A property consultant said sustained measures to minimise property bubbles were to ensure efficient flow of information on the sector’s fundamentals to help the people make informed decisions.
Khong & Jaafar managing director Elvin Fernandez said an efficient market should be the priority for all, especially policy makers.
“An important element of an efficient market is the free and greater flow of information into the market, which will allow stakeholders in the property market to make better decisions and help the market become more efficient in allocating scarce resources,” he said in response to questions on recent data indicating that house prices were moderating.
Fernandez pointed out that it was not the function of developers to reward or not reward previous purchasers.
“They should not be allowed to do that. Just price the product fairly based on the current levels of demand and supply. If the market is going down, sell at lower prices and not hide the lower price through artificial means such as incentives. If when the market is going up prices are fixed upwards, then it should follow that when the market is going down, prices should be fixed downwards.”
The regulators must continue to watch for prices veering away from fundamentals, he said, adding that more up-to-date information on district-by-district statistics on household income was needed. The information available now is on a state-by-state basis and only up till 2012.
Data released by Bank Negara last week revealed signs of possible moderation in overall house prices, with growth in the Malaysian House Price Index (MHPI) declining to 9.6% in the fourth quarter of 2013, compared with 12.2% a year earlier. This is the first time since the third quarter of 2011 that the MHPI was below 10% and recorded across most states and most types of dwelling.
Fernandez said arresting the upward climb in prices that were inconsistent with underlying fundamentals, such as household income and rental returns, was an important policy decision.
“Policy at the highest level should ensure that prices are always based on current levels of demand and supply – current prices. Ensuring steady price levels in the housing market is very important because most household wealth resides there.
“In the housing market, it is ideal to steer the market through well-designed policy measures, towards four to five times annual household income and a 3%-5% net yield, depending on the property type,” Fernandez pointed out.
He said there were still elements of a property bubble in selected areas of the housing market, where house prices were higher than 10% and 15% of the average annual household income. For any given locality and any given stratum of society, a percentage of more than five times annual household income can be considered a bubble.
Bubbles can subsist temporarily and may ease when incomes rise or prices come down, but when the disparity grows and in a sustained manner and remains unchecked, they can be dangerous, Fernandez added.
RAM Ratings Head of Agribusiness, Real Estate and Construction Ratings Thong Mun Wai said developers were cognizant of the strong demand for more affordable houses, and there had been more launches of smaller-sized units in the last year that translated into a more palatable absolute house price.
“In addition, we have seen more developers establishing townships further from the city centre such as Rawang, Semenyih and Cyberjaya. We are also of the view that developers’ decision to launch higher-priced units is partly attributable to the rising cost of land and building materials, which discourages the selling of more affordable properties, given the adverse effects on their profitability. As it is, we note that profit margins of large developers have not been rising sharply in tandem with property prices,” he observed.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the high house prices were not broad-based but confined to a few places such as the Klang Valley, Johor and Penang.
He said there was unlikely to be a hard landing for the housing market, given that the demand structure for housing in the country remained strong with a sizeable young population of an average age of below 30 years, household financial assets at a comfortable level of 2.2 times in relation to the borrower’s debt amount, a stable labour market with unemployment at around 3%, and a strong capital position of banks to absorb losses should the number of defaulters rise.
