Is Malaysia’s property bubble poised to burst?

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As the ringgit depreciates and as US quantitative easing tapers off, the era of low interest rates and cheap credit via bonds – the primary drivers of speculative investment – could soon end. Could that, in turn, lead to the popping of the property bubble?

Are there signs that this is already happening as heavily indebted Malaysian households tighten their belts in anticipation of further inflationary pressure? Will hot money from QE head for the exit doors at the first whiff of uncertainty? Check out the weakening ringgit in recent months after the QE tapering was first announced in June 2013.


Source: tradingeconomics.com

And this is the stock market trend in recent times:

Source: tradingeconomics.com.com

The China bubble also has an important influence on the regional bubble. Have a look at these photos of the ghost cities built in China. Impressive-looking skyscrapers but hardly any residents.

Makes you wonder if the Menara Warisan project in KL will be the next watershed indicator on the Skyscraper Index, which some regard as a tool to foresee an impending slump. Food for thought, eh?

Have you seen any signs to suggest that the bubble is already being pricked?

READ MORE:  Housing glut: 'Make more babies' and other outlandish solutions
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shahryle
shahryle
28 Apr 2014 11.34am

my my.. apparently there are some of my fellow malaysian unplugged from the MATRIX.. good to see that some are awake.. well, on subject matter, the US doesnt need to increase the interest rates, just by turning the QE Spigot down itll enough to start a cascade effect.. stagnant salary, coupled by rising property price, depreciating currency, less volume of money… mix of deadly poison drink… then the way to combat a declining economy, weakening currency is to hike interest rate, which will further dampen the economy.. THE SNAKES IS STARTING TO EAT ITS TAIL…. This is not considering future… Read more »

Azli
Azli
13 Feb 2014 1.35pm

The property price continue to go up despite what Dr Ernest is saying about the bubble. About time for him to eat his own words?

The buying frenzy will continue as people are told by developers that they will lose out as Ringgit is continue its fall while building materials are going up in price. That is why Setia is so successful feeding on such fear.

grkumar
14 Feb 2014 6.22am
Reply to  Azli

There is a worldwide phenomenon associated with this “property bubble”. It is the Chinese Tsunami (not of the Malaysian political variety) but the mainland Chinese and their voracious appetite for foreign real estate that has fuelled this “property bubble”. As has historically been the case, there will always be those amongst us who will cry corruption from one side of our mouth against government who then go and put deposits on each of these property developments in order to speculate and drive prices up and secure construction loans for the Setias of this world to develop their otherwise unviable projects.… Read more »

tunglang
15 Feb 2014 10.16am
Reply to  grkumar

Penang developers welcome with red carpets the PRC Chinese & HongKees regardless of whether these are legal sources of money investment in properties. Desperate measures for sales is not equal to national social stability. Housing agents & property gurus won’t understand this either. All they care is reap massive profits.
Penang is a small island but ripe for bursting the at the seams of limited land. Who has the jurisdiction over land development as should be written on stones in the Local Plan, which btw is still in perpetual hide & seek.

Tigerz67
Tigerz67
7 Feb 2014 6.53pm

I just saw an advert on a project in Ayer Itam offering the usual discounts plus RM60K for “subsidy for renovation”. And I keep getting SMSs to attend new launches. This is a sign, demand has dropped for new projects. I think Penang people are pretty prudent, so the bubble may not burst big time. Not sure about Klang Valley, …..

tunglang
8 Feb 2014 8.28am
Reply to  Tigerz67

These developers can emulate a Merc distributor: Throw in a Merc S300Lansi with an accountant’s discount + bundled loan so that the prospective home buyers can give a good excuse to their other halves why they must purchase a 2-in-1 irresistible but ju$tifiable bin chui upgrade to Penang Cosmopolitan lifestyle.
But is the Merc discount offer still valid & until when?

Jackie
Jackie
7 Feb 2014 10.35am

Selangor PR govt comprising DAP, PKR & PAS have start retrenchment of 30 PKNS staff and they were given 24 hours notice. I. They retrenched you and give themselves substantial pay hike.. Is this how a state govt treat its people who have served them well.

