Property sector becoming a risk to economic growth

Just last week, many reports have highlighted the danger of the increasing household debt. I wrote an article about it too. Here: Since household debt vd GDP so high, should we stop buying properties  Reported in MalayMailOnline yesterday, Business Monitor International Ldt (BMI) said that the current slowing down of the property market may turn Malaysia’s household debt into a risk to the economic growth. The reason is because mortgages remain the prime contribute to Malaysians’ debt over the past 5 years. This is happening even as consumers continue cutting back borrowing for other expenditure.

Currently, the household debt is at 89 percent versus Malaysia’s GDP. Yes, this is highest in the region. Yet, if you ask me if it’s better to buy Philippines stocks instead, my answer is negative. Choosing just one, I would prefer undervalued stocks in Bursa anytime. BMI said that the risk of a softer property market meant that the value of property would grow slowly and this would limit customers’ ability to obtain additional credit. This has already affected the consumer sentiment which has worsened in recent years. BMI also shared that the value of assets of households in Malaysia is two to three times the size of debt which implies low risk.

I am not sure if BMI also took into account that banks in Malaysia do not lend to those who could not qualify. In fact getting a mortgage loan approved in Malaysia has been tough for many years and not just last year. Read here: Jan 2016: Whopping 62 percent loan rejection This is the main reason why the non performing loans (NPLs) did not rise fast like what happened in a certain developed country way back in 2008. For 2016, I think the household debt in percentage versus GDP will get worse. This is despite the fact that Bank Negara Malaysia keeping to its targeted annual growth of between 4.0 and 4.5 per cent. Some analysts are expecting lower.

Whether property market is having a bubble or bursting, there are some signs we can take note of ourselves. Read here: Spotting signs of a property bubble, 3 points (updated) In terms of property sector becoming a risk to the economic growth, I think this meant that without much property transactions, it would not contribute much to the GDP numbers. As long as the transactions are from genuine demand instead of speculative ones, I think it is ok. It’s better for us to focus on other sectors instead of having property rising fast like a few years ago. Happy investing.

written on 5 Apr 2016

Next suggested article: Property bubble in 2016? Huh?

 

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