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PROPERTY BUBBLE IN MALAYSIA PLANNING ISSUES

1.0 INTRODUCTION
Home is a basic necessity to provide people with shelter and comfort. Most of the time,
housing investment undeniably constitutes the single most expensive investment for most
families. For the past fifteen years, housing property in Malaysia has underwent tremendous
price increment. However, once the housing price deviates too much from its fundamental
value, it may give rise to problems and even generates subprime crisis for Malaysia future
growth. Our countrys current strong economics and demographics display, soaring of the price
of residential property is inherent. Currently, Malaysias population is reach towards 31.4
million people in year 2013 compared to 23.4 million people in the year 2000 (World Bank
2012). As our countrys population is expanding exponentially, the same exponential demand
on housing sector is expectable. Along with Malaysias robust economic growth, house price
will continue to soar to a new height and could possibly make it unaffordable in the near future.
Residential property has an important role and direct linkage to a countrys economic
capability and capable to stimulate a more vibrant and vigorous economy. Due to close
connections between housing property and economy, a protracted high house price could cause
economy going down and perhaps a regional financial is unstable.

2.0 CURRENT ISSUES ON RESIDENTIAL PROPERTY IN MALAYSIA
The upward trend of housing industry in Malaysia lately, the probability of bubbling
remain high. Government wanted to suppress inflation, its then leverage on low interest rate
(revised on May 2012), however the ongoing of low interest created house price to escalating
high, this could be beneficial to house owner for short term, but to public, the affordability
issue arise especially in urban area.

Residential property prices recorded a few staggered price increment especially at
Kuala Lumpur, Selangor, Johor, and Penang during the past few years. It has been recorded
that in the year 2011 alone, property prices have increased for about 30% (Utusan Malaysia
2011). The exponential increment have been felt by most Malaysians in which two-thirds of
respondents feel properties in Malaysia is too expensive. Many newlywed couples who wish
to live in their own home now have to throw away their dreams and stay with their parents.
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Even among young people are at greatest risk when it comes to increasing house prices,
interest rates with the portions of their monthly income are spending on monthly payment for
the housing debt. Most of this generations are just started their working career and hardly
earned a good pay. Therefore, the dream to own a decent house is only able to be realized if it
is affordable to them. The term affordable simply means, the housing price will not cause
excessive financial burden towards their monthly commitment.
Government may be considering, as long as the house price continue to rise, the
economics will improved, the capital flow in market should be adequate, this could be
politicised due to fish votes. Low interest can stimulate market; enable more dynamic and
robust growth, but its also creating inflation. Government starts controlling over-whelming
speculative activities, however the outcome remains uncertain. The over-heated housing prices
is not only an regional issue, the inequality of income vs. house price caused many incapable
to own their dream house and situation is getting worst.
Malaysia as a developing country remain consistent about providing access to home
ownership and several incentives are given to the young starters, however the responses on the
incentives are mixed. As the potential house buyers across Malaysia tighten their belt more
and more to meet the increasing price of the housing prices, it is about time to relook on the
actual cause of the problems before it becomes a madcap to the nations economy

3.0 PROPERTY BUBBLE IN MALAYSIA
For the past few years, residential property prices recorded few staggering price
increment especially in Kuala Lumpur, Selangor and Johor. It has been recorded that in the
year 2011 alone, property prices have increased for about 30% (Utusan Malaysia 2011). This
scenario will cause the volume and price of housing to increase. According to the Property
Market Report 2011, the volume and value of residential overhang has moved up. The volume
and value of residential overhang increased marginally by 2.4% (2010: 23,133 units;
2009: 22,592 units) and 14.5% (2010: RM 4.21 billion; 2009: RM 3.68 billion) respectively
against 2009.
Although the price of house is higher, people still buy and invest in the properties.
Therefore, the demand for property will increase. Demand for residential is a reflection of the
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strength of the economy. However, a note of caution is that projections of strong demand
usually lead to an oversupply situation. Thus, if the housing price keeps going up, it may cause
people not being able to afford to buy or invest in property. Therefore, it creates the property
bubble phenomenon.
From my point of view, property bubble is a type of economic bubble that occurs
periodically in local or global real estate markets. It defined as a sharp rise in price of an asset
or a range of assets in a continuous process, with the initial rise generating expectations of
further rises and attracting new buyers, generally speculators interested in profits from trading
rather than in its use or earning capacity. The rise is then followed by a reversal of expectations
and a sharp decline in price, often resulting in severe financial crisis-in short, the bubble bursts.
Based on the expertise, bubble is a temporary situation where prices become elevated
beyond any realistic fundamental valuations. This is because the general publics belief is
widespread enough to cause significant numbers of people to purchase the asset at inflated
prices, and prices then will continue to rise. This will convince even more people that prices
will continue to rise. This facilitates even more buying. When the pool of buyers is exhausted
and the volume of buying declines, prices stop rising; the belief in future price increases
diminishes. When the remaining potential buyers no longer believe in future price increases,
the primary motivating factor to purchase is eliminated, prices fall. The temporary rise and fall
of asset prices is the defining characteristic of a bubble (Lawrence Roberts, 2008).
According to CIMB Research Head Terence Wong, talk of a property bubble in
Malaysia is overstated as the sharp rise in residential property prices over the past few years is
confined to selected areas (The Sun Daily, 5th MARCH 2012). It stated that low interestrate
environment and accumulation of liquidity has encouraged buying of property which might
cause a potential bubble and this scenario will lead to the subprime crisis in property market.

