Greed inflates property bubble

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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?

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Jimbo

Trust BN. 2-Generation housing loan will prevent property bubble burst. We will get teh biggest property bubble that never burst. Malaysia Boleh!!!

wira

Penang Island is reserved for those who can afford. For those who can’t, you may either rent (at a pittance) or consider moving across to PW where property prices can be 2/3 lower. Once increased, there are other interest parties involved (like finance companies and banks) that will ensure that the inflated prices are sustained. Otherwise, the net effect is a sub prime crisis of our own. How can one regulate the so called “inflated” price when there are buyers who are willing to pay much more to live on the island? One certainly cannot, like in the case of… Read more »

Damien

Is this Anil’s blog or has it been ‘rented’ or ‘leased’ to Ong Eu Soon with his nonsense?

SamG

Penang is not the only place where prices of houses have gone up significantly. There is a link to the Stock market KLSE Index… When people make money on the stock market they tend to move money to property. KLSE is at a peak now.
Prices in Klang valley has also gone thru’ the roof over the last year. A house I wanted to buy in SS2 for RM450k is going at RM700+k now! So Ah Soon are you also going to blame LGE for that?

Ong Eu Soon

Whether Koh Tzu Koon win or lose get nothing to do with me. Long ago, the gold fish eyes already wanted to swallow me if he can. Now it is LGe’s turn! Who care BN or Gerakan win or lose! I have never campaigned for BN or Gerakan before or even now! Stop try to mislead other about my political affiliation, if you guys get gut debate with me on the real issue.

SunnyOoi

Let me get this straight. You are arguing against high density developments and you want LGE to reject all new projects unless they are only for the rich?

If Yes, then good luck trying to garner support. If No, please spell out the issue on your mind.

Inquisitive

Ah Soon’s political affiliation is plain for all to see during his repeated attempts to shout down Zaid Ibrahim during the latter’s ceramah in Penang months back.

And by the way, I am sure the property developers do not need Ah Soon to worry on their behalf in the event of a crash.

Ong Eu Soon

Stop bull…! You were not there. Anil was there, he can be a witness of what happening. I was angry because LGE … converting the land status of Heritage Hotel project to freehold under no circumstances. Worst he did it without going thru’ open market mechanism via open tender.

Inquisitive

We had the misfortune of sitting right next to you.

You knew what you did and so did everyone else that night including Anil.

Ong Eu Soon

Oh you are that guy! Why you need to distort the fact. The truth is that I never direct any question to Zaid or tried to shut him down! You want to bodek LGe no need to distort the fact for your argument!

Inquisitive

There is no necessity for Ah Soon to lose sleep over LGE losing the next election.

Ah Soon should be more worried about his master, the political eunuch Ostrich Koh being given the boot by his fellow Gerakan (political) eunuchs.

Ong Eu Soon

The property price in Penang in year 2010 go up tremendously, a sign of unhealthy property speculation. How long can the housing bubble last depend on the holding power of the buyer. Once there is a panic flight in the property markets, a lot of people will suffer from the consequent. LGe probably think that he is invincible now, no one can overthrow his administration. Once the overexposed world markets which are vulnerable to a squeeze become panicky, LGe can say bye bye to his CMship in Penang. The overexposed world market is now indulged itself in currency war. The… Read more »

SunnyOoi

Look at the positive side of a property market crash. Cheap housing for real first time buyers. Are you a speculator who wants your investment protected by LGE?

Ong Eu Soon

If the developers built nice Bangalore, nice SD, nice condo, not high density and costly slum, I have no problem with the housing bubble.

Ong Eu Soon

LGe may not be the one who approved majority of the projects. He still has the obligation to stop the housing bubble. He should seriously revise all the plans and have a serious dialog with developers to stop the housing bubble which is detrimental to the property markets. But all we can see is that LGe and the developers can only see the short term profit of the bubble without realising how bad and serious is the problem at hand. This is someone that we voted in during the political tsunami of 2008, someone we sincerely believe who will bring… Read more »

Ong Eu Soon

The problem of LGe is not only is he stupid…, he also has an inaccurate data which he depends on to make his decision. Just image what kind of disaster will happen in the property markets when LGe fast tracking all the projects in order to compete with BN to see who is the best or probably the worst administrator in Penang or Malaysia.

Ong Eu Soon

Registered water consumers of PBA Domestic – 432,422.
The figure is nearly 100,000 more than the existing stock of 343,670 provided by Jabatan Penilaian dan Perkhidmatan Harta.

If we take the number of water consumer of PBA as the existing stock which I believe is more accurate. The total housing stock in the next 3 years will be 554201 after adding new upcoming stock of 121779.

If we really have only 284,969 household as claimed by Penang Structure Plan, then we will have an oversupply of 94.47%.

Read the article on Speculation partly to blame, says think tank. at http://www.apartment-penang.com/2010/03/speculation-partly-to-blame-says-think.html

Ong Eu Soon

The population of Penang is only 1,773,442. 554201 housing stock for a population of 1,773,442 is equal to about 3 person per unit.
LGe would opt to be hero by finding a solution to the housing bubble, not as a zero by contributing to the housing bubble and wasted our precious lands as a slum or ghetto.
LGe only want to be the darling of developers, he forget that it is Penangites who voted for his administration, not the developers.

