On and off, there are comments on Facebook which predicted that Malaysia’s property bubble is about to burst. Currently, the most popular prediction is that of Iskandar. Actually, the main reason for all the cooling measures by Bank Negara Malaysia (BNM) is to contain any dangers of property bubble building up. So, do you want to know how to spot a bubble? Actually, there are always some warning signs before a huge bubble starts to form. In fact, it may be easier for you to spot it than to listen to all the conflicting opinions today. Let’s look at three prominent signs for a property bubble.
1. Sharp and continuous house price increase
If prices are increasing or even doubling in say 3-4 years, this is considered extremely sharp. Imagine a RM300,000 property suddenly become RM600,000 in 4 years? There is just no way that your salary would be able to catch up. Two years ago, the property prices in Malaysia was ranked top 12 in the world in terms of price increase. Read here: ‘12th Highest Growth in the world‘ In terms of changes for the past 10 years, it clearly shows that the prices has indeed been rising but has not shown any sharp increases for the past few years, except for certain segments in certain locations. Overall basis, I think not yet.
2. Affordable choices availability
This is extremely important. Imagine you are earning RM3,000 and every single property in Klang Valley is priced RM500,000 or higher. Would you be able to buy any property at all? Fortunately this is not the case. I do not want to go into the low cost flats but if we go online to any property websites like PropertyGuru.com.my or Iproperty.com.my, we could see that even at the lower range of below RM300,000 there are still many choices. Thus, in terms of availability of affordable properties even if its not at a hotspot, at this point in time, we are considered safe. We do not need to look very far, just compare to Singapore. Singapore government has undertaken many more cooling measures than Malaysia. Yet, the prices of HDB Flats of 1,000sf or higher, even at the fringes are hitting S$400,000 or higher. Please do not say Singaporean earns more. Number to number, their engineers earn the same as engineers in Malaysia. This can be verified easily online as well.
3. Bad Debts?
If the non performing loans in the banking sector starts to increase at a fast rate or has been increasing for the past many years, I think we ought to be worried that perhaps it is no longer safe buying ever higher priced homes. Perhaps a lot of people are now unemployed and thus not able to repay their mortgage, causing their debts to become non-performing loans. If we refer to the chart by Worldbank, for Malaysia, in particular, this is not yet happening. In fact, the total non-performing loans continue to decrease.
Do note that there are no guarantee that all these signs may not suddenly deteriorate if something unforeseen happens. For example, another huge collapse of the banking system in Europe or US? Everyone should know that Greece economy is on the verge of financial crisis today. If you always monitor these three important signs, there is no need to listen. You know the answer. Happy watching and please report if you find anything huge happening.
edited on 14 May 2015
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0 Responses
What a great article. I always been thinking the property bubble is going to burst. After reading your article, at least now I know things are bad but not near that stage yet.
Keep feeding us with all your great articles. I love how you break down the numbers and variables. 🙂
Make no mistake. If the world crumbles Malaysia will fall too. Yes, growth is also slowing. Sentiment more negative too. However to expect the first country to have property bubble bursting as Malaysia is very unrealistic at this point in time. Cheers.
Is there any book to recommend? Maybe one of your favourites? I would hope to be able to analyse better rather than speculating.
Adrian, personally I like Azizi Ali’s books. It sets a good direction for me. As for current trends, I think everyone must read as many sources as possible. The Edge, The Star / NST (Sat) and other secondary sources like Bloomberg, economist and more. happy reading.
Agreed the three indicators. I thought we was hit very badly in year 1997/1998.
Yes. Very badly. When I was in UK, the exchange went to 1pound to rm8!!!!!
Good sharing. I think the ideal investment would be staying relevant and not over expose your financial stability. A good saving that will definately help shielding through in case raining season comes.
“not overly expose our financial stability.” Yes this is the key message. If we try to win big very fast, we may lose big very fast too….