Is a property bubble forming? ~ Sept , 2010 Report

There has been some concern in recent months over an imminent real estate bubble in Malaysia. How real is this threat or is it merely confi ned to a few hot spots?

CONCERNS over whether the local housing market is overheating and will lead to an asset bubble are raising questions on whether there is a need for more tightening measures to curb speculative buying and ensure the market stays sustainable.

Dr Yeah Kim Leng ... ‘Anything can trigger a collapse. An economic slowdown, for example.’

The local housing market has not “hit the roof” like in some places in the region such as in Hong Kong, Shanghai and Singapore which have recorded sharp price jumps of 40% to 60% since last year.

Nevertheless, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30% over the past six to eight months.

Tang Chee Meng ... ‘The state of the property market is very much dependent on the state of the country’s economy.’

If the Government decides to reintroduce the RPGT in its entirety, property speculators will get the brunt of the “axe” as gains from property sales within the first five years of purchase will be subjected to a tax of 5% to 30%.

Usually if a market is flushed with speculative buying and a bubble is imminent, property prices will spike sharply across the board of a certain market within a short time like what is happening in a number of countries in the region today.

A case in point – a 26-year-old government-built apartment of 420 sq ft in the Sham Shui Po area of Kowloon district was transacted at HK$1.98mil, or HK$4,714 per sq ft.

Reason for concern?

Is Malaysia facing a similar risk and is there worry of an imminent overheating or bubble?

Real Estate and Housing Developers’ Association (Rehda) president Datuk Michael Yam discounts the possibility of overheating or an asset bubble in the local market.

“We believe the steep price increases are only reported in scattered locations in the Kuala Lumpur City Centre and some landed housing projects in the Greater Kuala Lumpur area. This does not represent a bubble but more of a short-term deviation from fundamentals that are due to isolated speculative activities in some areas.

“The recent spurt in prices may be due to the effect of the earlier stimulus package and liquidity but that has stabilised and a plateau has been formed,” he relates to StarBizWeek.

“Landed terrace and semi-detached houses have seen big capital appreciation due to the limited stock available and future supply especially in prime locations. As a consequence, prices of current stock in strategic areas of Medan Damansara, Bangsar, Sri Hartamas, Bandar Utama and even new launches at Desa Park City are at or above the RM1mil mark for a double or 3-storey terrace house.

Malaysia Property Inc chief executive officer Kumar Tharmalingam says the issue of a bubble is being overblown.

“A single swallow does not make a summer. There may be certain projects fetching premium values or prices for their products, but it is not representative of the overall market.

“ The strong buying interest is not across the board but is mainly centred in the high growth markets of the Klang Valley, Penang and Johor,” he adds.

Kumar says concerns that the potential slowdown in the West will affect the local market are also overrated.

An imminent uptrend?

According to Mah Sing Group Bhd group managing director and chief executive Tan Sri Leong Hoy Kum, the property market is still in the early to mid-phase of an upcycle.

“We do not see a strong risk of a property bubble happening yet and there is no sign of overheating. The price increase in properties has not been broad-based, but demand driven and rather selectively in prime locations.”

Leong says certain locations and types of products are more resilient in terms of demand, capital appreciation and value preservation.

“A healthy property market is good for the economy and quality properties in prime locations are deemed to provide a good hedge against inflation. Barring any external shocks, we are cautiously optimistic that the property market should continue to do well in the short and medium term,” Leong says.

Kumar concurs with Yam that the Government’s stimulus packages are only filtering into the system now and are creating greater confidence and interest in the property market.

“Developers are venturing into niche products with better quality finishings and designs, as buyers want the least fuss these days. This has driven developers to go into higher value residences,” he concludes