We’re no experts, but the words “crash” and “burst” don’t really signal something good for us.
No doubt you’ve read the numerous fantastical headlines like “Property market will be badly hit in 2018, says expert
” and “Bank Negara: Property glut highest in a decade
”. You would think a property crash would be a good thing, right? “Yeah, finally I can buy an affordable house in KL.”
Well, not quite.
According to our resident property-man Gunaprasath Bupalan
, a veteran journalist with 10 years of experience writing on the property market, the collateral damage from a crash would be unbearable.
“Banks would halt lending, not just for property but to the wider economy. Households would halt spending, as they rebuilt their personal balance sheets by saving as hard as possible to reduce their debts.
“What does this mean? If you have households reducing their spending, that slows income growth through the economy, which presents risks for unemployment.
“If households are not confident in where things are going, they won’t spend as much and that will have a flow-on impact to other sectors and other industries.
“Not only would plummeting house prices ravage consumer confidence an spending, but they would hurt hundreds of thousands of small businesses who unofficially use their home mortgages as a backdoor way to finance their businesses.”
To top it off, Lee Heng Guie, the director of the Socio-Economic Research Centre, told The Malaysian Insight
, “Even if prices dropped, houses in good locations, with high investment value would not depreciate as much as expected.”
Not only will our economy take a hit, that house you wanted in Bangsar or Damansara Heights probably won’t go down by much – and the banks won’t lend you the money to buy it anyway.
Gunaprasath continues, “Although the market was sluggish throughout 2017 and that the stock of unsold houses could possibly increase in 2018, some projects priced under RM500,000, as well as those above that price range in popular locations, are still enjoying good take-up rates.
“In terms of a property price drop, in reality, developers can’t afford to bring prices down
because their margins are low, and would be more likely to change their products to meet the market’s requirements rather than just drop prices.”
Property expert Ernest Cheong who is fuelling the flames of a property market crash agrees telling the FMT
, “A figure of RM500,000 to RM600,000 will represent the cost of such homes to developers. This covers the cost of land, development, and construction in places like Kuala Lumpur, Petaling Jaya, and Shah Alam.
According to Bank Negara Malaysia’s report
, that started all this crash talk, a property crash that includes residential and commercial properties will affect more than 120 industries, accounting for 10% of GDP, an industry that feeds 1.4 million Malaysians.
The report cited the Asian Financial Crisis in 1998. Projects were abandoned, as developers couldn’t service their debts, banks suffered losses as non-performing loans to the property sector doubled, resulting in a credit crunch. Spillovers to other industries then resulted to widespread layoffs and a severe economic recession.
So how? Crash or not?
The jury is still out on that fact and to be honest, no one can predict when a crash will come.
But Gunaprasath doesn’t think it will happen soon: “I would like to make one thing clear. The likelihood of a property crash in Malaysia remains low
“Despite the drop in Ringgit value, Malaysia still remains a densely populated land with near full employment, where money can be borrowed at historically low rates. These tend not to be conditions in which asset prices suddenly implode.”
So if crash… how?
So assuming that the property market would crash, what should we do? Gunaprasath responds:
“Looking at the current property climate, my personal opinion would be for people to rent instead of buying if they don’t have the sustaining power.
“If you are buying to stay, anytime is a good time to purchase at any price – if you can afford it – as long as your conveniences such as amenities are met. If you’re purchasing solely for investment, property research is needed as location and potential investment growth is crucial considerations. Otherwise you will not be able to sustain the investment as it would take too long to recover.”
Now you’re probably wondering, should you rent or should you buy. And hey, we’ve got you covered there as well. Enjoy our very own educational series, Now You Know-Lah
where we try to answer difficult questions, easily.