Property Hunter Magazine August Issue 2014 | Page 57

IMF Triggers House Alarm
with urban migration,
there is still a strong
demand. But the question
is whether this group of
genuine buyers can afford
the properties that they
want.

The International Monetary
Fund (IMF) has sounded
the alarm of another
potentially devastating
housing crash given that
house prices are still well
above their historical
average in many countries
in relation to incomes and
rentals. The world financial
body says the situation
has emerged as one of
the biggest threats to
economic stability.
Indisputably, the many
trillions in quantitative
easing (QE) money
launched by the United
States in recent years
and record low interest
rates are among the
contributors for the sharp
hikes in property prices in
many parts of the world
today.
Is Malaysia faced with a
risk of a housing market
bubble and should we be
worried of a potentially
damaging burst of the
bubble given that the
inflated property prices
seen in the last two years
may not be sustainable?
Borrowing the definition of
a property bubble from the
internet site, Investopedia
which is dedicated to
investment education,
National House Buyers
Association (HBA) honorary
secretary-general Chang
Kim Loong says there is a
risk of a property bubble in
Malaysia as property prices
have increased rapidly in
the past four to five years,
and excessive speculation
in the property market has
driven property prices to

“its current artificially high
level.”
According to Investopedia,
a property bubble is a
situation that shows a runup in housing prices fueled
by demand, speculation
and the belief that recent
history is an infallible
forecast of the future.
Chang says in the event
borrowers could not afford
to pay their mortgage
installments and the banks
are forced to auction off
their properties, “there is
a risk a property bubble in
Malaysia can burst, just like
what happened during the
sub-prime crisis in the US.”
“Skyrocketing house prices
have forced house buyers
to take back-breaking
mortgages which have
left many borrowers with
little or no savings after
deducting the monthly
installments and other
basic necessities. Many
borrowers need to
combine their income
in order to qualify for a
mortgage, and this has
placed the family at risk
as the family could fall
into a deficit situation if
any sudden emergencies
happen to either of the
borrowers,” he points out.
However, Chang qualifies
his outlook by saying
that as long as Malaysia’s
economy holds and there
is no downturn, the bubble
will not burst.
“Malaysia is still a young
country with high demand
for housing and coupled

“Although the frenzied
escalation of house prices
have somewhat slowed
down, overall house prices
have not gone down,”
Chang observes.
DTZ Nawawi Tie Leung
executive director Brian
Koh says the fact that
housing prices have
jumped 15%-20% in the
last two years are actually
emerging signs of a
housing market bubble,
but he acknowledges
the fact that “a property
bubble can only be
recognised and confirmed
as one after it has
happened.”
However, Knight Frank
Malaysia managing director
Sarkunan Subramaniam
believes the property
market is still resilient and
with the market cooling
measures introduced by
the Government, “there will
not be a property bubble
like a massive property
price correction but only a
mild price correction of the
property market.”
Sarkunan says Malaysia
and the other SouthEast Asia countries have
been the bright spots for
economic growth and
investment returns, and in
the aftermath of the global
financial crisis, they have
attracted encouraging
levels of investments that
have also boosted their
property markets leading
to sharp hikes in prices.
“The governments in
these countries have
acted responsibly by
implementing various
measures to cool their
property markets, avertin