Over the last couple of years especially, property market prices have shot through the roof as investors and speculators and sellers worked themselves up into a frenzy. Prices have almost doubled in some places.
In some countries, the real estate bubble has long since burst. For how long more can we see prices rocketing in Malaysia? House and apartment prices are being priced out of the reach of many working- and even middle-class Malaysians. That is why housing loans for the purchase of residential property have soared from RM167bn in May 2007 to RM230bn in September 2010.
China is getting tough on speculators, as this report from the Globe and Mail indicates:
“We can see that the government is sending a strong message – houses should return to their basics, which is to be as a shelter by function, and not a vehicle for speculation,” said Andy Zhang, managing director of the China operations for global real estate brokers Cushman & Wakefield. “Should these measures effectively squeeze out the bubble and curb speculation, demand for investment purchase will substantially shrink. As a result, sales volume in [the] mid- to high-end residential sector will decrease substantially.”
At stake is whether speculators are driving real estate into a bubble which could collapse, deflating the Chinese economy, which has just overtaken Japan as the world’s second largest. Officials are caught in a delicate balance between trying to keep inflation down and basics like food and housing affordable for the masses, while still maintaining China’s impressive economic growth.
The World Bank has cited real estate crashes in Japan and Ireland as a warning to Chinese officials to rein in their finances. “China must carefully study the cases of Japan and Ireland, where the collapse of the real estate bubble caused a financial crisis and economic stagnation,” the World Bank’s chief economist Justin Yifu Lin told a Beijing University symposium recently.
Others put it more bluntly: “The history is pretty bleak. These things always create bubble situations and they always end badly,” said Michael Pettis, a professor of finance in Beijing University’s Guanghua School of Management, who warned the government’s efforts may help in diverting excess liquidity from real estate, but that the fundamental problem remains. “I think it’s going to be a long, slow deflation of the bubble rather than a burst – more stable, but more expensive in the long run.”
The Malaysian Insider carried an intriguing article here.
Maybe, we should listen to the wisdom of my nearby pau-seller. (This was the same guy who told me a few days before the 2008 general election that he sensed most Penangites appeared inclined to vote for the opposition this time around.) Towering above the hawker centre where his humble pau stall is located in a hawker centre in the suburbs, six blocks of apartments, each about 35 storeys high, are nearing completion. The asking price? Over half a million ringgit each.
The pau seller grumbled, “These property speculators are not thinking. They are driving up the prices with their activities and making a tidy profit, but they forget that their own children might not be able to afford houses of their own in the future, if prices continue to rise like this.”
What do you think? Is the party over for the speculators? Will the bubble burst anytime soon or is it going to reach a plateau and slide or rise gradually?