Post date: Aug 04, 2010 11:4:43 PM
1st April, 2010
THE REAL ESTATE
PROPERTY, especially residential and shop lots, is often regarded as a good investment instrument and a hedge against inflation.
There are many savvy Malaysians who are avid property investors and they have benefited from good capital appreciation and rental income over the years.
The fear of rising prices and costlier bank financing rates have fanned demand for residential properties in the past few months.
Promoting property development and investment is healthy as it is a sector that creates many economic spin-offs that contribute to the country’s growth.
Should we be concerned about the rising prices for landed residential properties in Kuala Lumpur and some parts of the Klang Valley and Penang? Could this trend be the start of a property bubble in the country?
Although the situation is not yet alarming and the high prices are still limited to properties in very well sought after locations, there should be close monitoring to ensure the market does not overheat. If left unchecked, a property bubble could result in large losses.
We must not forget that the most severe global financial crisis since the Great Depression was triggered by asset bubbles in the United States.
Those who are eager to reap the maximum yields from their investment by flipping their property for quick profits are the ones who will contribute to overheating in the market.
There may be cause for worry if prices continue to spiral upwards as a result of speculation by individuals who are taking advantage of the easy availability of funds to drive prices up.
If speculative activities become rampant, developers may have to discontinue their easy financing schemes for some of their projects to ease the market.
Bank Negara may also need to raise interest rates further to more equitable levels as it will increase cost of funds and weed out speculators.
Raising interest rates at this juncture may be equivalent “to catching two birds with one stone” as Malaysians with surplus cash will find it beneficial to deposit their money in banks to earn higher interest income.
The prevailing low interest rates is one of the reasons why people are opting for other investment instruments over bank savings.
With the economic recovery gaining momentum, raising interest rates will be an appropriate strategy to drain excess cash from the economy to prevent overheating and asset bubbles.
Australia, China, Hong Kong, Singapore and Vietnam are some of the countries that have raised interest rates to prevent overheating in their economies.
It is still relatively easy to buy property in Malaysia due to the availability of easy financing schemes. As long as buyers can prove their ability to service the loans, banks will readily lend to them.
The strict conditions laid down by Bank Negara for loan approvals have provided a safety net to weed out potential bad lenders and curb non performing loans.
This is unlike the situation in the US where even ineligible buyers without proper jobs or regular income were extended loans which later turned bad.
Even without the risk of property bubbles, escalating property prices are worrying many Malaysians, especially those who have just joined the workforce.
In the past, bungalows and semi-detached houses would cost more than RM1mil. These days even terrace houses in some locations are priced from RM900,000 to more than RM1mil.
As such, those who have just joined the job market and first time house buyers may still need help.
Developers can still extend housing loan facilities to them. However such services should be discontinued for those who can afford more expensive properties.
Although housing loan facilities have become a marketing tool for developers, it is important for industry players to play their part to ensure a healthy and balanced market for the benefit of all. This will be a good time for Bank Negara to normalise interest rates.
·Deputy news editor Angie Ng believes Malaysians should remain vigilant of their investments and it pays to spread their eggs in different baskets