Moves to cap property prices could backfire
August 10, 2013- Featured, Investment.
FOOD FOR THOUGHT by 'Malaysia Condo King' Datuk Alan Tong Kok Mau | feedback@fiabci-asiapacific.com
http://www.starproperty.my/index.php/artic...could-backfire/


‘Cooling off’ measures choke supply

Imagine if a regulatory body decided to limit the number of durians purchased by each individual in order to lower the price of durians so that everyone would have the chance to taste the King of Fruits. What would happen?

If this campaign was successful to the point that prices fell to close to or below production costs, durian planters and sellers would rather walk away from their plantations and let the fruits rot on trees than to harvest the fruits, transport them to towns and sell them at a lost. Economics 101 tell us that when supply reduces, price increases.




This is what’s happening in the property industry especially in Asian countries today. As a developing and booming region, Asia has seen lots of activities in the property industry in the past 10 years.

The housing price increase in this region is also more significant due to rising input costs, strong economic conditions and growing populations.

To prevent the property prices from surging further due to growing demand and worldwide quantitative easing (money printing) government policies, several governments in this region have introduced various “cooling off” measures with the most insistent being China, Hong Kong and Singapore.


CHINA

In China, the State Council stepped up a three-year campaign to “cool off” home prices in March. Measures included raising first-time buyers’ down payments from 20% to 30%, and second-home buyers’ down payments from 50% to 60%, and ordering stricter enforcement of a 20% capital gains tax on sales. The government also limited home purchases in certain areas, tightened credit-quota limits and raised benchmark lending rates.

However, according to a recent report by the National Bureau of Statistics (NBS) China, residential and commercial property sales totalled 3.34 trillion yuan (RM1.77 trillion) in the first six months, jumping 43.2% compared to a year earlier.

The pace of China’s year-on-year home price rises in April, May and June was also the strongest this year in spite of the March initiatives. Average new home prices in 70 major Chinese cities climbed 0.8% in June from the previous month based on data released by NBS.

New home prices rose 6.8% in June compared to a year ago, the sixth consecutive rise and the fastest pace since January 2011.


HONG KONG

In Hong Kong, the government introduced a series of steps to curb prices since 2009. Its measures included a 15% property tax on foreign buyers, mortgage restrictions and taxes on quick resale.

The government also limited the maximum term of all new mortgages to 30 years, and mortgage payments for investment properties could not be more than 40% of the buyers’ monthly incomes, compared to 50% previously.

According to a Knight Frank report for the first quarter of 2013, property prices in Hong Kong were 28% higher on average, compared to one year ago despite measures to “cool off” escalating prices.


SINGAPORE

As for our neighbouring country Singapore, the government just unveiled its eighth round of “cooling off” measures in June. The new rule states that home loans should not exceed a borrower’s total debt servicing ratio of 60%. Lenders will also be required to deduct at least 30% from all variable sources of earnings, such as bonuses, and rental revenue when determining an applicant’s income streams.

Prior to this, the Singapore government made seven attempts to cool off the residential real estate market since 2009. In January 2013, the government implemented an extensive round of tightening measures by imposing higher stamp duties, lowering loan-to-valuations for mortgages, and implementing stricter rules on permanent residents (PRs) buying their first home.

Nevertheless, despite a series of “cooling off” measures, Singapore private home sales in January 2013 continue to hit a high note, with a 42.8% increase from December 2012, and a 7.5% increase year-on- year.


MALAYSIA

In our home country, the Government has also introduced a number of “cooling off” measures.

These include the 70% loan policy (LTV) for third property purchases, requiring the housing loan limits calculated based on net income instead of gross, and the loan tenure reduced from 45 years to 35 years previously, etc.

The “cooling off” measures introduced in various countries are believed to have some impact when they were first implemented, however the overall effectiveness has yet to materialise.

While we understand the good intentions behind these measures, they result in further heating up of the market because the fundamental issue of the shortage of affordable housing is not addressed.

There is fine line between “cooling off” and heating up the market, when the market is having a strong, genuine demand. “Cooling off” measures will constraint supply, and when demand is higher than supply, the prices will eventually increase.

In Malaysia, according to NAPIC, there is only a supply of about 100,000 new houses a year throughout Malaysia, while the demand in Greater KL alone is projected to be an additional one million units if Pemandu achieves its target of increasing the population from six million to 10 million by 2020.

Therefore, if our authorities are pondering further “cooling off” measures, it is beneficial to look at the real experience from other countries and not just the “short term” effects, the different environment of property development in our country should also be taken into account.

The original intention of controlling the price of durians in my earlier story is to allow more people the chance to taste this unique fruit at an affordable price.

However, such good intentions often backfire and worsen the current conditions. “Cooling off” could eventually lead to heating up!


Property developer and group chairman of Bukit Kiara Properties Datuk Alan Tong is also FIABCI Asia-Pacific regional secretariat chairman.

Datuk Alan Tong's view must respect although he may have vested interest...

besides some filthy rich young and old, the average malaysian is already quite poor, already in a lot of debt.

only way for the poor fella to buying a home is more n more debt. no gud la... gud for alan tong et al maybe...

1st, remove all crony margins and commissions in the land and approval deals.

