Post date: Sep 29, 2010 1:20:50 AM
RISING house prices are a double-edged sword.
Those who already own them will welcome the higher prices simply because that means more profit when they sell the properties, especially those who have invested in them in the hope of making a gain.
But for those who are aspiring to buy their first house, an unrelenting and prolonged rise in property prices will result in decent abodes being priced out of their grasp and with it a concomitant decline in one key factor in the quality of life.
The needs of the larger population are better served by the availability of popular housing at reasonable prices.
That means a stable supply of good houses matching demand without excessive speculation to push up prices.
In terms of policy, it is therefore important to ensure that land is made available for housing and there is a good mix of development to ensure that a spectrum of demand is catered for.
It is important to realise that if supply is skewed to the higher end and the demand is made to increase by encouraging foreign buyers for instance, this reduces the available resources for local demand and therefore raises the prices of all housing.
That is an undesirable consequence which is further exacerbated by financing schemes which encourage speculation.
There are currently many housing schemes, both for landed properties and condominiums where all the buyer has to do is pay 5% or 10%.
He does not have to pay anything else for between two and five years, the cost of that being built into the price of the house.
Effectively that enables a qualified buyer to place a leveraged bet that the property will appreciate.
If it does, by say 10% over two years, that amounts to a return of 100% on the deposit of 10% over the period, before transaction costs. It is therefore easy to see how such arrangements encourage speculation on the housing market.
The authorities, especially Bank Negara Malaysia, are considering moves to cut the speculation by raising the initial deposit for buyers who already have a house. That is a move that should be welcomed because it helps check undue speculation without burdening the first-time house buyer.
There are signs that a property bubble may slowly be inflating.
The best way to stop it from bursting is to ensure it does not become too big, and if necessary, deflating it.
That will save a lot of future anguish.
If speculation pushes prices so high that there are no genuine buyers who want to buy for staying and no takers for rental, the inevitable result is that there will be a collapse in prices.
The ensuing fear, panic and loss of confidence will result in the entire property market being downgraded.
It is far better that steps are taken now to moderate the increase in property prices, especially since indications are that speculation is part of the reason why the prices are going up in the first place.