KHONG & Jaafar group of companies managing director Elvin Fernandez (pic) says the world is more complex and dynamic than people understand it to be with many forces at work, on a regional and global basis.
A long time ago, people do not worry about the housing market. This changed with the collapse of the US housing market in the global 2008 crisis, which wrought damages of considerable global scale.
Economists, thinkers and regulators are beginning to realise that there is a need to control the housing market so that it can contribute to growth and human welfare, rather than become a force that from time to time damage the economic growth and human welfare.
“The question is how? In the past, economists and regulators of the economy use fiscal and monetary measures to guide the economy. When they want to promote growth, they lower interest rates, when it is overheated, they increase interest rates. They did not focus too much attention on the housing market per se because it is was (just) one sector of the economy,” says Elvin.
But this sector stores the wealth of the citizens. It is bigger than their cars and any other single item they are going to buy. So, if the wealth of all their houses are affected, there will be many knock-on effects. They will spend less and hold back on consumption. Post-global financial crisi, governments around the world realised that they need to monitor the sector, he says.
Apart from the property market, there are also concerns about the effects of money flooding the market, known as quantitative easing. When interest rates are reduced, investors go to other areas in search of higher yields.
Money have been flowing into the economies of the emerging markets and East Asia, in particular the residential markets of Sinagapore and Hong Kong.
“Both these countries were the first small economies to rely on monetary and fiscal policies to contain the housing market and to introduce what they coin as macro prudential measures targeted at the housing market so that these markets do not become inflated,” he says.
These economies are the most opened to these kind of forces. Singapore has its seventh round since 2009 and Hong Kong, which pride itself as a free market and do not interfere with market forces, has also taken measures.
Properties in Malaysia are not as high comparatively as these countries in the region, but we are also expanding in many ways, not on the same scale as them.
“The question is: Do we need further measures? We have to have a balance. If you interfere, you may kill the market so you must stike the right balance. My opinion is, because of the vigilance of Bank Negara Malaysia, we generally have a balance. What is the fundamental equilibrium?” he asks.
As a result of some of the cooling measures, the secondary market has cooled more than the primary market. The primary market, when you buy from the developer, has reacted differently because developers are giving incentives in the form of interest bearing schemes, payment of stamp duty, guaranteeed rentals and other things.
Elvin says the relationship between the primary and secondary market (buying from developers versus buying from owners) have changed. Sales used to be 20% from the primary market 10 years ago but suddenly, this is quickly moving towards the 30% mark, boosted by incentives given.
“When every or nearly every developer sell with these incentives, there is a need for monitoring because these can unbalance the market and could have long-term effects. These incentives also distort pricing because you will never know what is the real selling price as not many know how to deduct all these to get to the real price.
“And pricing is a very important factor for any market, whether it is housing or whatever. Loans are also given based on the wrong price and this affects the banking sector and loan securty is affected.
“You can say this is unhealthy. There is a need for regulation so people know what the price is. Developers must be able to declare what the price is without the incentives as we are wary about these incentives taking the market too high,” he says.
As for prices going back to before the hike, this is not a reasonable thing to ask because prices to trend upwards.
“The price of housing will not go down, but pricing must adjust to household income and not the other way around. - The Star
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