Malaysia seen retaining property cooling measures

Countries in the region that imposed property cooling measures at around the same time are not likely to be relaxing them almost simultaneously due to differing economic conditions.

Singapore had slightly lowered the property seller’s stamp duty and exempted some loans from the total debt servicing ratio, but Malaysia is seen to be holding onto its property cooling measures.

“The target of these curbs and market conditions were different. Singapore’s curbs were largely against foreign speculation while in Malaysia, the curbs were to prevent excessive domestic gearing,” said Thomas Yong, CEO, Fortress Capital. So it is premature to assume that Malaysia will follow Singapore’s lead in relaxing some of these curbs.

“Property prices in Malaysia have not retraced as much as Singapore’s and our economy is strengthening while Singapore’s remains weak,” noted Chris Eng, head of research, Etiqa Insurance & Takaful.

Is it time to review some of these measures? “Yes, if property prices are under control and there are no further risks related to household loans,” said Danny Wong, CEO, Areca Capital. “The right time to adjust some of the cooling measures is when the market equilibrium is a lot more certain and sustainable.

“While core fundamental issues such as affordability and oversupply in some segments of properties still linger, a soft economic growth climate may be a good time to review some of these cooling measures to prevent the property sector from overadjusting.

“The risk of continued market consolidation could lead to a contraction if buyers’ sentiment turns bearish or the economy takes a turn for the worse,” said Lee Heng Guie, executive director, Socio Economic Research Centre.

However, addressing the supply of affordable housing is the government’s main priority. Towards this end, measures in Budget 2017 included stamp duty exemption for properties priced between RM300,000 to RM500,000 and step-up financing for first time buyers of the 1Malaysia People’s Housing Programme.

“In fact, while there are plenty of measures in Budget 2017 to supply affordable housing and access to financing for the purchase of these houses, there is also another form of tightening as stamp duty on instruments of transfer of real estate worth more than RM1mil will be raised to 4% from 3% in January next year,” noted Suhaimi Ilias, group chief economist, Maybank Investment Bank.

Property prices have moderated in four years but not slumped. “The property sector has softened for a couple of years, reflecting the combined impact from cooling measures, prudent lending guidelines, cautious buyers’ sentiment and slowing economic growth,” said Lee.

Property prices have moderated for four years in a row from +11.8% in 2012 to +5.3% in the third quarter of 2016; in the first nine months of 2016, residential property recorded a decline of 14% in volume and 11% in value transactions,” Lee noted.

High household debt continues to be a concern. “There should be no compromise on Bank Negara’s lending guidelines because of high debt. The real property gains tax should be maintained to discourage speculation,” said Lee.

“We have not successfully engineered a standstill in house prices for a sufficiently long period for incomes to catch up, nor have we addressed the huge overhang of commercial real estate looming ahead.

“Household debt to Gross Domestic Product ratio is still rising albeit at a slower pace. Private household debt must eventually be repaid; a huge per capita stock of household debt will, at some point, start to weigh on the ability of households to spend.

“What that level is would be hard to say but it is prudent not to push the level of household debt to a point of no return.

“Otherwise, the rise in interest claims on incomes will keep growing and eventually, borrowers will be unable to pay even the interest portion of their loan commitments,” said Pong Teng Siew, head of research, InterPacific Securities.

A significant drop in property prices is seen more in Singapore than Malaysia. “The Malaysian property price index has continued to grow although at a slower pace of 6.4% in the first three quarters of 2016, after rising at a double digit pace in 2012 and 2013.

“Malaysian property prices have not dropped that much; only the number of transactions has declined. Loans growth extended for the purchase of residential property fell to 9.1% in January 2017 compared with 13.9% in mid2014.

“However, in Singapore, property prices have dropped every quarter since 2014. The cooling measures by Singapore have also exerted downward pressure on headline consumer prices through subdued rental costs,” said Nor Zahidi Alias, chief economist, Malaysian Rating Corporation.

Columnist Yap Leng Kuen agrees that high household debt is a ticking time bomb. - The Star

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