Earlier, local property players had said the property market would be very sluggish next year, with one even saying it might crash.
Moody’s, however, said the problem could be around for five years, as more properties under construction, such as the Tun Razak Exchange, become available for occupation.
“The increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks’ asset quality,” the South China Morning Post (SCMP) quoted Moody’s as saying.
Total retail space per capita, the rating agency said in its credit outlook report, had increased sharply in key states and now even surpassed regional markets such as Hong Kong and Shanghai.
“The large incoming supply of retail space will exacerbate the oversupply and raise vacancy rates across Kuala Lumpur, Penang and Johor from the current 13% to 30%,” it said.
It also said that suspending new property development would not correct the oversupply situation over the next five years, when property projects now in development enter the market.
To address the oversupply, the government froze development approvals from Nov 1, on new developments like shopping malls, commercial complexes and condominiums priced above RM1 million.
Moody’s warned these developments were “credit negative” for Malaysian banks, and that the quality of housing loans with high loan-to-value (LTV) ratios were most at risk.
Quoting Bank Negara statistics, the SCMP reported that the banking system’s total loan exposure to property segments with the most acute oversupply – commercial properties and high-end high-rise residentials – accounted for 8% of total bank lending, and that the impaired loan ratios for the segments were low at 1.1% to 1.2%.
Moody’s estimated from its rated banks in Malaysia that 20 to 30% of mortgages booked each year had LTV ratios of 90% or higher at the time of origination.
It said much of the new property supply was in Kuala Lumpur, Penang and Johor. Johor has the largest share of unsold residential units in Malaysia (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%), the SCMP reported.
Moody’s predicted that vacancy rates for commercial offices could even rise to 32% by 2021 from 24% in the first-quarter of this year, due to large development projects such as the Tun Razak Exchange and Bukit Bintang City Centre in Kuala Lumpur that are currently underway.