Saturday, October 13, 2007

Is the robust property market sustainable?

Is the robust property market sustainable?

Comment: By FINTAN NG

CALL me a cynic but I have often wondered about the potential of the local property market.

This, of course, flies against the sentiments of experts in the sector, most of whom have been upbeat.

Since the start of the year, there has been mainly good news from them although grouses do get aired from time to time.

Developers, consultants and realtors have painted a mostly rosy picture of a pretty robust property market, basing their outlook on the usual suspects – the economy, the “feel good sentiments” of the public, the performance of the stock market and the roll-out of projects under the Ninth Malaysia Plan, part of which is already coming to fruition via the Iskandar Development Region, the Northern Corridor Economic Region and the soon-to-be-launched Eastern Corridor Economic Region. Even inflation, at around 2%, is manageable.

There are also the various incentives that the Government has announced in stages since last December.

These include the easing of Foreign Investment Committee regulations on the purchase of residential properties by foreigners, the suspension of the real property gains tax and the abolishment of stamp duty for residential properties priced at RM250,000 and below.

The experts will also point out that relative to our neighbours, property prices are comparatively cheaper although I have been cautioned more than once about price comparison. There are many other factors that affect the property markets of our neighbours.

The year is slowly winding down. Despite high crude prices hovering in the US$80 per barrel region in the past few weeks and the troubles in the US credit and equity markets over the last two months, the economy is humming along.

It is not at the blistering gross domestic product growth of near 10% before the Asian financial crisis but still at a steady pace of nearly 6%.

Quarterly reports by various property consultancies this year have noted the general upward movement of prices of high-end residential properties in select locations in the Klang Valley and Penang.

In Johor, while property prices have also risen, they are not moving as strongly as in the two other regions.

They have also noted that foreigners have taken up a substantial number of these properties, sometimes on an en bloc basis.

Several consultants noted that foreign interest has been driving the prices of high-end residential properties in “hot locations” upwards. This is especially true of the area surrounding the Kuala Lumpur City Centre (KLCC).

According to a consultant, the fear is that while Malaysia has largely been unaffected by the subprime mortgage crisis in the US, foreign interest may dry up if the crisis spills over into the US economy or credit is further tightened.

“The crisis may spread through the credit fault lines or other factors may crop up that will have a negative effect on the market,” he says.

Another adds that the KLCC rental market is as yet untested, unlike Mont’Kiara/Sri Hartamas where there is a thriving expatriate community.

“For the rental market in KLCC to do fairly well, the investment climate must be welcoming to attract foreigners,” he adds.

Going forward, a “welcome” mat and less red tape would be good for the high-end residential and office segments.

As for the mass-market segment, as long as inflation is manageable and financing is cheap (or Bank Negara does not raise the overnight policy rate that affects commercial banks’ base lending rates), many more people would be interested in purchasing property.

This in turn would reduce the overhang that developers are constantly moaning about and lend more strength to the property bull.

No comments: