Why we must stop property bubble potential? No new private equity funds for residential property developments.
Just yesterday evening, I was sharing about the Penang property market with one group of real estate negotiators. Slightly over 100 of them from Penang, Melaka and Klang Valley. After the session, many questions were asked and one of them asked about the potential property bubble for Penang.
Briefly, I do not foresee any numbers supporting this property bubble potential. However, if there are some potential bubble building up, it’s very important that the authorities take immediate action to stem any potential bubble building up. When the government acts too late or believe the market will correct itself, we may have another mortgage crisis like in 2008. Maybe this is why China is taking some immediate action?
Article in nst.com.my The government-endorsed Asset Management Association of China, or AMAC, has verbally informed private equity firms it would no longer be accepting the required registrations to set up funds to invest in projects, people familiar with the decision said, requesting not to be named because the matter is private. Applications that have already been made would also be denied, while existing funds wouldn’t be affected, the people said.
This suspension adds to the challenges for Chinese property developers after regulators tightened funding channels including bank loans and trust funding as part of a campaign over the past years to reduce risks.
As traditional avenues of funding were choked off, real estate companies turned to private equity funds backed by high net worth individuals and institutions to raise money, often using land or cash flow income from the project sales as guarantee. Please do refer to the comprehensive article here: Article in nst.com.my
How property bubbles may form because of buyers and developers?
For example, potential buyers who actually do not qualify should NOT be allowed to buy a property. If they have no down payment and needed a super huge cash back to buy, they should not be encouraged to buy. Perhaps we find some ways to help them instead. Rent-to-own as a start perhaps? Else, find them some affordable property choice instead.
Property developers should also not be given funds to continue their development if they did not manage to secure sufficient buyers in the first place. If these ‘unwanted’ developments continue, imagine what will happen when they are completed? It will create chaos in the market with supply and it will affect even the properties which was fully sold earlier.
Hope this explains which I have never believe a total hands-off approach when it comes to the property market. Without any intervention, the more powerful will control the whole market and the poorer ones will get poorer as they have very little negotiation power. Happy understanding and I do hope there are no property bubbles happening anywhere in the world.
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