Datuk Seri Y.B. Loh PSC
Datuk Seri Y.B. Loh PSC
7 Feb 2014 3.29pm
Reply to  Jackie

What is the problem? This happens everywhere especially in the private sector. This is how you build a high performance team with results.

rick
rick
7 Feb 2014 5.04pm
Reply to  Jackie

Companies (including civil service) must be brave enough to sack those deadwoods.
The 30 PKNS who are sacked can go to court if they have valid points on unfair dismissal.

Tigerz67
Tigerz67
7 Feb 2014 8.10am

Yes , I have thought about it.
What you said maybe possible.
But there are factors that offset that, namely our devaluing currency.
To MNC’s especially US companies, the drop from 3 to 3.3 is like 10% of the wage bill.
And some SME’s will probably pass on the tariff increase to the customers.

rick
rick
6 Feb 2014 3.41pm

Y.B. Loh’s statement is pressing people to take up loan to buy property now so as not to ‘lose out’.
This is the similar strategy used by property salespersons to chase commission.
Y.B. Loh ought to have some conscience before making those speculative statements without due care for the imminent bubble burst.

Tigerz67
Tigerz67
6 Feb 2014 10.37am

to me the definition of a bubble burst is when people cant pay their debts anymore. Which leads to devaluation of properties. So when will this happen? When you squeeze to buy an high cost property , barely covered by income. And when interest rates rise, people start defaulting on payments. And foreclosures happen soon after. The other scenario, is when people start losing jobs – but in Malaysia maybe not likely (not impossible – just not likely). So that leaves increasing cost of living and rising interest rates to squeeze people into foreclosures. Rising cost already happenning. Raising interest… Read more »

Bubble Bubble Bubble
Bubble Bubble Bubble
6 Feb 2014 2.27pm
Reply to  Tigerz67

Tigerz67 : when people start losing jobs – but in Malaysia maybe not likely (not impossible – just not likely)

fyi with hike in tenaga tarif and minimum wage rule, many SME seriously comtemplating downsizing workforces to stay afloat. MNCs with priority on bottomline likely to switch plan to move to lower cost emerging countries since ~30-35% of their expenditure is salary of staff; unless we malaysians buck up and show more work productivity. We don’t like staff retrenchment but MNCs’ heads rules over hearts to sustain their operation.

rick
rick
7 Feb 2014 5.09pm
Reply to  Tigerz67

Do not take up massive housing loan if your job is not secured or if you have no savings to cushion potential hike in interest rate.

Fakri
Fakri
6 Feb 2014 10.23am

Spot on Tim. Your one short sentence made more sense than the 4 point advertisement by YB Loh. Developers got no choice but to heavily advertise (with their arguments that price will continue to go up) during CNY as the property situation in Malaysian big cities are simply saturated. Those exhibitors at Mapex Fair are trained to influence you by injecting the fear factor of further price hike!

Wong
Wong
6 Feb 2014 8.27am

Player 1 – gov , keep building affordable houses, also on other side, keep raising electricity price, keep raising toll charge, and fuel price. Player 2 – construction company, keep building high price houses. Player 3 – land owner, keep raising the land price. Player 4 – building material , keep raising price of material. Player 5 – speculator/flipper/ investor, keep raising up the property selling price. Player/victim 6 – House buyer , buying expensive houses. Player/victim 7 – tenant, keep renting houses.

Datuk
Datuk
6 Feb 2014 11.23am
Reply to  Wong

Doesn’t all of us belongs to at least one of the 7 categories? ie one of the players?

