Awaiting The Great Property Bust

“Propenomy or economic growth generating demand for properties which spur the property market.”

This is the principle and fundamental of the future growth of the property demand and values. For this reason, it is important to do proper study on the demand generators factor in any area before investing.

Too many projects which have light sustainability have attracted purchasers only through emotions. A rational examination of pro and contras, demand drivers, population (present and future projects) and a proper analysis of the current market values in the area are deemed indispensable things to consider before deciding to purchase a property.

Ikhram has been highlighting these points from Dr Daniele’s presentation at the recent MAPEX event very clearly.

We would like to thank him for the great write-up and for organising such a good blog to further discussion on properties.

Awaiting The Great Property Bust

BY IKHRAM MERICAN

For the last 3 years, I’ve been listening to regular people tell me about the impending property bubble. When I heard this from enough people back in 2012, I did get worried.

So I did some reading and research. I devoured statistics from NAPIC, I read as much as I could about the causes of a bubble, and I spoke to some experts. I concluded in January 2012 in my posting, Are We In A Property Bubble, that we may be in a bubble.

3 years on, and I have more grey hair (implying I’m smarter). I’ve seen enough statistics to know that the property market’s vital signs are good if not excellent. Earlier in March of this year, I wrote confidently that we’re not in a bubble.

This weekend, I saw the best researched data to once and for all dispel the notion that we’re in a property bubble. Credit goes to Dr. Daniele Gambero for his excellent research.

Perception and Reality

Daniele says that we’re a perception-driven society in Malaysia. He is spot-on. We believe any amount of B.S that’s churned out of the B.S factories and forwarded via Whatsapp, Facebook, and Twitter.

I’m privy to some of these forwarded Whatsapp messages and by god, it is amazing to see how gullible we are.

So, a large number of people believe that the property market is going to crash based on perception.

Here are some of the current perceptions:

1. There is an oversupply of properties
2. Banks are not giving out home loans
3. Property prices are too prohibitive
4. We have an incompetent government
5. Malaysia’s economy is not performing so well, especially with dwindling oil prices

Sounds bad doesn’t it?

Oversupply of Properties

Let’s cut to the chase here. The annual household formation in Malaysia is about 150,000. The new supply of houses coming into the market every year is about 100,000. Oversupply?

According to Daniele, by the year 2020 there will be an undersupply of nearly 3.5 million homes in Malaysia.

Are developers building enough houses in Greater Klang Valley to support the population growth from 6 million in 2010 to 10 million in 2020? The answer is a resounding NO.

To state that we’re short of houses would be an understatement. We’re SEVERELY short of houses.

It’s a draught as far as supply is concerned and we’re a thirsty population, ready to consume as much property as developers care to build.

There is oversupply in the high-end market but this is being corrected as developers shift focus to the middle market.

Banks Not Giving Out Loans

Word on the street is that banks started rejecting more loans in 2014. Buyers are unable to buy properties because banks are tightening their lending practices. This is horrible for the market says the man on the street.

Really?

One of the main reasons for the 2008 property bust in the US was cheap credit and unscrupulous lending practices. If banks in Malaysia are becoming more prudent in their lending, wouldn’t that be a good thing?

Here’s another interesting fact; according to RAM Rating’s Economic & Property Market Outlook 2014 (courtesy of Daniele),

[quote]loan approval rates (are) STABLE despite regulatory measures implemented since 2011[/quote]

According to The Star’s report last month, property-related financing and private debt securities held by banks increased slightly from 2013 to 2014.

So again, perception on the grapevine is very different from the reality on the ground.

Property Prices Are Too Prohibitive

Granted, developers were focused on a lot of high-end projects in the last few years. But there are plenty of affordable properties in Greater KL.

I recently wrote about an individual who bought a 650sf property for RM60,000 and turned it into a beautiful living space.

Here’s an additional fact that Daniele has put together: Malaysia has a property-value-to-income-ratio of 5.93. He compared this ratio to Hong Kong, Singapore, Thailand, Myanmar, Philippines, Vietnam, Cambodia, and Indonesia. Malaysia’s ratio is the lowest. Coming at #2, Thailand’s ratio is 400% higher.

This is a cold hard fact; Malaysians have the most affordable housing in the region.

We Have an Incompetent Government

In my last posting that addressed the issue of our property “bubble,” I highlighted that Malaysia, on the back of the Economic Transformation Plan, was the only export orientated economy in East Asia (besides China) that did not tank in 2012 (Source: Economics Malaysia).

Daniele says it eloquently. Malaysia has a well-defined economic plan. We may lack in implementation but there is a solid plan in place.

Daniele rarely says anything without substantiating it with fact. So here are some facts from his research:

• In its Global Competitiveness Report 2014-2015, the World Economic Forum (WEF) ranked Malaysia at #20 (out of 144 countries). Malaysia was the only “Developing Asia” country in the Top 20. It is more competitive than Australia (22) and South Korea (26).
• In its Country Report 2015, the International Monetary Fund (IMF) concluded that, Malaysia is on track to becoming a high-income country, and a fully-developed and advanced economy by 2020.

We have well-defined plans for economic clusters and infrastructure. Times Magazine called Iskandar Malaysia, “one of the most ambitious development projects in the world.”

Further reading into the Economic Transformation Plan and under it, the Greater Klang Valley Transformation Plan will convince you that the WEF and IMF were quite accurate in their reporting.

Malaysia does not have the most efficient of governments but there is a huge gap in the perception and reality of this.

Malaysia’s Economy Is Not Performing So Well

Most of us are looking at the fall of the Ringgit and going, “oh shit!”

Oil prices are dwindling too. Naturally, many coffee house chatrooms are rife with words like “bust,” “bad market,” and “doom.”

Remember the IMF report above?

Here are some additional facts from their report (courtesy of Daniele):

1. Near term outlook of the Malaysian Economy: positive as Malaysia has a well diversified economy.
2. Impact of lower oil prices: modest negative impact as Malaysia produces more natural gas.
3. Appropriate macroeconomic policy mix and fiscal consolidation is well-timed.
4. Financial stability: risk pro-actively managed by Bank Negara Malaysia

Daniele also points out that Malaysia has a very young population. 67% of Malaysians are below the age of 39. That is a productive workforce that will power Malaysia through the coming years.

Unemployment in Malaysia is 2.7%, one of the lowest in the region. Far better than Europe, US, Australia, and Japan. GDP growth at 5.6% is one of the highest in the region.

The Facts

[quote]Intuition comes very close to clairvoyance; it appears to be the extrasensory perception of reality
– Alexis Carrel, author of Man, The Unknown[/quote]

Alexis Carrel in his quote above summarised the ability to look at reality best.

If you want to have strong intuition in the property market, look at the facts. Get to the reality on the ground. Ignore the tales.

If you take a good hard look at the facts, the argument for the “impending property bust” is ironically busted.

There is no oversupply in general, banks are still giving loans (to credit worthy borrowers), property prices are relatively cheap, the government is not as incompetent as we’re led to believe (not all of them at least), and the economy is not so bad.

If you’re a smart investor, there are plenty of opportunities in the property market right now.

Source : Livingspaces.com.my