Greedy speculators, developers and even valuers, facilitated by easy credit from financial institutions, are inflating a property bubble. But the state is reluctant to intervene effectively, erroneously leaving it to market forces to find an equilibrium.
But there is no equilibrium nor sanity in the market. Property prices are getting ridiculous.
Don’t take my word for it. Some choice comments from national House-buyers Association honorary vice-president Goh Seng Toh as reported in The Star:
“Prices of houses, like everything else, will go up at reasonable inflationary trends, but it should not be at the rate we are experiencing now.
“Greed and the market are driving up the prices. For every piece of land, developers want to maximise profits, and there is no social responsibility.”… (Sorry, Goh, social responsibility is something they don’t understand.)“In the Klang Valley, there are no developers who are building affordable single-storey houses. Why build one when you can build a double-storey unit and sell it for twice the price?”…
Goh also discounts the fact that increasing construction costs translate directly to the current spiralling prices.
“We call it the ‘teh tarik syndrome’, when the price of sugar goes up by 10 sen, the price of a cup (of teh tarik) goes up by 10 sen as well.”
He explains that construction costs account for about 30% of the ultimate cost, so the drastic increase cannot be justified.
HBA honorary secretary-general Chang Kim Loong adds:
“It is a problem in bigger cities and towns, and on Penang island, for example, it is worse. Even those earning RM4,000 monthly cannot afford a place on the island. They have to go over to the mainland in the Prai area.”…
“The biggest reason is unsustainable demand, driven by easy credit availability and speculation.”…
Chang goes to the extent of stating that there is an artificial inflation of prices.
“There is an unholy alliance between developers, certain financial institutions trying to maximise profits and reach targets, and even valuers who collaborate,” he claims.
He gives an example of a project which when launched three years ago was RM400,000 per unit, but units in a current phase there now cost RM1.8mil.
“How is this possible? There has to be some reason for the trumped-up valuation and the banks extending the loan period to 35 years. These loans will spill over to the next generation,” Chang argues…
“If they can implement price controls for essential food items, why not for housing? Both are items of necessity, so why can’t they do that based on the same philosophy?” Chang queries.
It is not as if the government cannot intervene. It can – by setting restrictions on housing loans, fiddling with Capital Gains Tax, establishing price controls, curbing foreign speculators and setting minimum owner occupancy periods, among other things.
But I presume the cronies are also involved in property development, speculation and loan financing – and making big money in the process – so there is little incentive for the government to act decisively.
Meanwhile, the property bubble grows bigger and bigger…. while more and more of the lower-income group and the middle-class find themselves unable to afford a house of their own. How long can this bubble last?