Datuk Seri Y.B. Loh
Datuk Seri Y.B. Loh
5 Feb 2014 3.16pm

It is not going to burst because: 1. As you can see, the prices of building raw materials are going up, so is labour and land prices. Coupled with that, there is a limited supply of land in Penang island. 2. As you rightly mentioned, our money is depreciating whether roles to the dollar or in terms of relative value. What you can buy for a dollar now, you cannot get it for a dollar 5 years later. One of the best hedges against the depreciation of the ringgit is to go and invest in properties. Investing in stocks and… Read more »

tim
tim
5 Feb 2014 6.57pm

This is a typical response from property developers to feed on buying frenzy for fear of losing out.

tunglang
5 Feb 2014 10.34pm
Reply to  tim

Tim, Cheers Kopi-O kau kau.
I would put it more precisely: rainy green-horned wildebeests (speculators) on annual Serengeti stampede to Penang Huat-Huat Property Sales, comes bullish or bubble burst.
No different from stocks+shares & mutual fund managers without any brakes.

Bubble Bubble Bubble
Bubble Bubble Bubble
6 Feb 2014 11.19am
Reply to  tim

Some allegedly mentioned that Developers still sing onederful tunes about rosy prospects of investing in property because many need the money pooled finvestors rom phase x project to sustain phase y project elsewhere. Once such cash flow being interrupted, we may witness the downfall of many Developers (mostly the companies as the directors involved being spared as the companies mostly listed hence shielded from liabilities !).

Don’t believe, just see what has happened to Donald Trump before.

Still believe in bursting ! Very sorry Dato Seri (bet many like you could have parked some $ elsewhere ???)

Bubble Bubble Bubble
Bubble Bubble Bubble
6 Feb 2014 2.50pm
Reply to  tim

The Forces that Cause the Bubble to Burst source : http://www.investopedia.com/articles/07/housing_bubble.asp The bubble bursts when excessive risk-taking becomes pervasive throughout the housing system. This happens while the supply of housing is still increasing. In other words, demand decreases while supply increases, resulting in a fall in prices. 1. An increase in interest rates that puts homeownership out of reach for some buyers and, in some instances, makes the home a person currently owns unaffordable, leading to default and foreclosure, which eventually adds to supply. 2. A downturn in general economic activity that leads to less disposable income, job loss and/or… Read more »

Jackie
Jackie
6 Feb 2014 3.41pm
Reply to  tim

Ananars,

Finally its the people of Penang who suffer while he smile and enjoy in his new 300L Merc

shameful
shameful
7 Feb 2014 10.59am
Reply to  tim

The fact that a developer takes lengthy trouble to write is itself a sign that tide is turning. There is only Supply and Demand. Nobody cares about your material, legal stamp duty costs when you are forced to sell.

Ananars
Ananars
6 Feb 2014 3.33pm

Datuk, You are absolutely right. Prices of house after completion will be much higher than during launch. There is no way prices of house will come down with the scarcity of land in Penang and the ever increasing price of raw materials and labour. Those who are still waiting for houses to come down to pre 2008 can forget about it. Developer are no more interested in building affordable house. Even LMC of 72k are not what they used to be and an example is Melody home where the developer is allowed to sell the LMC unit for up to… Read more »

grkumar
7 Feb 2014 1.45pm

The term “sub prime” refers to the quality of the security not necessarily the location of the security. Moreover the sub prime crisis was caused by sub prime notes (securitized and unsecured) loans issued to people who had no capacity to repay these. It was at the most basic level a fraud perpetrated by intermediaries who under then new legislation had the authority of banks to write these loans which were then underwritten by the banks and the two government agencies created to further underwrite what commercial banks had at first tier underwritten. These were Fannie Mae and Ginnie Mae.… Read more »

grkumar
8 Feb 2014 1.15pm
Reply to  grkumar

Correction Fannie Mae and Freddie Mac (Ginnie Mae had other obligations).

Sftw
Sftw
19 Feb 2014 10.25am
Reply to  grkumar

Exactly. The claim that it was subprime locations that were affected is incorrect. It was the ‘sub-prime individuals’ that the loans were issued to that caused the crash. The Y.B should get his facts straight. Our current situation is not dissimilar. Household debt is at an all time high, with wages unable to reach parity with heightening levels of inflation.

