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30% increase in property price? The central bank better be doing something, DRASTIC.

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If the average property price in Malaysia goes up by 30% in one year, two things would happen. The ones without a property to their name would complain very loudly and ask why is the government allowing the property price to go up so fast, so high. The ones with a property whose property price went up by 30% would be quiet and smiling happily if they could sell their property at 30% higher.

Fortunately for the ones without a property and unfortunately for those with a property, the 30% increase in property price did not happen in Malaysia. It happened in New Zealand which has managed to keep Covid-19 in check thus far.

Article in nst.com.my New Zealand policy makers are battling one of the hottest property markets in the world, with prices surging 30 per cent in the year through June.

The Reserve Bank (RBNZ) plans to reduce the amount of low-deposit lending banks can make from October 1, and will also consider introducing debt-to-income limits and/or interest-rate floors later this year.

In more detail, the RBNZ proposes to restrict the amount of lending banks can make to house purchasers who have less than a 20 per cent deposit to 10 per cent of all new loans, down from 20 per cent at present. For even more details please refer here: Article in nst.com.my

The measures if property prices do go higher too fast?

Please note, if property prices are rising by a few percent every year, the central bank, in the case of Malaysia it’s Bank Negara Malaysia (BNM) will not be taking drastic measures. However, if property prices move up too fast, it will definitely try to cool down the market.

For example, getting the banks to use net income versus gross income in their loan approval calculations. This has reduced the number of people who could afford to buy and also limited the amount they could actually qualify for.

Another potential measure may be to increase the interest rates because this would definitely make it more expensive to buy a property due to higher mortgage repayments.

There are a lot of other measures which could be taken including even working with the state governments to ensure the developers do not launch ever higher priced properties. However, at the moment, there is not much intervention necessary. The property market is adjusting itself with the demand and supply forces.

Just need to remember that property prices will change if Covid-19 is under control. The reason may be due to the pent-up demand and the slowing down of the construction stages and thus supply into the market because of lockdowns. Happy following.

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