Fears of a bubble hang over market

PUBLISHED : Friday, 29 October, 2010, 12:00am
UPDATED : Friday, 29 October, 2010, 12:00am

Although Malaysia has yet to rein in its property market, all eyes are on policy and the likelihood of changes. 'The government is quite concerned about the increases in prices,' says Brian Koh, DTZ's executive director of consulting and research in Malaysia.

Overall, prices are quite stable and even declining in the city centre's luxury condominium market (see main story). But new developments in the suburbs have been catching the eye, suggesting it's getting increasingly hard for first-time buyers to get on the bottom rung of the market.

'At some of the new launches the prices have been quite surprising,' Koh says. 'They are launching at prices that are close to what you see in more central locations.'

That's causing concern because Kuala Lumpur (KL) is attracting floods of newly urban residents, many of them looking to buy property in the capital for the first time. Unlike Hong Kong and Singapore, where there are an average of three people per property, there are four people per property in Malaysia, hinting at strong demand as living styles shift.

'If they get 20 or 30 per cent price appreciation that would cause huge affordability issues,' says Tim Murphy, founder of property developer and investment consultancy company IP Global. 'There's a changing culture, people don't want to live with their parents any more. So it really hedges on affordability because there is mass migration into KL.'

For now, Malaysia has tried to tackle any excess by raising interest rates. There have been three rate hikes this year, upping the base rate by 75 basis points. The prime lending rate is now at 6.05 per cent, with homebuyers typically able to borrow at prime minus 1 or 1.5 per cent.

More serious measures may be necessary if the rate hikes don't work. Landed property prices have leapt 10 to 20 per cent this year, double the 5 to 10 per cent increase for city-centre property.

'There's a lot of talk about whether we do have a property bubble,' Koh says.

He believes policy is going to be all-important, with the government announcing its New Economic Model and its 10th Malaysia Plan, both programmes that 'will have a strong bearing on the future direction of the country and its impact on the property sector'.

There may also be changes afoot in bank financing. Bank Negara Malaysia, the country's central bank, is mulling a cap on the amount banks can lend on any individual home purchase to 80 per cent of the price. Banks are allowed to lend as much as 95 per cent of the value of a property. The central bank is thought to be considering imposing the cap on the loan-to-value ratio to ward off any potential property bubble.