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Is the property market bubbling over?
By Lee Wei Lian September 07, 2010

Property prices have continued to surge despite a growing supply overhang and low occupancy rates. — Pictures by Choo Choy May
KUALA LUMPUR, Sept 7 — Prices of residential property have surged by as much as 35 per cent in the past year despite a growing overhang in supply, far outpacing income growth and giving rise to concerns that the market is becoming unsustainable.
Figures provided by the National Property Information Centre (Napic) show that average prices for homes in Malaysia rose a whopping 19 per cent to RM273,000 in the first half of this year, from RM220,000 in the same period last year. For Kuala Lumpur, the increase has been even more dramatic, rising an eye-watering 35 per cent to more than RM700,000 in the first half of the year, up from RM523,000 last year.

The market, however, may be starting to lose its appetite for properties due to the high prices.

Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent in the fourth quarter of last year. For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.

The Edge business weekly reported recently that the government is mulling capping mortgages to 80 per cent of value in a bid to keep the market from overheating although MCA has come out strongly against the move. This comes as Singapore introduced a series of measures to reign in investors and speculators, such as a 70 per cent mortgage cap for buyers with more than one property and launching 36,000 public housing units this year and next.

While Napic does not have a housing affordability index, a rough calculation shows that the average price of RM273,00 is about 5.6 times that of an average annual household income of RM48,000. The average price of a KL home is now a steep 13 times that of the average urban household income of RM54,000 and a possible sign that the market is headed for a bubble.

The sharp increase in prices is said to be at least partly due to speculative demand as investors snap up multiple properties in the hope that prices will keep on spiralling upward — despite low occupancy rates that could affect rental yields.

Some real estate agents and developers have privately expressed worries that the market is already too speculative and the price escalation is not sustainable.

“I am all for sustainable price growth but the current market is too speculative,” one developer told The Malaysian Insider. “Most of the units are taken up by employees of the developer hoping to sell for a profit when the development is completed.”

Many developments completed in the past year such as Ameera in SS2 Petaling Jaya, Cova Suites in Kota Damansara and Challis Damansara in Sunway Damansara are experiencing only about 30-50 per cent occupancy rates, according to real estate agents. A check on new high-end condo Zehn in Pantai where sellers are asking for RM2.2 million per unit revealed the building to be almost completely dark at night.


Rental yields are starting to slide given that supply far outstrips demand.
A typical unit at Ameera is on the market for RM750,000. Given a 90 per cent margin of financing (MOF) over a 20 year tenure, the monthly loan repayment for a unit there works out to be about RM4,855. Rental rates at Ameera, however, are only about RM3,000 for a partly furnished unit.
A stand-off could be developing where buyers are now balking even as sellers are trying to hold out for higher prices.

Red FM DJ Terry Ong who has been on the lookout for a condominium said that housing has become “unaffordable” and has taken himself out of the market.

“I am not in a hurry,” said the DJ who is currently paying RM1,100 in rent at a less than full condominium complex, where sellers are asking for between RM350,000 and RM400,000.

Engineer Edward Seah said that while he would like to upgrade from his current condominium, he will not buy another house given current valuations.

“Are such high prices warranted?” he questioned. “I refuse to feed into the current property frenzy.”

Housing and local government minister Datuk Chor Chee Heung said that the high savings rate in Malaysia meant that there appears to be no shortage of takers despite the prices.

He added that there will be a limit although he was unclear as to how far prices will continue to rise.

“We have to continuously tell developers not to push the boundaries,” he said when contacted by The Malaysian Insider. “There is bound to be a maximum.”

Chor said that the government is building some 76,000 low cost units that cost about RM42,000 each in the next three years, but it is unable to tell private developers how much to build to boost supply of middle class housing in the market.

Real Estate and Housing Developers Association (Rehda) president Datuk Michael Yam said that the issue of rising property prices was partly due to an imbalance of supply and demand as more migrants move to land scarce Kuala Lumpur as well as higher cost of raw materials.

“Even if 50,000 new housing units are needed in KL, that is still a huge number to build,” he said at a recent Rehda media briefing

Source: http://thestar.com.my/news/story.asp?file=...73123&sec=focus


A property boom myth

IT IS enlightening but worrying

to read the report “Is a property bubble forming ?” (The Star, Sept 18).

Those with the credentials seem to concur that the bubble is still in the early to mid-phase of an up-cycle. It’s the same song sung by analysts in developed countries just before the real estate bubble burst in 2008. A similar phrase telling the people it’s better to buy now or you can never afford to own a house as prices will be spiraling high.

The point of contention is about speculation and high leverage

exposure of property investment and its inherent risks affecting the common people and the overall market.

In general, for the middle and lower working classes, owning a house and a car could literally take up 1/3 to 2/3 of their monthly income. In chasing the high

property prices on fear of even higher prices in future, it’s the ordinary folks who will suffer the most when the bubble bursts due to excessive speculation and

leveraging.

