IDEAS: Property bubble Malaysia set to burst

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According to an interview by FreeMalaysiaToday (FMT) with the Institute for Democracy and Economic Affairs’ (IDEAS) senior fellow, Carmelo Ferlito, the Malaysian property market is close to crashing because of the high unsold properties in the market. He explained that two economic dynamics will cause this. They include the prices of most homes beyond the reach of most Malaysians as well as a huge oversupply of such homes here. Do read the full article in FMT here. IDEAS in FreeMalaysiatoday.com He added that the government should not intervene if the bubble bursts so that the market forces can help to coordinate the supply and demand. Figures from the National Property Information Centre (Napic) have indicated that as of the first quarter of 2017, some RM10.08 billion worth of residential units are unsold in Malaysia.

Ferlito further explained that the bubble started when the property market is expected to boom after the 2008 global financial crisis (actually, this was more of a U.S property crisis). It got worst because of the intervention of Bank Negara Malaysia which set low interest rates. This sent ‘wrong signal’ to the market. He asked that banks be free to set the interest rates based on the free market proponents and this would better reflect the relationship between supply and demand. (I disagree. I think one major reason why the interest rates was set that way was because of an accommodative stance to economic activities. Of course, we cannot stop people from buying properties but BNM has also set responsible lending guidelines which ultimately lead to many people blaming the banks for not approving their loans. High interest rates on the other hand might have snuffed out many business activities too, not just stopping the purchase of properties)  Please do read the full article with his full explanations in FMT here. 

I personally believe there are reasons for a property bubble building. However, for the property bubble to burst, there has to be an overall market of expensive homes and not just the oversupply units. Furthermore, it is not true that most of the oversupply are the luxury homes. Around 30 percent of the oversupply are for homes priced between RM200k to RM400k.  Please be savvy to the fact that should the world goes into another financial crisis, Malaysia is definitely going to be affected. Google ‘financial crisis’ or ‘property bubble’ and you will get my meaning. There are already a lot of such predictions too. I also think BNM will act in the best interest of the economy, definitely not just for property buyers regardless of whether or not the bubble bursts. Note that Oversupply need not be all bad lah. As for understanding all the other reasons for a property bubble to burst, here are a few signs to look out for. We do not need economists to tell us about these signs until it is too late. Signs to look out for property bubble Believe what we believe and remember to take appropriate actions. Remember, if we believe the property bubble is about to burst, it’s time to start selling today? 🙂

written on 21 Aug 2017

Next suggested article: Property market oversupply? Improve by mid-2018 and recover in 3 years

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