4.0 FACTORS OF PROPERTY BUBBLE
4.1 The Macroeconomic Situation and Policies
Bubbles typically start in a rather extreme boom period that has lasted for a
comparatively long period. It can also be hypothesized that it is a period where the
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macroeconomic policies have been rather lax. Real estate industry develops while
policies dont follow the pace. The problem lies with the government basically.

4.2 The Capital and Credit Market
The role of the credit market for asset price bubbles: The thesis in this book
is that the cycle of manias and panics results from the pro-cyclical changes in the supply
of credit. It means that many of the real estate bubbles are related to generous lending
policies by the banks.

4.2.1 Expectation
The expectation has an impact on the demand and supply of commercial goods,
and to the real estate market this rule is more remarkable. On the one hand from the
perspective of demand, consumers will postpone their purchase when they have
expectation that the prices of commercial real estate are going down, which reduces the
purchase in the market and then further reduces the demand from expectation.

4.2.2 Speculation
Speculation is a financial action that does not promise safety of the initial
investment along with the return on the principal sum. Speculation typically involves
the lending of money or the purchase of assets, equity or debt but in a manner that has
not been given thorough analysis or is deemed to have low margin of safety or a
significant risk of the loss of the principal investment. In a financial context, the terms
speculation and investment are actually quite specific.

4.3 Macroeconomic Factors Affecting Demand and Supply
4.3.1 Economic Factors
International economic scenario is one factor that may have impact on the
property market. For example, the rising cost of loans and interest rates resulted in
demand of shop houses going down and it led to a decline in prices and rentals for the
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property. Property supply was also affected by the condition of the economy at that
time and consequently the property market downturn. In time of economic growth, the
residential sector will be developed rapidly. Therefore, the demand will increase and
thus encourage the supply market.
4.3.2 Social Factor/ Demographics
Income, household size and consumer preferences are important factors in
analyzing the development of residential and trade. The population will eventually lead
to an increase demand and supply for the property. Hence, lot of people will promote
business or trade. Therefore, indirectly the demand for shop houses as a place business
will increase and thus promote home supply by developers.
4.3.3 Political Factors
The rules set by the government can encourage demand and supply of
residential real estate or vice versa. Malaysia is among the few countries with the most
regulatory properties. In Malaysia, government regulations are often regarded as
obstacles to the developer which influence the supply of real property.
4.4 Microeconomic Factors Affecting Supply And Demand
Micro factors are factors which influence demand and supply of property
directly in development projects. Most of these factors are related to the characteristics
of the property, and the demographics of the buyer profile. It focus on factors that
affecting the micro-home supply in housing only. Some of the microeconomic factors
that influence demand and supply are given as follows:
Demand Factors Supply Factors
i. Location and Accessibility i. Location
ii. Public Facilities ii. Credit Facilities
iii. Financial Loan/ Credit Facilities iii. Construction Cost
iv. Other Factors iv. Labor Supply
v. House Price and House Rental
vi. The Vacancy Rate
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5.0 CASE STUDY IN MALAYSIA Housing Bubbles in Klang Valley, 2005-2010

5.1 Scenario of Housing Bubble in Klang Valley
During the period 2005-2010, Klang Valley had experienced a dramatic
run-up in housing prices. The Klang Valley housing and property are in unhealthy
growth against Mass Rapid Transit project which had planned to interlink the Capital
city and its sub-cities. The house price is rose exponentially with inflation rate, crude
oil price and other constituents. Somehow, high value of house price had actually, make
buyers delayed to own a house, or forced them to consider other than their preference,
or suffering with high housing loan.
In addition, Klang Valley is conducting highly developing action in economy
and living quality. Increase in population, migrant, and immigrant had pressurizing
housing demand. House demand is still remains high even through there are
continuously mark up of house price. This had clearly reflecting fluctuation between
the demand and supply where Klang Valley is making up of 49% total housing
transaction in Malaysia with amount RM61.38billion with 17% increment during the
year 2009-2011. However, there are 14% traced increment in house transaction
volumes during the same period.
Therefore, Sharp rise in house price with unsupportive economy fundamental
and social backbone has lead Klang valley to bubble in housing market. Burst of the
bubble would indicate the housing market losing persistent rise in house price over
length period and sudden drop in house price. This had made house buyer loss their
wealth management in dealing with high interest rate, low income increment, and price
inflation of living goods. Same situation had happened in South Korea, Taiwan, and
Hong Kong beating the sector development especially mortgage lender, material trader
and construction activity.

