Covid 19 Impact to Malaysia housing pricing and market: Will the housing market CRASH?

Updated: May 12



With the COVID-19 crisis and worries over an economic recession, housing price in Malaysia is expected to fall by between 10% to 15%, which is a deeper drop than in 1998 during the Asian Financial Crisis


House buying interest in the coming months maybe will be low as the rental market is unexciting while people are concerned about a possible recession leading to job and income losses. The situation is uncertain for property investors, even if you have money, why should you buy now if you are not under pressure to buy? The property market depends a lot on economic growth. Back in 1998, the Malaysian GDP fell 7.4% in 1998 due to the Asian Financial Crisis, while The Malaysia Housing Price Index (HPI) followed suit and dropped by 9.4%. In 1999, the HPI declined 2.3%. Bank Negara Malaysia (BNM) expects GDP growth in 2020 to be between -2% and 0.5% while the World Bank had recently revised Malaysia’s GDP growth from 4.5% to -0.1%.



However, compared to the Asian Financial Crisis which was caused by the collapse of the financial system, the situation is more challenging this time around. While the COVID-19 pandemic has limited economic activities globally, there are many other risk factors such as depressed oil prices, ongoing tensions between the US and China, and domestic political instability. Moreover, even before COVID-19 reared its head, the local property market was already in a prolonged slowdown.


Adding to the slowdown is the issue of property overhang. According to data from the National Property Information Centre, there were 31,092 overhang residential units worth RM18.77 billion as at 3Q2019 compared with 10,897 units worth RM4.92 billion in 2015.


Experts expects a decline in transaction volume similar to 1998’s downturn which was at -30%.  


Will the housing market crash?



The Malaysian Housing Price Index (HPI) fell by 9.4% and 2.3% respectively, in 1998 and 1999 due to the Asian Financial Crisis, before returning to growth in 2000. The Malaysian GDP sank 7.4% in 1998, but was trending up from 1999. The property market was swift to follow the recovery due to strong demand and rapid economic growth.


During the global financial crisis in 2008, house prices in Malaysia continued to steadily rise despite negative GDP growth. This time around, Bank Negara Malaysia (BNM) expects GDP growth in 2020 to be between -2% and 0.5% while the World Bank had recently revised Malaysia’s GDP growth from 4.5% to -0.1%.


Getting out of the downturn this time around could be more difficult as it involves a major public health issue that is the Covid-19 pandemic, which has, together with other economic issues, impacted the economy not just in the country but globally. Estimations on economic recovery range from months to years, and similarly, the property market would possibly enter into a down cycle before recovering.


How bad would the housing market be impacted? Market estimates that the drop in house prices this time will be worse than that in 1998 at between -10% to -15%, with housing transaction volume declining at a similar rate to 1998’s downturn (at -30%).


Buyers are not buying and developers are holding back new launches. Instead of slashing new launch prices and compressing their profit margin, developers might focus on clearing existing stock and delay new launches. For developers, striving to break even may be more realistic than trying to make profit by launching new projects. However, market does not foresee a meltdown in the property market similar to the one seen during the Asian Financial Crisis, which was caused by the collapse of the financial system. This time, the drop in property transactions will come at a more gradual pace, depending, of course, on the overall economic situation.


Recovery might take some time

One thing’s for sure, don’t expect a recovery anytime soon. The Covid-19 outbreak has triggered the Movement Control Order (MCO) which has partially locked down the nation since March 18 as Malaysians are forced to stay at home, putting the brakes on property transactions. Once the MCO is lifted, there is potential for activities to restart but it will take a longer time for the market to be fully “reactivated”. It will only bounce back once the economy is back on track. To strengthen household incomes and bolster cash flow of businesses amidst the virus outbreak, the government had announced the first stimulus package worth RM20 billion on Feb 27 and the second worth RM230 billion on March 27 with an additional RM10 billion announced on April 6. The country’s economic situation post-MCO will depend somewhat on the effectiveness of the economic stimulus packages over the next few months. BNM had also an­nounced a six-month moratorium on all bank loans except for credit cards from April 1 for small and medium enterprises (SMEs) and individuals. 


Real Estate and Housing Developers’ Association (Rehda) says a recovery will depend on how fast the nation can get over the pandemic, as well as how fast the world economy could get back to normal. “We need all major economies such as the US, the UK and China to be back up before the local economy could really recover.” The current economic downturn will pose a serious challenge to Malaysia’s financial resilience and there will be those who would not be able to weather the storm. “Before the property market can recover, we have to focus on restoring businesses, employment, increase purchasing power as well as discovering new economic opportunities."



Five challenges faced by the property market in 2020


Uncertainty of virus containment

Containing the spread of the new highly contagious Covid-19 virus remains a huge challenge. While the government and the people are doing their parts to help curb the spread, there will be no light at the end of the tunnel until effective vaccines are created.


Gloomy economic outlook

While controlling the virus is now top of the agenda, there are still many risk factors clouding the scene, such as depressed oil prices, ongoing tensions between the US and China and domestic political turbulence, just to name a few.


Cautious spending

People tend to hold back on large ticket purchases amid worries of losing jobs and income. The cautious attitude will only be lifted after more clear signals on market recovery appear.


Existing overhang unsolved

Even before Covid-19 reared its head, the Malaysian property market was already in a prolonged slowdown. Property transaction volume and value declined over 2015 to 2017, before a marginal increase in 2018. Adding to the slowdown is the issue of property overhang. According to data from the National Property Information Centre, there were 31,092 overhang residential units worth RM18.77 billion as at 3Q2019 compared with 10,897 units worth RM4.92 billion in 2015.


Strict lending policy

Bank Negara has cut overnight policy rate to 2.5% early March 2020, the lowest since May 2010, which will likely affect banks’ net interest margin. Furthermore, non-performing loans are expected even with the central bank’s six-month moratorium on loans. Hence banks may become even more selective with lending.


Stay calm. Stay at home. We will Win.


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