The systemic risks of high

leveraging on fixed assets like

property can be highly destructive.

Logically, any counter measure should be viewed from a distant perspective to ensure that the

benefit derived from it is

sustainable.

However, that does not seem to be the case, as measures taken and policies implemented by a majority of regulators worldwide are very much geared to provide instant results to satisfy the immediate expectation. It may seem beneficial to the majority but in reality, it’s just pushing forward or delaying the imminent problems.

While we know that derivatives are speculative because typically it’s highly leveraged, some as high as 20 to 40 times of their capital. In the same dimension, let’s examine the magnitude of leveraging on the property market in Malaysia.

With the availability of 5%-95% loan package, a house valued at RM500,000 requires only RM25,000 as deposit to make the purchase until its completion. From the owner occupiers’ perspective, it’s a positive move as it provides them an opportunity to own a house.

However, from the investor’s point of view, the ratio of leverage is 20 times the house value. The gains and losses are equally magnified by the same magnitude.

As greed equates the high

potential gain, speculation seeps in, pushing the house value to RM650,000 (30% gain) within a year. When the next buyer purchases the same house at RM650,000 he/she has to pay a deposit of RM32,500 and service the loan of RM617,500 instead of RM475,000 when the house was valued at RM500,000.

For the bank to justify the

borrower’s financial ability to repay the loan, the borrower either has to increase/decrease the monthly repayment or shorten/lengthen the tenure in relation to the

borrower’s age. This is where the cycle of destruction begins.

Speculation and high leverage exposure is not a bubble, it’s a

visible inflated balloon passing from one hand to another, easily burst with any external force, the last to hold the balloon bites the dust.

In this respect any investment with leverage ratio of more than four times of initial capital, the potential risk of bursting increases proportionately.

Therefore, to ensure a house for every family, speculation and high leveraging should be curtailed. Possibly a loan package of 10%-90% for first-time home owners, followed by 25%-75%; 30%-70%; 35%-65%; 40%-60%; 50%-50% on each subsequent purchase. The same may apply for other factors like stamp duty.

SEEONEMAN,

Penang.

Of property overhang and mounting household debt — Dr Dzulkefly Ahmad

November 25, 2010
NOV 25 — Property Overhang as reported by Napic (National Property Informational Centre) for the third quarter of last year was supposedly a cause for alarm.

Then there was an overhang of 20,286 residential, 5,450 shop and 619 industrial units worth a whopping RM5.3 billion.

Of the 6,401 new residential units launched during the third quarter, which was a far cry from the 14,588 units launched in the previous corresponding quarter, only 20.2 per cent found buyers.

If the RM5.3 billion overhang failed to deter the enthusiasm of the NEM planners, let’s consider what is in the pipeline.

The Finance Ministry reported another 44,954 residential, 4,605 shop and 794 industrial units were under construction as of the third quarter. Projects approved but yet to be implemented comprised another 14,993 residential, 1,011 shop and 872 industrial units.

The massive overhang constitutes not just a financial burden to the developers and their financiers, most of whom are financial institutions, but is also a waste of resources, much worse, contrary to the 40 per cent carbon emission reduction as vouched by the Prime Minister in Copenhagen.

More recently, Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent in the fourth quarter of last year.

For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Quite ironically while a glut is emerging, prices of residential property have surged by as much as 35 per cent in the past year, far above income growth and giving rise to concerns that the market is becoming unsustainable.

Napic’s Property Overhang reports show that unsold properties in Malaysia rose to 22.6 per cent of new launches in the second quarter of this year, from 19.5 per cent in the fourth quarter of last year.

For Kuala Lumpur, unsold properties rose to 16.1 per cent from 15.8 per cent, while for Selangor it rose to 14.6 per cent from 12.4 per cent.

Checks on developments completed this year also show that vacancy rates remain at 50 per cent or higher.

While the notion of property is usually resisted by developers and the KPKT, valuers and observers may have to nod when it come to property in Penang and Kuala Lumpur.

While prices keep going up, the economic returns decline. This, in return, contributes towards distorting the economy and plunging the country ever deeper into a frightening economic bubble.

On the back of the emerging property bubble, the revelation of a ballooning household debt, comprising mainly house mortgages, cars loans and personal financing such as credit cards, debit cards which stood at an all time high of RM560 billion as at Aug 31, 2010 from Bank Negara Malaysia data is surely a cause for alarm.

The rapid growth in household debts now poses a threat to the economy and exacerbates the vulnerability and instability to the financial sector.

It is worth noting that our household debt to GDP ratio shot up to 76 per cent between 2004 and 2009 and is the highest in Asia, except for Japan.

But as a reminder, Japan’s per capital income of US$32,700 or about RM8000 per month in 2009, while Malaysia’s average income per capital is less than RM2000 per month.

