Generally, property prices in Malaysia have appreciated dramatically between 20%-100% beyond the affordability of most people giving rise to much discontent in the last few years especially in the state of Kuala Lumpur and Penang. Low interest rates, high liquidity, high labour costs as well as compliance costs and inflation which leads to rise in building material costs are some of the major elements that contribute to this surge in prices. Is Malaysia experiencing a 'property bubble'? It is a question yet to be answered.
It is a true fact that Malaysia property market has been doing well in the past couple of years. However, the Malaysian Government intervention has taken place recently. Malaysia Government is trying to 'cool' the local property market and prevent the property prices from rising further by introducing several 'cooling' measures.
Property
Under the Central Bank's new lending guidelines which took effect on 1 January 2012, loans are now approved based on net income rather than gross income. The volume of loan applications for residential properties declined by 3 percent year-on-year in August 2012, leading to a decline by 12.7 percent in loan approvals, according to OSK Research. This trend is said to be an indicative of the residential property market cooling following tightening measures by Central Bank. However, it is not rational to conclude that the demand for local property has been decreased based solely on this single data as the loan volume might actually remains relatively constant; it is probably just means that people are still able to borrow, just that they have to apply to a few more different banks nowadays compared to last time.
Under Budget 2013, the real property gains tax (RPGT) rate for properties sold within two years was increased by 10 percent to 15 percent while the rate for properties sold within three to five years was raised from 5 percent to 10 percent. This second year of hike in RPGT acts as a very first step to contain the issue of rising property prices although it is less likely to have an impact in curbing excessive property market speculation, according to property analysts.
The various minimum limits for foreign purchases imposed by the Government for different states also aim to protect the interests of local Malaysians. For instance, the minimum limit for foreign purchases of all properties is RM1 million in Penang while landed properties is in higher limit which is RM2 million starting from 1st of July 2012. However, the limits are considered low for foreigners who are cash rich. The developers will most probably rising the property prices in order to target and attract these potential foreign buyers. Besides, these foreign purchase transactions constitute only 2.26% in the year of 2011 in Penang. Thus, there is a big question arises as to whether these limitations will be effective enough to control speculation in Penang properties that is continuously driving up in prices.
It is believed that the property prices in Malaysia will continue to rise, but at a slower pace in the coming months and will continue to rise in the coming year of 2013 because the local buying interest will remains strong due to increasing affordability, the local buyers see homes as hedge against inflation and have no other options in alternative investments. Additionally, the cooling measures taken by the Government is said to be not good and effective enough to prevent property prices from rising further. Besides, there are many foreign buyers who are very interested in buying Malaysia property. For illustration, there is a lot of interest from Singaporean in buying Johor Bahru property. The Malaysia property market is expected to grow despite rising property prices in the near future.
Malaysia Property Market 2012/2013
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