Charles Tan prods at the residential overhang issue and highlights key signs consumers should look out for.
So the overhang in stratified properties or apartments and condominiums has worsened Y-O-Y, according to JPPH’s latest property report, the number of unsold units rose by 40% to 20,876 units in H1 2017. Most of the units are priced above RM500k.
What do these figures mean? Is the market about to crash?
A housing market crash could be due to many factors, but unsold units worth over RM500k is usually not one of them. Instead, we should watch out for the following signs:
1) The prices of sub-sale homes skyrockets/rises rapidly and are no longer affordable to most people
A prime example is the sub-prime mortgage crisis which happened in the US over a decade ago – according to media reports, by 2014, housing prices in the US were skyrocketing.
To those who are anxious, just keep a lookout for changes in home prices by going through property listing posted on online real estate platforms including iProperty.com Malaysia. Do you see pages after pages of properties that are way too expensive for everyone? As soon as we notice the majority of home listings becoming too expensive, then we can start worrying.
2) Property owners are unable to service their mortgages
I would be alarmed if people start telling me this, “Charles, I could easily get my property loans approved even though I have significant debts already.” Should the central bank suddenly raise interest rates, many borrowers who are already on the edge with their repayments may just tip over into the default zone.
Instead, when the quality of purchasers is met, a mere say 0.5% increase in interest rates will not cause any detrimental effects to the market.
A major sign of concern is when mass retrenchment occurs across most industries and is further compounded by the sudden lack of new jobs in the market. You can use JobStreet.com as a barometer, employers will have to fork out money to advertise their job vacancies.
When it comes to choosing between feeding your family and paying my mortgage, the former will take precedence. Hence, those who suddenly find themselves unemployed will be forced to sell their home and rent one instead. Imagine if this scenario happens on a large scale – thousands of desperate Malaysians trying to unload their homes at the same time. Consumers’ sentiment will take a nosedive and the property market MAY crash.
Consumers must be strategic when it comes to personal finance, more so when the economy is going through a rough patch. One must have a rainy day fund in case of emergencies; a minimum saving equalling one’s 6-month salary.
Besides that, do not purchase properties which are out of your affordability scale; it is very dangerous to stretch your mortgage repayments to the maximum.
Also, continuously keep yourself updated with current news and the market’s going ons. The US mortgage crisis was not an overnight incident, there were numerous warning signs leading up to it but the masses chose to ignore them. Let’s learn from this mistake and keep reading!