There are a number of measures that can be put in place to ensure the local property market continues to be healthy, sustainable and does not succumb easily to any adversities.
It was just barely three years ago that we witnessed the widespread contagion effect of the collapse of Lehman Brothers on the world economy.
The external front is still shaky and there is a strong likelihood that a second and more severe financial crisis, or “double dip” may happen.
With a growing number of European countries going into debt crisis, the next big trigger may come in the form of a debt default by the US following its ballooning deficit.
To avert a potential meltdown from the frail external economic conditions, it is important to build a strong foundation for the local market.
There are potential hazards lurking that may cause the market to lose substantial value if we are not careful.
Among the potential hazards include over-speculation and over-commitment to household loans that may lead to disability to service the loan, and result in higher incidence of non-performing loans.
Bank Negara is closely monitoring the market for signs of overheating and a potential policy tightening may be in the offing.
The central bank is reportedly looking at modifying the mode of calculation for household loan (that covers mortgage and hire purchase) from gross pay to net pay.
If the measure is implemented, it will mean that borrowers will only be eligible for a lower loan amount based on a percentage (usually up to a third for housing loan repayment) of their take-home pay after deducting payment of income tax, and contribution to the Employees Provident Fund and Socso.
The measure should be welcome as it will curb over-commitment in household loan and ensure there is enough left for other household expenses.
Over the past two years or so, many Malaysians have joined in the rush to buy property as the market has been overflowing with cash, and property is the biggest beneficiary of this high liquidity in the system.
I believe one of the main reasons for the sharp and rapid appreciation in property prices can be attributed to the fact that there are very few alternative investment options around for investors.
To “dilute” the high appetite for property, it is necessary to open up other viable investment options so that those with surplus cash can have other alternatives to turn to. In fact investment in unit trust has become quite popular as it actually fit the needs of those with lower risk appetite and do not like the volatility of the stock market.
Raising savings interest rates will also be a good measure as it will attract more people to park their money in the banks again.
With more people saving with the banks, financial institutions will have more funds to lend to corporate borrowers who need funding to expand their businesses.
New start-ups and small and medium-sized enterprises (SMEs) are among the critical groups which need a helping hand from the banks to provide loans for working capital and expansion plans.
There have been feedback from some smaller enterprises of the increasing difficulty in seeking loans from banks. Instead of just lending to mega corporations, banks should also pay attention to the smaller outfits as most of the big and successful firms today started out small once.
Of course the normal due diligence and screening of the borrowers to access their credit worthiness has to be undertaken to avoid unnecessary problems later.
These enterprises should not be underestimated as they will be able to act as a “cushion” should there be another economic or financial crunch.
From the previous meltdown, we have witnessed how fragile the financial and investment markets can be.
Although the property market is generally quite benign and not as volatile as the financial markets, the sharp hike in prices over the past two years have started to cause alarm in some quarters that the market is overheating.
Although the sharp rise in prices is evident in certain places, notably the Klang Valley, Penang island and some parts of Johor, even some quiet markets like Ipoh and mainland Penang have also charted unusual price gains.
It’s true that many savvy investors have benefited from the sharp price appreciation of the past two years, but there are more people who have been affected by it.
They are caught in a rather difficult situation of having to fork out at least a 20% to 30% increase in property price and higher downpayment for their purchases.
Whether one is a potential buyer or seller, tenant, land owner, developer, or from the governing authorities, we are all stakeholders in the market, and should lend our support to ensure it remains stable and sustainable.
SOURCE: The Star
LANDED homes in Penang are still in great demand despite their high prices.