5.2 Scenario of Housing Bubble in Johor Bahru
As we can see, the property market in Johor, particularly Iskandar
Malaysia, might be a case of too much too soon. Red flags are showing in the state
where launches of projects and high prices are common place but the pace of launches,
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which now includes carpet building by China developers, is flooding the market with
more houses than what could be sustainable.
Latest data by the National Property Information Centre (Napic) indicate the
amount of new homes being built in the near future is equivalent to 42% of the stock
of 702,101 houses in the state. Almost 300,000 near homes are being built or in the
planning stage at a time when the market in Johor has hit a soft patch.
The data shows that at the third quarter of last year, construction for 116,859
homes had already started while the building of 162,579 homes have yet to start.
Meanwhile, 16,168 homes had been approved for construction in Johor in that quarter
alone. Analysts say the new supply does not include new launches by Iskandar, which
is expected to increase three-fold to more than 4,000 units and is expected to remain
elevated up to 2017.
The supply of new homes does not seem to be putting a lid on the escalation of
home prices in the state. As the new launches are priced thereabouts or even higher
than what is being sold in the more established Klang Valley, the new supply of homes
and their higher prices have had a telling impact on prices in the state.















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Based on the figure above shows that the housing price in Johor Bahru is
heading towards a property bubble. From my point of view, this depressing scenario is
where there is a mismatch between the level of property prices and what Malaysian
families with monthly incomes of RM14,000 and below cant afford to pay, the
economic forces of supply and demand will eventually take over. With all these high-
priced properties chasing the few Malaysian families is not be able to afford to pay, the
imbalance between the increasing supply of high-priced properties available for sale
and the shrinking demand from the small pool of Malaysian families are not willing
and not be able to pay will eventually cause the prices of these properties to decline
and fall.

6.0 CONCLUSION

In a conclusion, the issues that has been highlighted here is focused on bubble that
occurred which affect from price and the expected price of housing in Malaysia itself.
Bubbles does exit in property market and it has negative significant relationship with
intrinsic price and market price. Malaysian income is far below the housing price, any
purchased of high price houses, will create extra burden to house owner, bank exposed
to more credit-default risk. The speculative activity is similar to US Housing bubble in
2008-09.
Thus, Malaysia need to learn from the incident of US housing bubble, the
default case may increase, resulted drastic fall of house price, bank will record
enormous book losses, credit crunch due to lack of cash, may paralysed the whole
banking system. When speculators gain, new house owner will suffer. Government,
people and bank should well aware, Malaysia need a sustainable growth model, not a
flash in the pan.
Besides that, housing prices are also related to the population. An increase in
the population in Malaysia increases the housing demand and therefore increases the
housing price. If there is a greater demand than a supply for housing, it will affect the
housing price too. When there are fewer houses in the market, people are willing to
spend more money to buy a house. This will cause the housing price to increase.
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REFERENCES
1. Berita Harian Online (2011). Jangkaan peningkatan harga sector hartanah.
Retrieved on October 15th, 2011, from
http://www.bharian.com.my/bharian/articles/Jangkaanpeningkatanhargasektorhart
anah/Article/
2. NAPIC (2010). Property Market Report 2010. Malaysia: Valuation and Property
Service Department, MOF. [online]
http://www.jpph.gov.my/V1/pdf/overview_tables_2010_P.pdf
3. Hashim, Z.A. Housing Price and Affordability in Housing in Malaysia, Akademika
78 (Jan.-April) 2010.
4. Study Of Property Market In Johor: An Investigation Of Property Bubble
Phenomenon, Tan Jia Phing, Associate Professor Sr Dr. David Martin @ Daud
Juanil, Faculty of Technology Management and Business Universiti Tun Hussein
Onn Malaysia.
5. Factors Influencing The Rise Of House Price In Klang Valley, Cindy Liew, Nuzul
Azam Haron, Department of Civil Engineering, Universiti Putra Malaysia.
6. Margaret, G.S., (2006). Bubble, Bubble, Wheres the Housing Bubble?
Economics.