Need to be wary of brewing asset bubble

These days a mere few months will make a lot of difference and this is obvious even in the property market.

The stronger economic rebound in the region is once again threatening asset bubbles in various Asian cities.

One of the obvious reasons for the jump in residential property prices is the big movement of people around the globe these days. Foreigners are making up a big group of the buyers in major Asian cities from Shanghai to Singapore.

It will be just a matter of time before the trend catches up in the other cities, including Kuala Lumpur.

Penang’s popularity as the choice for foreign participants of Malaysia, My Second Home programme is already seeing a big jump in foreign buying interest in its property market.

The high savings rate among Asians and their yearn for property as an investment asset is also another factor.

The under-performing equity markets and low bank savings rates are also not providing people with spare cash to invest with other better viable choice.

To the layman, creeping property prices mean more expensive homes and higher costs of living. The lower-income group will be the most hard hit by fly-away property prices.

To curb overheating, China and Singapore have already imposed higher downpayment requirements for mortgages.

There is a high correlation between property prices and liquidity, and to avoid excess liquidity in the system, their governments have no choice but to tighten credit lending and raise interest rates.

These measures will also aid in stabilising inflation.

China has recently raised downpayment for first-time homebuyers to 30% (from 20% previously), while second-home borrowers have to pay a 50% downpayment. To curb speculative activities, it has also re-imposed the 5.5% transaction tax for properties held for less than five years.

Malaysia also has to be wary of the possibility of an asset bubble brewing although the Government had also acted by imposing a 5% real properties gains tax.

Given the strong surge in property demand in the last six months or so, this has not acted as a big deterrent to curb buying and selling activities.

As developers are still continuing with their housing packages and allowing low downpayment of between 5% and 10%, entry cost is still very low for property buyers.

Moreover, they will only have to start servicing their loan only upon vacant possession of the property.

While those who have built up a comfortable portfolio of property assets will benefit from the value appreciation of their assets, many Malaysians are finding it hard to buy reasonably-priced landed property these days.

Kuala Lumpur and Klang Valley folks are certainly among those feeling the pinch.

Penangites have also seen one of the more pronounced property price increases as land on the island is really getting scarce and the number of landed housing projects is getting fewer.

New condominiums there are averaging RM600 to RM700 per sq ft, semi-detached houses and even terraced houses with some land are priced at more than RM1mil while bungalows are from RM3.5mil to RM4mil.

No wonder many island folks have no choice but to opt for medium-cost apartments.

The liberalisation of the local property market has opened up a bigger catchment customer base and created more opportunities for industry players.

In the process, there have been many new developments and project launches that are mostly targeted at the high-end market.

There are fewer affordably-priced properties unless one is prepared to travel as they are mostly located in places further away from the city centres.

To assist those who find private housing way beyond their means, the Government should work towards a holistic and concerted plan to appoint a dedicated agency to undertake the overall planning on the actual need for affordable public housing in the country and have them built in easily-accessible places.

The Singapore model, where all the public housing projects with good community facilities are within a stone’s throw from the mass rail transit stations, is a sure winner.

It will overcome the problem faced in the country where many low-cost housing projects are not occupied because they are located in very far-away places that do not have convenient public transport link.

Deputy news editor Angie Ng believes all Malaysians deserve to live in secure, well planned and managed housing estates, whether they are private or public housing. - by Angie Ng (Star Property)


June 5, 2010 at 5:21 PMJim Evans

Definitely this is a bubble which is going to burst very soon! Interest rate has just risen, give it 6 months to see the impact.

The price hike was mainly due to investors taking profits, buying and selling, not real demand supported by local folks.

So many apartments have very low occupancy rate, a lot of properties are out for rental but noone is renting even in prime area coz the price has gone up too much!

Supply more than demand will definitely drive the price down! Those investors who are on high bank loan leverage with many units will panick when their units cannot rent out while the bank rates keep going up! They expect to use rental to pay the loan but in the end, they have to fork out from their own pockets! How long can they sustain?

So, be patient and hold your horses for now or you might be caught!!!!

July 12, 2010 at 12:14 AMRobin

Everyone is saying this over and over again and if you refer back 5 years and compare to the value of the property we are seeing now, the price of the houses have never depreciated before.

5 years ago, condo launching price RM190K has now become RM320K (Putra Place). DST house RM300+K has become nearly RM700k (Sunway Tunas). Of course there are properties that slower appreciation but still, there is a hike.

Rumors are flying around that once bank interest rate rises, the property value will be some how adjusted.

Waywalker, you are right! Let's give Penang a few months and see what will be the impact. But I would say the effect will not very big.

I am looking for a new DST house too price not more that RM650K as I think this will be a fair price in Penang at this very moment.

Let me know if you have any suggestion.

November 16, 2010 at 8:09 AMDaeren

Don't feel the bubble pressure building up yet. Price still jacking up. Even the leasehold apartment price going up higher than some freeholds. Have doubt that the bubble will burst..or there's even a bubble.