24 July, KUALA LUMPUR – The government needs to be ready for the property bubble to burst and respond with market-oriented solutions, said Institute for Democracy and Economic Affairs (Ideas) Senior Fellow Dr Carmelo Ferlito.
In a statement on its website today, Ideas said Ferlito, in a new policy paper, advised the government to downplay its role in the property market by reducing the number of government agencies and encourage the private sector to get involved in the affordable housing market.
He said the high involvement of government agencies in the affordable housing market risked crowding out private initiative and prevented the necessary restructuring from taking place.
It is important to let the bubble burst; too much credit will only delay the bursting, keeping prices artificially high and putting at risk the financial solvency of buyers.
Without credit support, the crisis will happen faster and force both capital restructuring and prices to move downwards, he explained.
Ferlito suggested the government enhance Malaysian financial literacy with an orientation towards the value of saving and the possibilities offered by the rental market.
He also said the government might want to open and ease up the regulation in the property market to foreigners who possessed a regular working visa and were paying taxes in order to help the industry in a crucial moment of difficulty.
In the paper titled Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market, Ferlito said the peculiar evolution of the Malaysian property market over the past decade had led to a large number of unsold properties in the high-end segment and partially unsatisfied demand for affordable housing.
He said the focus on the high-end segment was justified by the strong demand and was therefore natural for investment to expand in the sector.
However, now that it appears clear that unexploited profit opportunities are disappearing, a capital allocation restructuring appears necessary, he added.