Ong Eu Soon

NEW PLANNED SUPPLY
Q1 2010
Timur Laut 0
Barat Daya 103
S.Perai Utara 195
S.Perai Tengah 384
S.Perai Selatan 70
PULAU PINANG 752

Q2 2010
Timur Laut 0
Barat Daya 0
S.Perai Utara 215
S.Perai Tengah 65
S.Perai Selatan 58
PULAU PINANG 338

Ong Eu Soon

PLANNED SUPPLY
Q1 2010
Timur Laut 9,841
Barat Daya 6,297
S.Perai Utara 8,349
S.Perai Tengah 8,904
S.Perai Selatan 6,701
PULAU PINANG 40,092

Q2 2010
Timur Laut 9,833
Barat Daya 5,636
S.Perai Utara 8,452
S.Perai Tengah 8,773
S.Perai Selatan 6,313
PULAU PINANG 39,007

Ong Eu Soon

STARTS
Q1 2010
Timur Laut 36
Barat Daya 481
S.Perai Utara 0
S.Perai Tengah 489
S.Perai Selatan 0
PULAU PINANG 1,006
Q2 2010
Timur Laut 8
Barat Daya 661
S.Perai Utara 112
S.Perai Tengah 196
S.Perai Selatan 446
PULAU PINANG 1,423

Ong Eu Soon

UNDER CONSTRUCTION
Q1 2010
Timur Laut 9,378
Barat Daya 4,877
S.Perai Utara 7,757
S.Perai Tengah 9,586
S.Perai Selatan 9,396
PULAU PINANG 40,994

Q2 2010
Timur Laut 8,718
Barat Daya 4,320
S.Perai Utara 7,679
S.Perai Tengah 9,749
S.Perai Selatan 9,329
PULAU PINANG 39,795

Ong Eu Soon

INCOMING SUPPLY
Q1 2010
Timur Laut 9,414
Barat Daya 5,358
S.Perai Utara 7,757
S.Perai Tengah 10,075
S.Perai Selatan 9,396
PULAU PINANG 42,000

Q2 2010
Timur Laut 8,726
Barat Daya 4,981
S.Perai Utara 7,791
S.Perai Tengah 9,945
S.Perai Selatan 9,775
PULAU PINANG 41,218

Ong Eu Soon

COMPLETION
Q1 2010
Timur Laut 941
Barat Daya 665
S.Perai Utara 1,090
S.Perai Tengah 368
S.Perai Selatan 220
PULAU PINANG 3,284

Q2 2010P
Timur Laut 696
Barat Daya 1,038
S.Perai Utara 78
S.Perai Tengah 326
S.Perai Selatan 67
PULAU PINANG 2,205

Ong Eu Soon

EXISTING STOCK
Q1 2010
Timur Laut 141,227
Barat Daya 41,936
S.Perai Utara 46,967
S.Perai Tengah 76,999
S.Perai Selatan 36,541
PULAU PINANG 343,670

Q2 2010
Timur Laut 141,923
Barat Daya 42,974
S.Perai Utara 47,045
S.Perai Tengah 77,325
S.Perai Selatan 36,608
PULAU PINANG 345,875

Ong Eu Soon

According to Penang structure Plan, Penang only has 284,969 households , yet our existing stock is 345875 plus new upcoming stock of 121779. Are we having a housing bubble for residential markets?

Inquisitive

You are lumping the Penang island with the mainland. Do you have a breakdown of the housing stock and number of households on both?

Ong Eu Soon

121779 new stock out of existing 345875, a total of 35% in planned stock stock level. Spread it 3 year, each year easily more than 10% of new stock. Do me really so desperate for new housing stock when the occupation rate of residential property is less tahn 70%

Ong Eu Soon

338
39,007
1423
39,795
41,216

Ong Eu Soon

Residential Property Stock Report of Penang

NEW PLANNED SUPPLY
Q1 2010 752
Q2 2010 338

PLANNED SUPPLY
Q1 2010 40,092
Q2 2010 39,007

PROJECT START
Q1 2010 1006
Q2 2010 1423

UNDER CONSTRUCTION
Q1 2010 40,994
Q2 2010 39,795

INCOMING SUPPLY
Q1 2010 42,000
Q2 2010 41,216

COMPLETION
Q1 2010 3284
Q2 2020 2205

EXISTING STOCK
Q1 2010 343,670
Q2 2010 345,875

tunglang

Bubble Burst it will one fine day. But who these speculators care? As long as there are properties to be sold PRESALE, they will cohort with banks, developers and agents to create the artificial price after that. So eager genuine buyers will foot their preposterous profits which the banks will be gleeful to finance for more profits, get it? Agents will be gleeful to sell to any fool who is thinking it is natural market (FORCED) price of supply and demand. My eager and ignorant property-buying friends, go ahead and be fools to such scams if you buy the explanation… Read more »

Phua Kai Lit

Dear Anil

What we need to worry about is what happens if the bubble bursts. The examples of Japan and more recently, the USA, can teach us some valuable lessons.

House_buyer

The blame goes to the foolish house buyers. As long as there are fools, there will be leeches(developers+bankers+valuers+agents) out to suck their blood . Why should one buy a property which is above RM400K and take a loan which could take a lifetime to settle? If you are a wage earner do you think you can pay off the installments continuously for 30 to 35 years? If you can then the economy must be great! No recession, no retrenchments, yeaaah! But is that possible in Bodohland? Even if you can afford to buy, just look around the surronding area, high… Read more »

anobrainer

Heard it from the grapevine that Federal Hill (Bukit Persekutuan) in Kuala Lumpur (could be) carved up … to their cronies as they do not expect to be in government for long.