100,000 new units vs 140,000 new household formation. Prices up? Do not agree.

In Business Times (1 Aug 2014), REHDA’s new President, Datuk Seri FD Iskandar Mansor said that property prices will continue to rise because of the lower supply versus the higher demands as well as high land cost. According to the National Property Information Centre (NAPIC), the average housing completion was 100,000 units against the average household formation of 140,000. Actually, one day when Malaysia becomes a more matured and developed nation in terms of the housing and urbanisation starts to slowdown, these numbers would really give a good idea. However, at this moment, I think the Malaysian property market is still growing, statistics are still not that readily available. Thus, the prices definitely are not really in reference to these numbers. It is more emotional driven. More prominent people loves staying in Area A, everyone flocks to Area A and the prices for Area A goes up. Prominent people said Area B not good, too far. Everyone believe and skip Area B. So, Area B prices remain low. This is more likely the case.

He also said that the profit margin for developers are no longer like previously. These days instead of the typical 30%, developers are now making only around 15%. This is due to high compliance cost, development and infrastructure changes, quit rent and stamp duty. He said land is also getting scarce and thus more expensive. As an example, when Glomac bought land nearby the Petronas Twin Towers, the seller asked for RM1,000psf and Glomac bought it as they already have firm plans on what to build there. Today, that same piece of land is worth RM3,500psf. Then he said something which I like very much even if this control has to be improved. He said, “We are in an industry which is highly regulated. We are governed by three different authorities, namely the state government, the Federal Government and the local authorities. If we don’t comply, we won’t be able to get development approvals.”

I hope that all these development plans are as transparent as possible. I also hope the flow is within 3 months. I also hope all developers are treated equally whether they are big or small or private vs GLCs. There should however not be less regulation. Merely, everything must be made more systematic from currently. I still firmly believe that the state government and the federal government must continue to monitor and take pro-active steps and measures to ensure the market is as fair as possible to the potential buyers in future, with special emphasis on first time buyers. Without any control, look at what happened to USA during the mortgage crisis. I do not wish for the same to happen here, where many of the banks which were exposed during the mortgage crisis had to ask for help from the government who naturally ‘helped’ them. So much for so called , ‘free from intervention’ preach by USA to the world…..

written on 2 Aug 2014

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