When will property bubble burst – now or after 2019?

Just a while back, there was all this talk about the property bubble about to burst. The article, “Property bubble close to bursting due to 3 reasons. Government must be ready”, started the ball rolling and this forecast was widely shared among concerned Malaysians.

Everybody shared their views about the issue, but even before the dust had settled, an article in Free Malaysia Today was published with the headline, “Property prices not coming down soon, says expert.”

While the headline appeared mild enough, this is the first line of the article: “A property expert believes the property bubble is only likely to burst after 2019 when developers and banks are no longer able to sustain the oversupply and inflated prices of homes.”

The expert, Ernest Cheong said that the impending sales and services tax (SST) was unlikely to affect prices, and therefore the sale of property.

He shared, “The SST is unlikely to affect property prices because manufacturers of construction materials and developers are likely to absorb the extra costs, given that property sales is slow. Developers thinking of taking advantage of the SST will only be hurting themselves, so I believe the impact will be negligible.”

Cheong also said property prices and transactions would continue to be sluggish because many people simply could not afford to buy homes.

He gave two reasons on when the property bubble burst would be triggered. First, when banks could no longer afford to sustain loans taken by developers and defaulters.

Second, when developers could no longer afford to hold on to existing prices and inventory.

Once these two conditions are met, he said, “Then it is likely that there will be panic selling by developers and panic foreclosures by banks. This is out of the government’s control and they shouldn’t interfere, let market forces dictate prices.”

His views however, were not shared by Anthony Adam Cho, from a Melaka-based developer.

Cho said he believed that with the country’s growth expected at around 5.3% this year and despite initial market contraction and capital flight after the May 9 polls, the situation was not as bad as it had been made out to be.

Cho said the demand for homes would always be there since the country’s population was growing at 3-4% annually.

“Roughly, the country needs 25,000 new homes annually to meet the demand. All these years, we have only managed to produce about 60% every year, so we have pent-up demand,” Cho said.

His prediction was that although there will be a temporary slow down in the sale of houses for 2018 and 2019, this condition would improve when the economy grew.

This was coupled by the new government’s commitment to reduce corruption and ensure a more friendly business environment.

So while many believe that the property bubble will burst soon, there is now another viewpoint that it won’t until after 2019.

However, if your gut still tells you the property bubble will burst soon, then one of the best ways to take advantage of it when it happens, is to hold as much cash as possible and just wait to pounce when the time is right.

This article first appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.