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Excess properties? 13 months to sell off.

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As written earlier, due to the worry that the property market may have become too cold and become a danger to the whole economy, China has started to ‘warm-up’ its property market. Read here: China’s Property Market Rescue Package Deployed. This is insufficient as per China’s largest residential developer, Vanke. In fact, only the two major cities of Beijing and Shanghai are doing well while many other cities are facing great inventory pressure. In other words, way too many supply than what demand can absorb. On average, China needs 13 months to sell off existing inventory. Of course his views are different from many other developers who said that the worst time is over for the property market. Nevertheless, as per statistics from official data, the real estate investment growth has slowed for the first 11 months of 2014. However, in terms of property sales, it has hit the highest level seen thus far for 2014. Perhaps, the warming up has started to show some results.

Except for China, not many market has been more aggressive than usual to prop up the real estate market. For example, in Malaysia, officially the push is for more affordable homes by both the government as well as the private sector instead of relaxing measures such as DIBS or reduction of RPGT or even relaxing the bank lending curbs from Bank Negara Malaysia. Perhaps the market is different. The oversupply situation in Malaysia is definitely not as bad as China. However, looking closely may reveal that prices of properties in KL is definitely not sustainable at current level. Average price is close to RM700k which is exorbitant no matter to which category of middle income Malaysians.  Read here: Average Value of residential properties in KL is RM673K In other words, the lower priced secondary ones are available but so are those which are over RM1 million and yet is just 1,000 sf or even smaller depending on the area which the property is at. I do not think the buyers would suffer losses by selling it because of their much lower entry prices many years back but seriously, there’s no chance to earn huge profits like what these buyers envisioned when they bought it in the first place.

Oh yeah, would the situation warrant some ‘warming up’ measures like that of China? I think we should just watch the Singapore property market for some clues. Already the local developers there are becoming more vocal in saying that the government may need to intervene before the market situation becomes too negative. Transactions are falling, prices are also dropping and this is true for HDB homes all the way to luxury ones in the island including Sentosa. Some sellers are even selling at a loss though actual reasons unknown. Assuming the Singapore government acts 6 – 9 months ahead of Malaysia, we can sort of guess what may happen once the Singaporean government intervenes in its property market. As of now, there has been no indication that such an action is forthcoming. If I do come across it, will share. Happy waiting, if you are still waiting.

written on 14 Dec 2014

Next suggested article: Should Singapore follow China for property market ‘warming’?

 

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