There are many reasons why a property bubble may start building and later bursting. This was a recent view from an academician. Property bubble close to bursting due to 3 reasons. Government must be ready. This view which was published in many media outlets were widely shared and I have received it from many friends. They were worried. One lady from Penang even told me that she will not buy a property she’s been eyeing for a couple of weeks. As long as we are not overstretched currently due to property mortgage payments, we have no worries. A more important question might be, will I be losing my job in the near future. If the answer my job should be safe, then there is no need for us to sell our home at a much lower price than what we paid for previously. Perhaps it’s better to understand the usual three reasons which are the signs before a property bubble bursting shall we?
#1 – Sharp and continuous house price increase
Property prices must be rising and rising and rising on a much faster pace than our salary growth. Remember the periods of 2009 – 2013 here in Malaysia? Yeah, generally every new launch by developers were all at a higher price. Then, the cooling measures from Bank Negara Malaysia came. The speculative activities were then minimised instead of being the norm. Banks only lend to qualified borrowers. The double digit house price growth were stopped in its tracks. When we ask our real estate negotiator friends these days, they will usually tell us of certain potential buys which are now ‘Below-Market-Value (BMV).’ Of course, we should still be aware that BMV here does not necessarily be a good buy unless the BMV was not due to the BMW-level price previously… First reason for a property bubble bursting? Not happening currently. We may refer to the image to understand that those double digit years have passed.
#2 – Just no such thing as Affordable choices
This is extremely important. The B40 and the M40 households in Malaysia comprise of 80 percent of the total households. Earlier article here about them. They need affordably priced homes and not the RM500,000 or higher homes. This is the reason why there was PR1MA, Rumah Selangorku and even RUMAWIP programmes. There may be on its way. The government says that it intends to build 1 million new affordable homes within 10 years. Of course, we hope these affordable homes are in well connected areas, comfortable to stay and built as per the announced timelines. Once these happens, the pressure on the housing market is lessened because property transactions would continue to happen instead of only the rich having the money to buy and the poor struggling to get a place or having to rent forever. There’s also the rent-to-own schemes too. Property bubble will burst when there are too little affordable choices in the market. Even if we do not look at these new affordable choices, there is also the secondary market which will provide choices under the sub-RM400,000 category.
#3. Non-Performing Loan numbers
Banks in Malaysia are listed in Bursa Malaysia. They publish their quarterly results without fail. (If they fail to publish them, problems have started…) Please take a look at their Non-Performing Loan numbers. If we see a spike in the number, we know that the borrowers of the banks are no longer able to serve their debts. What this tells us is that the potential for the properties to be auctioned off is high and this is usually the start of a loss of confidence and the herd mentality kicks in. More people will be looking to sell their properties at lower prices and the a crisis starts. The image shows the non-performing loan numbers in Malaysia by CEICData.com In brief the only reason why people start to miss their payments may be because they have lost their jobs. This is why this number is extremely important to take note of and everyone could!
By the way, there’s no thing as since all these three signs are healthy, there’s no potential for a property bubble bursting yeah. Who knows if another world financial crisis would unfold in the near future which will pull all the rest of the world into a recession? Based on the current numbers, Malaysia is unlikely to be the starting point for the crisis. This is what our Finance Minister Lim Guan Eng said, “Economy remains strong, fundamentals solid” (Click to read his full explanation) Beyond these three major signs, we can also look at the Unemployment Rate of Malaysia. Any sudden spike indicates problems ahead. The car sales numbers, usually when it shows a totally bad number, we know something bad is about to happen. The visitors to the popular malls. When people have no money, they do not go to places where they are tempted to buy… Happy watching and please report if you find anything huge happening.
written on 27 July 2018
Next suggested article: Be selective please because demand will always be selective