Dispelling the myths of the property market

Dispelling the myths of the property market

Michael Chow, Managing Director of CMT Holdings Sdn Bhd, with a history of more than 40 years in the property investment industry shares with iProperty. com about the myths and rumors about the Malaysian property market.

MYTH #1: THE AFFORDABILITY ISSUE CAN BE CURBED WITH MORE SUPPLY IN THE MARKET.

The public believes that continuous new supply of properties is the preferred affordable housing strategy. However, this strategy is not so effective as the developers in Kuala Lumpur have increased the supply of properties over the past few years but the prices keep going up.

In the case of Ireland, they have increased its housing production three-fold from 30,000 dwellings a year in the mid-1990s to a peak of almost 90,000 houses in 2006 but nevertheless house prices have increased by 350% across the country.

Most markets obey the rule of supply and demand, such as when the prices go up, demand decreases. However the property market is usually an external shock and it tends to be affected by unemployment as well as mortgage interest rates.

One of the key economic driving forces for this uncanny mechanism is that as property price rises, more people are encouraged to purchase a property now before the price escalates any further while investors are running towards capital gains.

 

MYTH #2: IT IS DIFFICULT TO GET A BANK LOAN FOR PROPERTIES

One of the most common excuses heard by Michael as to why can’t the young adults own a property today is because of stringent requirements by the local banks and that a modern home loan requires a hefty down payment.

There are truths and kernels in this matter. Most lenders will view certain applicants as a less dependable investment if their credit score is below average while applicants with higher credit scores are entitled to attractive interest rates.

However as most property investors and homeowners have testified, having below average credit score does that mean applicants are automatically disqualified from applying for a mortgage. A professional mortgage banker can help them through any mortgage process to ensure they are doing what’s best for themselves.

 

MYTH #3: PROPERTY WILL BE MUCH CHEAPER IF FOREIGN INVESTORS ARE RESTRICTED IN THE HOUSING MARKET.

The local property market is looking at a lot of foreign property buyers as well as investors from neighbouring countries such as China, Singapore and Indonesia. Most newly launched properties in the recent years saw almost 20% to 30% property buyers are overseas investors.

It is a popular belief among Malaysians that with an influx of foreign investments into our property market, more property developers are building luxury properties to attract overseas investors, hence fewer properties within the affordable range of less than RM500,000.

However economically, there is a need to allow the impact of international investments on new supply. International investors are generating new supplies, so the upward pressure they place on prices will be limited. Therefore, this is particularly helpful in keeping dwelling completions up when the property market is not experiencing an upward boom.

 

MYTH #4: MALAYSIAN HOUSING IS A STATE AND LOCAL ISSUE.

The current tax settings in Malaysia that allow the combination of negative gearing and capital gains discount have pushed the top of housing booms higher and increased pressure on real estate prices. The state and local governments are pushing the blame to one another.

These settings have often been questioned by a range of property experts as well as developers as they could lead to a ‘boom or bust’ cycle. Boom pushes home ownership further beyond the reach of the younger generation while busts will jeopardise the entire economy.

This is wholly a federal government issue and national leadership in particular which is long overdue to curb further speculation and sharp increase in property prices.

 

MYTH #5: YOU ONLY MAKE A PROFIT WHEN YOU SELL.

It is often heard that you only make a profit from properties when you sell, often from real estate agents who are keen to list your property for sale. This statement is false on two fronts.

Firstly, buyers can make a great deal out of properties if they can catch on a good price – the lower you pay for a property, the quicker the capital gain. Hence, this brings to the second falsehood where you do not have to sell your property to realise a profit.

Equity becomes more important when you own a property because banks will allow you to increase your loan credit via equity leverage to buy more properties. Selling for profit can become a taxing mistake as you may be liable for capital gains tax.

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