With restrictions on the outflow of funds from China, what kind of impact will this have on the sales of property especially those on waterfront or reclaimed land in Malaysia? Are we in danger of creating ghost cities, where people buy property just for “investment”?
During two meetings – one at a Penang Transport Council workshop and the second at a public feedback session for the Penang Structure Plan – I asked a simple question:
The Penang state government is backing a plan to create three artificial islands in the south, and it is anticipated that some 300,000 people will live on these new islands. Where are these 300,000 people coming from, given that:
a) the Penang population is only inching upwards slightly, due to a sharp fall in fertility rates below the population replacement level, compensated only by small net inward migration.
b) only about 20 per cent of the housing on these three islands will be “affordable” (which again may not be so affordable to most people)?
I didn’t get any clear answers except that they are planning for the long term or something to that effect.
And believe it or not, the total fertility rate for the whole of Malaysia is also below the population replacement rate of 2.1.
Why do we want to build so many more homes and create so much overdevelopment, even a glut?
Let me quote Citizen Nades (emphasis mine) who cites Bank Negara’s annual report:
But didn’t someone read Bank Negara’s annual report before coming up with this magical figure?
Among others, it said: “The shortage in housing supply has been particularly acute in the affordable housing category.
In 2014, half of Malaysian households earned a monthly income of RM4,585 and below.
“According to the ‘Median Multiple’ methodology developed by Demographia International and recommended by the World Bank and the United Nations to evaluate urban housing markets, a house is considered affordable if a household can finance it with less than three times its annual household income (house price-to-income ratio of 3.0 and below).
“This suggests that houses priced up to RM165,060 are considered affordable to a median Malaysian household. However, only 21% of new housing launches in Malaysia were priced below RM250,000 in 2014.
“In contrast, the data points to an oversupply of higher-end properties priced above RM500,000. Although property launches in this price category account for 36% of total new launches in Malaysia, these houses are only within the reach of 5.4% of the population.”
In short, half of Malaysians can only afford a house sold at RM165,000 and 79% of all houses built in the country cost more than RM250,000 which makes them unaffordable.
So, are we deceiving ourselves by talking about affordable houses in the RM400,000 to RM500,000 range?
So, why do we continue trumpeting affordable homes which at current prices, becomes unaffordable to more than half the citizenry?
What is going to happen now with China restricting the outflow of funds?
A China national with business interests in both Malaysia and China told me many Chinese buyers are attracted to Forest City in Johor because they are told that it is just next door to Singapore.
But the South China Morning Post reported that Chinese developer Country Garden Holdings has closed all sales centres in mainland China for the project amid Beijing’s tighter curbs on capital outflow.
To further curb capital outflows, the Chinese government in January banned its citizens from converting yuan into other currencies for overseas property purchases.
In the same month, Wu Bijun, general manager of Country Garden’s finance centre, who will become the company’s chief financial officer in April, told the Post that its projects in Malaysia had been affected by the government’s crackdown on capital outflows.
Alan Ho, a former sales agent at Country Garden’s Malaysia company, said about 90 per cent of Forest City buyers were from China.
The China national mentioned earlier, however, told me many potential China buyers know how to circumvent the rules that allow them to convert only US$50,000 per person a year for capital outflow. This ties in with a Bloomberg report which described such techniques. Will these loopholes then be plugged?
The China national said many in China want to take their savings out of China and invest it elsewhere before the government takes the money away from them in one way or another – or perhaps before their currency weakens.
But buyers from China wouldn’t hesitate to have their downpayments or booking deposits for homes in Malaysia forfeited if they feel the project could end up a ghost city or if home prices were likely to fall.
Back to the the key question for us here: who are the developers in Malaysia building for, when half the people in Malaysia can only afford homes up to RM165,000?
Apart from the artificial islands planned for Penang and Johor, we have the Melaka Gateway and the Kuantan Waterfront projects in the pipeline.
Amid concerns of a glut in high-end condos in Penang, some worried developers are reportedly already lobbying for condo and apartment price limits for foreigners to be reduced, presumably to take up the slack.
Perhaps it is time we look seriously at housing affordability for local residents and tighten the rules on foreign buying of local property instead of being so beholden to high-end developers. After all, if we allow higher-priced homes, with higher profit margins, to be sold to foreigners, no prizes for guessing whom most developers would prefer to build for.