On another note. 5 minutes of research will show that the HPI of both New York and California have shown a severe fall in housing prices post-crisis.

http://www.fhfa.gov/Default.aspx?Page=216&Type=compare&Area1=35614&Area2=31084&Area3=

Info is taken from Federal Government.

Sftw
Sftw
19 Feb 2014 10.34am

You obviously have no idea what a sub-prime loan crisis is. Please educate yourself. Labour costs are increasing at an almost negligible rate in comparison with actual land and housing prices. The very argument is pegged upon the inability of basic labourers to afford even basic levels of housing. Your argument is invalid. If you believe that a crash in housing is going to be isolated to only ‘sub-prime regions’ as you call them, you must be deluded. I refer to your own ‘multiplier’ effect. A loss in confidence doesn’t jsut affect less prolific areas but is systemic. The only… Read more »

private
private
4 Feb 2014 8.38pm

All the above comments only said above Malaysia. What if Singapore is crashed?

Yang
Yang
5 Feb 2014 2.23am
Reply to  private

Private, Singapore crash is small matter. What if China crash is big matter

rick
rick
5 Feb 2014 10.22am
Reply to  Yang

US program ’60 minute’ on China’s real estate bubble

grkumarGopal
5 Feb 2014 1.30pm
Reply to  Yang

A good question you raise Yang. The response is this. If China has a meltdown or cash you and I won’t learn of it from them. They are an ordered society (not democratic with open government). That does not make them any worse and if anything at all perhaps more manageable than the rest of us. Crashes and the interpretation of economic statistics we read of are very Euro American centric. If their economics and their interpretations and analysis were that good we would not be crashing as often as we do and our economies would not be in such… Read more »

rick
rick
5 Feb 2014 9.18am
Reply to  private

Let us not worry for Singapore as 90% lives in government HDB flat and release of land for new condo development is regulated and controlled by the government.

Bubble Bubble Bubble
Bubble Bubble Bubble
5 Feb 2014 10.24am
Reply to  rick

Spore has big chunk of foreign reserves with its MAS (monetary authority of Spore not to be confused with that 30sen stock worth entity that so desperately serve Nasi Lemak Teranjang) anytime can cushion off external financial shock.

timonthy
timonthy
4 Feb 2014 6.34pm

The developers knew the bubble is near its yield point, so they use the horse year to have massive advertisement on The Star. The end of QE will mean less liquidity in the market, and higher interest rate is therefore on the horizon. Many who took housing loan may not factor in the inevitable rise in lending rate on top of price hike. Soon we may see people dispose their housing assets when they could not service the loan. Good time for those who wait patiently for bargain purchase.

Bubble Bubble Bubble
Bubble Bubble Bubble
5 Feb 2014 10.29am
Reply to  timonthy

I learnt from 1998 financial meltdown.
For past few years i save my money earning interest ~4% fixed deposit rate.
I shall withdraw my saving to bargain hunting those so-called lifestyle condos when the crash happens whereby a RM600K unit can become affordable RM300K which is more reasonable.
Sorry for those who herd mentality folks who have committed to crazy launch prices.

Yang
Yang
4 Feb 2014 5.36pm

Actually when our ringgit depreciate its is not an issue with many rich and middle income guys. They park a substantial part of their money in Singapore. You can also open a fixed deposit account in foreign currency of your choice but parking it there would be better. Singapore is a better choice as it is nearer where you can go and unlock it anytime you like and at the same time enjoy your holiday.

rick
rick
5 Feb 2014 11.01am
Reply to  Yang

The Singapore dollar hit a 3-week high on Tuesday as global risk aversion fuelled safe-haven demand, and most emerging Asian currencies gained as the region is seen as better positioned than other emerging markets.

