This topic has NOT been mentioned for some time. Is there a property bubble in Malaysia? Well, if no one is talking about it, should the answer be a NO? Property bubble usually ends with a property market crash. Better not ask too many people. Housing developers will tell you that there’s no bubble. Potential buyers with cash may be telling everyone that a crash is coming so that they could buy a property at a discount. So, who should we listen to? Well, here are the 4 typical signs for building up of a property bubble in Malaysia.
#1 – Non-Performing Loans (NPLs) are increasing
When more and more people start to fail to pay their loans in time, these loans would soon become a non-performing loan (NPL) to the financial institutions. . It’s not possible to ask our friends if they have been failing to pay their mortgages. No one would tell you their sob stories. However, it’s really possible to look at what banks are reporting every quarter. So, how’s the NPL for the Malaysian banks?
This is comment from CEICDATA (click here for full report) “Malaysia’s Non Performing Loans Ratio stood at 1.4 % in Aug 2020, compared with the ratio of 1.4 % in the previous month. Malaysia’s Non Performing Loans Ratio data is updated monthly, available from Dec 2005 to Aug 2020. The data reached an all-time high of 9.5 % in Feb 2006 and a record low of 1.4 % in Aug 2020. Non Performing Loans Ratio is calculated by CEIC. Bank Negara Malaysia provides raw data on Non Performing Loan and Total Loans. Non Performing Loans are defined as loans overdue for more than 90 days.”
Briefly, as at August, NPL numbers remain low by international standards.
#2 – Everyone could buy a property!
Let’s not forget that buying a property is not like buying vege from the market. Be very afraid if the news indicated that everyone who needs a home loan gets approval for a home loan. Banks kept lending and the approval rates are super high. (Remember… this was what was happening before the 2008 mortgage crisis. Yes, it’s called mortgage crisis for a reason…)
As of today, the news most people are accustomed to would be how hard it is to get a loan. How banks are being so conservative. How one is not able to get 90% loan but only 80%. How developers had to sell the 200 units over 500 times because the potential buyers could not secure a loan for it. Calculations on buyers’ income is based on net income and not gross. Basically, Bank Negara Malaysia is still very much in control to prevent any property bubble in Malaysia due to speculative activities.
#3 – There are really nothing affordable out there!
Many say we could look into certain period of years where the property prices rose faster than the income increments. By the way, before the years when property prices rose faster than the income increments, there were many years where property was really just a home instead of an investment. At the time, salary increments would be a better bet than to wish for property price increase. So, it’s best not to try and put forth some certain periods versus certain periods just to prove a point.
However, at any point in time, the following applies. When there are NO properties which people could afford to buy, then the property market needs a correction. Today, if we MUST buy a landed property, there are still sub RM400,000 ones (much further away from city centre). If we MUST buy a property within the city centre, there is the secondary market to choose from. The homes would not be contemporary but you still have choices.
If one really just need a roof over one’s head, a check with property sites would reveal that choices below RM200,000 are aplenty even within Klang Valley. Just do not expect something spectacular. In some countries where the property market is REALLY just for the rich, we will see that affordability is no longer possible. Malaysia is not at that level currently. (as at 18th October 2020)
#4 – Unemployment is rising super fast
Someone said unemployment rate in Malaysia is now 30%. (read the article here) The calculation for the typical countries are NOT based on this calculation proposed yeah. Anyway, our unemployment rate (as at latest available data) is around 5 percent. There were also predictions that it will drop to 4.5 percent by end of 2020. These predictions were before the COVID-19 3rd wave. Will it be worse? It may.
What we need to understand is that if unemployment numbers continue to rise very fast; people are losing their jobs very quickly and unable to find one back soon, then they will start to face financial difficulties. When this happens, they may not be able to continue paying for their loans. This is when many people will start to sell their properties and when many people try to sell their properties at the same time, many will try to push prices ever lower. The result would be disastrous yeah.
So, here are 4 signs which we could watch as it unfolds when it concerns property bubble in Malaysia. Briefly, there are no strong signs of a property bubble in Malaysia now. There is no need to wait for the formal announcement that we are in some property bubble. That would usually be too late. Do note that no one can predict if there are unforeseen circumstances yeah. Just like if a financial crisis suddenly start in some advanced nations, it will affect everyone else too. Let’s hope the central banks in those countries are also vigilant and not just keep printing ever more money…
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