If we over builds, disaster awaits. Property will surely affect economy.

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Since some years back, many friends have said that Malaysia is facing an oversupply of homes. I said we do not. However, we do have many homes which were not wanted or not affordable by Malaysian household salary standard. Recently, Budget 2020 says that some of the luxury homes which Malaysians have yet to buy will be offered to foreigners. Earlier article here. The reasons why I say so is because urbanisation is happening feverishly.

Hundreds of thousands new people are moving into major cities in Malaysia every year. Just relying on a 4 to 1 ratio meant that we needed nothing less than 100,000 units of homes every year. One day, when we become a fully developed country, when there are no more people moving into major cities, then we should not have so many units being built yeah. As of now, it’s just a mismatch of properties being built versus what people wanted or needed. This may not be the case for some countries.

Article in nst.com.my Daman Properties PJSC Chairman Hussain Sajwani said, “We’re entering a crossroads now. Either we fix this problem and we can grow from here or we are going to see a disaster.” He was asking for curbs on construction in a market which has been on a downward trajectory after it peaked 5 years ago.

House prices have fallen around 30 percent. Property broker estimates that around 30,000 new homes will be built in 2019. (Dubai has a population of around 2.83 million. In comparison, Greater Kuala Lumpur has closer to 8 million population.) Sajwani said, “All we need is just to freeze the supply,” Sajwani said. “Reduce it for a year, maybe 18 months, maybe 2 years.”

Sajwani warned that this oversupply will affect the city’s banks. Declining home values will lead to growing bad loans and higher provisions against default. He said, “The domino effect is ridiculous because Dubai’s economy relies on property heavily.” Meanwhile Damac’s share price has fallen 40% this year because the company will not be paying dividends. Sajwani said he prefers to keep cash in the company to meet financial obligations. There are more to read in the full article here: Article in nst.com.my

When there’s really an oversupply, it’s quite important for the government to curb the supply. Else, it will start to affect the banks, especially if the buyers were not buying for own stay previously and everyone was just buying thinking that prices will keep going up non-stop. When the buying was speculative in nature, as soon as there’s any slowdown, the effects will be a disaster. Meanwhile if the buy was for own stay, then the owner can continue to stay.

Plus it’s super important that the Central Bank in any country to have responsible lending policies. I think our Bank Negara Malaysia (BNM) has done that quite well thus far. If we could not qualify for a loan, most likely we will just get a rejection. That’s also one key reasons why so many people are asking for loan requirements to be loosened. Happy buying and remember, if it’s for our own stay,it’s usually a safe buy. If we wanted quick profits from property investment, please skip this yeah. Happy investing.

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