SingDollar rose as much as 0.7% to 1.2672 to the U.S. dollar, its strongest since Jan. 14, on short covering. It found more support as investors bought Singapore dollars against the Malaysian ringgit and the Thai baht. The ringgit fell to its lowest since July 1998 against the Singapore dollar.

http://sg.finance.yahoo.com/news/em-asia-fx-singapore-dlr-083155273.html

Yang
Yang
5 Feb 2014 12.52pm
Reply to  rick

The ringgit go lower while the S go higher. Convert and you got more RM. Deposit your RM there. Not only is it much safer, you got more couple with the interest when you want to take it back. .

Yang
Yang
4 Feb 2014 5.12pm

As usual the American are jealous and would always paint a gloomy picture of China growth. If you look at the picture carefully, you would have notice that they are new apartment either waiting for OC and waiting to be occupied just like many apartment here which normally in the early days would be empty and waiting for OC until such time when the residents slowly move in for renovation until fully occupied. Property bubble no but a slow down in high end condo properties and even then I don`t think it will happen. A Singaporean can buy a RM2.5… Read more »

kee
4 Feb 2014 9.42pm
Reply to  Yang

Before 2008 or shortly after 2008, cant remember, i attended the pre-launch of a project by E&O, and the price was already sky high that my cousin remarked, ridiculous, ie 1100sqft selling above 900k.

Yang, your reasoning that Pg government is helping the developers selling their new units is Kangkong, a new vocab the rakyat just learned from their not so smart PM but now confirmed stupid after the kangkong issue.

You are so personal with Lim Guan Eng that the venom in you has eaten your brain off.

Yang
Yang
5 Feb 2014 1.51am
Reply to  kee

Kee, You are just a BIG LIAR like the rest of them. Pre or around 2008 prices of properties is still at its lowest until 2011 when it start appreciating and peaking in 2013 until now.

kee
5 Feb 2014 10.52am
Reply to  kee

Dear Yang

I am talking about E&O properties, never cheap in the first place. Why should i lie?

najib manaukau
4 Feb 2014 3.56pm

Now Najib will use that as the reason why he is not building the one million affordable houses he promises to build. Plus he is also waiting for his lackey from MCA to take the portfolio of Minister of Housing and also take the blame for the houses not being built. No matter who and or whatever excuses he is going to come up with. The fact is he made the promise and is therefore responsible for keeping or failing to keep his promise, 9 months have passed and nothing or not a single one of the million he promises… Read more »

rick
rick
5 Feb 2014 9.45am
Reply to  najib manaukau

This is an interesting youtube video on ‘Malaysia Housing Bubble’ by Dr. Ernest Cheong :

http://www.youtube.com/watch?v=WwC6ZEL8J3Y

Watch it first before you commit to your next high-price purchase.

Fakri
Fakri
6 Feb 2014 11.47am
Reply to  rick

A very good video to counter all the claims by greedy housing developers.

grkumar
4 Feb 2014 3.22pm

The property bubble is the result of an unabated frenzy of construction fuelled by the government’s NEP privileges to Malays and the mainly Chinese run property development sectors feeding on that hand out. Nothing wrong with that in that order unless of course there is no accountability by accountants, bankers and lawyers who act as intermediaries in this area of the economy. It happened in the 1990’s and Malaysia appears not to have learned from that bubble. In the previous property bubble that crashed, precipitated by the “Asian Economic Crisis” (read Soros’ attack on newly freed currencies in the developing… Read more »

Rich Daddy
Rich Daddy
4 Feb 2014 2.09pm

Burst ??? Not now or at least not going to happen any time soon. Even chinese astrologers few days ago encourage people of certain zodiac to enter the market of properties speculation !!!

tim
tim
4 Feb 2014 7.12pm
Reply to  Rich Daddy

Ask a question to 10 astrologers or feng shui masters and you get 10 different answers. Pick one that serve your interest, that is how you base your asaumptions on?

The facts provided by Anil should send shivers down the spine of many speculators.

Shayne
Shayne
24 Apr 2014 10.13am
Reply to  Rich Daddy

haha people like this guy who ended up blowing their brain off when dot-com bubble popped in 1990s.

shameful
shameful
4 Feb 2014 1.12pm

Anil, I think ringgit is depreciating not appreciating. You hv a typo error.