Post date: Aug 23, 2010 1:26:52 PM
By : Salleh Buang
Date Published : 16 August 2010
"IT is better to pre-empt a bubble than wait for it to get serious and have to take more drastic measures," Singapore Prime Minister Lee Hsien Loong said in February this year in the wake of strong measures taken by the government against speculation.
Property analysts remarked that a combination of low interest rates, sustained demand and speculation have pushed prices higher in many Asian cities with some exceeding 2007 peaks.
China, Hong Kong and Singapore have implemented measures to pre-empt their bubble bursting.
In Beijing, buyers of second homes are now required to put a downpayment of at least 40 per cent before they are considered eligible for a housing loan.
In Singapore, owners who sell their properties within a year of acquiring them are slapped with a heavy stamp duty.
In Hong Kong, buyers can borrow up to only 80 per cent of the property's value instead of 90 per cent previously. Stamp duties have also been increased for sale of properties beyond a certain price.
A Chinese Academy of Social Sciences (a government think tank in Beijing) economist Yi Xianrong told Reuters recently that China's property market is "dangerously overheated and failing to tame the speculative bubble that could threaten its financial and social stability", referring to the 64.5 million empty apartments and houses in urban China, many purchased by people gambling on a constantly rising market.
Will Malaysia face a property bubble bursting any time soon? Rehda (Real Estate and Housing Developers' Association) Institute said no.
It explained in its blog that a property bubble is formed when there is excessive bank lending and low borrowing cost, leading to investment frenzy and excessive speculation. Prices will increase until they reach unsustainable levels relative to incomes and other economic elements, followed by a reduction in the price levels. Banks will be short on capital while cases of nonperforming loans will increase in number. When banks start cutting back credit, the economy will be affected as property prices begin to fall.
Last month, Deputy Minister in the Prime Minister's Department Datuk S.K. Devamany said development of the Malaysian Rubber Board's 8,154 acres of land in Sungei Buloh in the Klang Valley will not cause a property bubble because it will be done in stages.
He was responding to a question from Dr Dzulkefly Ahmad (PAS Kuala Selangor) who said that according to a report from the Finance Ministry's National Property Information Centre, there is property overhang of RM5.3 billion with the potential of causing a property bubble in the Klang Valley.
Devamany said the property overhang is the value of properties yet to be sold throughout Malaysia by the last quarter of 2009, and not only for the Klang Valley alone.
Housing and Local Government Minister Datuk Wira Chor Chee Heung told Business Times last month that there is no property bubble in the country as demand and supply are matched properly, adding, "There is no fear of a property bubble here. We have not reached the stage yet and the mechanisms are right in place. It is still manageable."
Chor was asked to comment on a United Nations Conference on Trade and Development report which said foreign direct investments in Malaysia had plunged more than 80 per cent in 2009.
Meanwhile, I found divergent answers on the blogs where the same question was posed for discussion. There are those who believe the bubble has already burst in certain areas, referring to transactions where built-up units were sold below RM1,000psf, while the general public can still see these same properties being advertised for sale at above RM1,000psf.
Those who believe the bubble will not burst any time soon said there is no likelihood of a subprime mortgage crisis taking place here because the property loans are confined to one single layer - between the lender and borrower. They said it's not the same as in the United States where loans were repackaged and resold as tranches to hedge funds, insurance companies, investment banks and so forth.
Then there are others who believe that fraudulent practices among speculators are becoming prevalent. These borrowers fake payslips and income tax returns to get substantial loans to speculate in property. These bloggers believe some bankers "close one eye" to such fraudulent practices, fully aware that these speculators will usually sell the newlybuilt properties. They said these are danger signals of a property bubble.
In another blog, there's a news item that said "Malaysia topped the list for enquiries into distressed property listings from specialist funds".
Specialist funds are places where "smart money" sits, waiting for opportunities, unlike money which runs with the herd.
Such funds are not rushing into Malaysia yet, preferring to wait and see; but their interest level in our distressed commercial properties is reportedly twice the amount of the said properties that fell into the market in the last quarter.
Now, why are these funds interested in something here which many of us still believe has not happened or will not likely to happen?
Salleh Buang is senior advisor of a company specialising in competitive intelligence. He is also active in training and public speaking and can be reached at sallehbuang@hotmail.com