According to a note by CIMB Research, the ratio of household debt to personal disposal income hit 140.4 per cent in 2009- higher than Singapore 105.3 per cent and the US 123.3 per cent. [COLOR=red]This means Malaysians own double the amount they earn.

According to Credit Counselling and Debt Management Agency (AKPK) of the total 50,361 cases that enrolled in debt management program, 10.6 per cent could not pay their credit card debt while 74.3 per cent had repayment problem with housing loans, car loans and credit cards outstanding.

Credit Counselling and Debt Management Agency (AKPK) CEO Mohamed Akwal Sultan says some 44 per cent of the individuals who join the programme belong to the 30 to 40 age group. Some individuals start to have repayment issues when they are even younger because many of them do not have salaries that commensurate with their lifestyle. The problems worsen when they hit their 30s and beyond.

Since Malaysians tend to have short memories and have a penchant for the denial syndrome, it’s pertinent to remind our political leaders and planners of the costly deflation of the property bubble in the aftermath of the 1997/98 regional financial crisis.

When the property bubble burst, the banking system was left with RM51.8 billion worth of non-performing loans (NPLs), forcing the government of Tun Dr Mahathir Mohamad to form Danaharta Bhd to assume the NPLs and Danamodal to help recapitalise the banks.

Danaharta subsequently assumed NPLs worth over RM50 billion and overnight, became the largest real estate owner in the country with assets valued at RM3.63 billion while Danamodal injected RM11.7 billion to revitalize and recapitalise the banks.

Going by the orgy of real estate developments in recent years, it is clear that both the regulators and the developers have forgotten the 1997/98 lessons or have not learnt much. The government is discouraged to put a higher real property gains tax (RPGT) and restrictive loan-to-value (LTV) caps as it will be a deterrent to foreign direct investments and high net worth individuals. Besides, a higher LTV for second and third home buyers and in specific hotspots areas, of say

70:30, may not be complied with after all, by the financial institutions.

On the back of a burdening household debt, though arguably not-so-high NPL as yet (3.7 per cent of GDP), the oblivious attitude of the government, the prolonged low-interest rate regime, the ‘greedy’ developers and the less-than-prudent practices of the financial institutions, are

doubtless, ‘fodders’ that fuelled the formation of a ‘property bubble”.[COLOR=red]

Quite evidently, the property and construction sectors are again leveraged to the maximum as the top contributors to economic growth.

It is all so easy for the government to take a short-term approach to realize targeted growth numbers, visibly at the risk of jeopardizing and short-changing the long-term well-being of the economy.

Despite all the avowed big sounding slogans on performance and competitiveness, very unfortunately, nothing has changed in Malaysia Bolehland. — drdzul.wordpress.com

* Dr Dzulkefly Ahmad, Member, PAS Central Working Committee.

* This is the personal opinion of the writer or the newspaper. The Malaysian Insider does not endorse the view unless specified.
[COLOR=blue]Source: http://www.themalaysianinsider.com/breakin...zulkefly-ahmad/

PM: Imbalance in Bumi/non-Bumi property ownership can cause instability
By ZUHRIN AZAM AHMAD


PETALING JAYA: The imbalance in property ownership in the country, which currently leans towards the non-Bumiputera, does not contribute to long-term political stability, said Datuk Seri Najib Tun Razak.

The Prime Minister said there was a likelihood that the Bumiputera would not be happy with the present scenario.

He said the one-sided situation was most obvious in the Klang Valley, particularly in Greater Kuala Lumpur.

“Imagine the feeling of the Bumiputera who are walking in the city and, when they look at all the skyscrapers, they feel that they have no share in them.

“They would feel unhappy and discontented and would conclude that country’s wealth had not been distributed fairly or evenly and that they have been denied their rights (for equal property ownership).

“These feelings will not contribute to long term political stability,” he said when launching the Amanah Hartanah Bumiputera (AHB) investment fund here Monday.

Also present was Deputy Prime Minister Tan Sri Muhyiddin Yassin.

The RM1bil fund, announced during Budget 2011, is managed by Pelaburan Hartanah Bumiputera (PHB) and enables the Bumiputera to participate in the ownership of real estate assets with a minimum entry investment of RM500.

PHB is a subsidiary of Yayasan Amanah Hartanah Bumiputera. Najib said the launching of AHB was an initiative to ensure a balanced ownership of assets in the country.

“This is in line with the NEM’s (New Economic Model) core, that is, to promote inclusiveness.

“It is also to close the gap in term of property ownership between the Bumiputera and others,” he said.

On the prospects of AHB, he said he believed it could yield returns that could be even better than fixed deposit.

Najib also suggested GLCs and private companies reward their staff, including those who were retiring with the fund’s shares, to further promote the fund.

Source:
http://thestar.com.my/news/story.asp?file=...2734&sec=nation