There was one recent article which talked about distortion of property values. It was about cashback and The Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS) president Michael Kong says that those who inflate prices to make cashback offers aimed at enticing homebuyers must be closely monitored by the authorities. He shared that this has been a long time problem in the real estate industry. Please read the full article in freemalaysiatoday.com here.
As this was an interesting topic, I have also gotten the views from FIABCI President (Malaysian Chapter) Sr. Michael Geh. He gave his frank opinions as below which I think reiterates to us again that ALL stakeholders who are involved must play a part in eradicating this potential longer term issue if this is allowed to continue. Potentially property prices may become higher because of the price expectations if people were unaware of the effects of cashback. Geh shared the following:
“When the practice of CashBacks are in the Rm20k to RM50k with the Moral of assisting the homebuyer with little cash to purchase & move in everybody in the Property & Banking closed one eye.”
“But today the Practice of CashBacks puts From RM100k to RM1 Million into the pocket of the Property Purchaser, by Signing a Higher Sales & Purchase Agreement & guaranteeing the Loan Amount.”
“This Practice Creates a Distortion of Property Values of the Subject Project and artificially inflates the market value of the subject property.”
“In an economic downturn The Market Values of these Newly Purchased Properties can tumble up to 50% & this will create ripples of Problems for the Banking & Financial system. Therefore The Banking System must make a stand on this practice in order to preserve the quality of mortgaged asset values before it this problem becomes chronic beyond salvation.”
Everyone needs to understand yeah, money cannot appear from the sky. Banks want profits, they would not give you free money. Developers need profits, they would also not give you free money if they have to lose money. Real estate agents? They need their commissions too and definitely will not give you a cut from their commission when you buy a home.
Still wondering where the money comes from then when someone hands you a huge cash back? Where you need not pay anything but get money back? It could just be distortion of property values and this could be dangerous yeah.
If quick profit is the sole reason to invest, then I tell you for the 1,488th (simply put a number) time , property investment is NOT one of it. There are so many of those super fast kind of returns even if I am not sure how to call that as an investment yeah. Happy investing, really!
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Great read. There are many ways to create short term ‘value’ only to draw down a far bigger amount from the longer term. In short, negative equity. Some buyers are unaware, so your article is highly beneficial. Some understand and choose to roll with the Artful Dodger, confident of gaining on another’s loss.