By TK Chua
Bank Negara Malaysia has finally admitted to a property glut as reported in the Singapore Straits Times on Nov 17 and shared in FMT today.
Before this, the deputy finance minister alluded to a massive property overhang, particularly in condominiums and apartments costing over RM500,000.
I think we have seen “speculative building” and “speculative buying” for a long time. Just ask around. Many are up to their ears in property buying and ownership. Developers too are ever optimistic about their projects, often throwing caution to the wind.
I think the issue is not limited to unsold units alone. Those sold earlier are largely vacant, too. If existing owners are unable to rent or resell their units, they will eventually have problems buying new ones.
We have to ask why property prices have defied gravity for so long. I think our financing regime has much to do with it. It has favoured people who are adventurous and excessively risk-seeking. The system rewards people who are highly geared and not the savers who care for sustainability.
A few have gotten too much at the expense of many.
It will be interesting to see how the authorities react to the impending property glut.
In the past, it has always been one or more of the following:
- lower the interest rate further
- extend the repayment period to two generations, if possible
- lower the down payment, if possible to zero, when buying properties
Have we ever wondered whether all these measures will actually further escalate the prices of properties? Landowners, developers and property owners will benefit disproportionately at the expense of property buyers.
Excessively low-interest rates discourage savings and deprive the savers of their income.
Extending the repayment period is to allow borrowers to take loans they cannot afford in the first place.
Lowering the down payment is to allow buyers without minimum or no savings to buy properties.
These are measures that don’t help the buyers. On the contrary, these measures help sustain and increase the prices of properties and keep speculators, developers and bankers happy.
I urge the authorities to allow the “market forces” to determine prices. No more bailouts, lowering of interest rates, further extension of repayment period or zero down payments when buying properties.
Property prices must be allowed to come down to the market clearing level. It is about time speculative buyers and developers return part of their gains.
Speculators should not be allowed to make so much money as it is bad for the overall economy.
TK Chua is an FMT reader.
The views expressed are those of the author and do not necessarily reflect those of FMT.