2nd, fed gomen need to bear some of the infra-utility costs and not pass to dev to pass to buyers.

3rd, stop or at least reduce the special discounts for special species, stop letting others pay.

4th, raise rpgt and stop the greedy from taking it all.


but in boland, all that is almost impossible la....

This post has been edited by AVFAN: Aug 11 2013, 06:27 PM

In Bolehland...

To control the property industry is very simple.

An astonishing % majority of property transactions in Malaysia is occuring amongst the Chinese despite being the minority group in terms of population.

An increase in Bumi quota would kill off the speculation and rising property prices and at the same time kill off most of our developer's customer base. THe limited supply would mean that these units will be expensive and only for some high income Chinese.

This post has been edited by accetera: Aug 11 2013, 06:35 PM

tat's precisely why the quota and discount thing is not working for the masses, only benefit a minority popn segment.

dun ever think there r no poor chinese or no rich bumis la...

no discount, just raise rpgt - fair n square for rakyat, good for gomen to get revenue, plow it back somewhere like infra.

that's the answer la.

why apply gst to tax the poor while the rich fellas keep gorenging?

This post has been edited by AVFAN: Aug 11 2013, 06:46 PM

Always wonder shouldn't the bumi discount apply to say the first 2 properties rather than being unlimited...

The "real" rich are not really gorenging yet actually... even if they do speculate, their numbers are just so small to create an impact.

Most speculator or flipper wannabes today are just me and you in this forum. The only problem is they are "over-leveraged", they treated property as a mean to earn income, and surprisingly the mass of these people are ethnic-Chinese despite they not getting discounts, etc.

Back to Alan Tong' comments, yes Malaysia is in dire need of affordable housing especially in Klang Valley where it faces a huge shortage. But the shortage is mainly amongst the Malay community in Malay areas. Example: in Shah Alam, where home ownership is not an "in-thing" yet or rather most new homes in Shah Alam are actually beyond the affordability levels.

This post has been edited by accetera: Aug 11 2013, 06:51 PM

when i say "rich", i mean incl those young 25 yr olds like u capable of borrwoing millions to goreng.

no, i dun goreng anymore.

u sure or not 25 years old can borrow millions???? even if it does, this is a rare case leh....

I'm 25 and the max all of my friends can borrow is 400k leh...

This is a capitalist society. As long as there is demand there will be continued speculation. This is demand pull. Like stock market, as long as there are buyers, price will continue to go higher and higher until there is no buyer then sellers are forced to lower their offer price. As it is seller driven, we can see price spiralling down. Just that stock market is short term i.e we will see up and down in a few days time but property market, it may take years. Well, in Mallaysia, I agree property price has moved up significantly over the last few years. It it overheated or over priced overall, I personally don't think so. One can still get a property at reasonable price like a terrace house at RM360k in Puncak Alam, condo at around RM400psf in some areas. If one want good location and cheap price then it is like wanting a Miss Universe as your wife and yet will serve you faithfully like your well trained maid and is the daughter of the richest man in the world. Got such thing meh? Want good location, compete with others and pay more. Want affordable price, don't be fussy about location and quality of development and developers. Just my views! I fully agree with the durian theory as illustrated by Allan.

irregardless of what article you have decided to post, the sad fact still remains. more than 90% of real people cant afford the ever increasing price of property. in other words, whatever article you post here, doesnt have any effect at all, because when it comes to affordability, it's a matter than you cant push it further. besides, malaysian salary cant sustain the property rise, not for majority of the people. those with vested interests can paint the picture in whatever way in whatever reasons, but trust me, the backfire unfortunately will just be backfire for a certain period of time. yes rich people can keep buying, but it only means they will "eat" among themselves

Alan Tong's comments are very fruitful that any short term measures to control the rising property prices will result in "not as expected".

The game changer is Govt must step in to participate in property development by focusing on PR1MA.

tis i m not sure if useful.

gomen n bnm need to deal with economy thru monetary n fiscal measures, for prop and every sector.

micro managing too much will lead inevitably to disaster incl damaging the private sector.

unless it is declared housing shud be a controlled item.

What are your thoughts whether PR1MA is best to solve the affordability issue?

But maybe act like HDB of Singapore but with a twist since our govt do not owned most land?

Or maybe basically just a rebranding for PPR or similar like PKNS flats?

Good summary!

It looks like Greater KL prop market will continue BBB

the crux of the problem is that there has not been a broad-based equitable rise in income in the past few decades. if there had been, the issue of rise in property prices would be less an issue.

government must acknowledge their failings here.

it is both governments and irresponsible "vested party" that fix the rising price that are responsible....one takes advantage, the other dont control much.

actually i also wonder, why is there even an option for bumi to opt whether or not to buy bumi unit with bumi discount.
i meant, if government is serious about curbing speculation, let's first understand the reason of this bumi discount.
why would they grant a bumi to buy a non-bumi undiscounted unit? after all, it's meant to 'help' bumi to own their homes. not speculate, right?
what happens when more bumi shy away from bumi units? more 'holding' to the developers?
i don't get it.

Why don't you share one of the tricks here for the benefit of all?

RPGT higher is not the solution. There are many ways to go around a higher tax imposed. Oops better keep my mouth shut