Property bubble forming?

If you are a Malaysia citizen, who in the current time, or in future time have to make a purchase of residential property by ourselves, you will definitely concerns about how the prices trend of residential property moving all the way. The prices of residential property in the past few years were substantially shoot up, as within my expectation. This substantial uptrend movement has emerged the worries of property bubble. One of the well-known residential properties is Desa Park City, nearby where I stay now.  

My memories are still fresh in my mind, a terrace double storey house was sold only at RM4xx, xxx four years ago. And now, with the same terrace double storey, the prices range is about 2millions. Simple annual return is about 100%. Assume you purchase at RM 400,000 and now it worth RM 2,000, 000. You earn RM 400,000 each year, which is equal to a 100% uncompounded return each year.

Talking of a property bubble in Malaysia, it sounds true but does not look so plausible. The sharp rise in residential property is merely confined to selected areas, but not applicable to everywhere.
Although there are many says that property bubbles in Malaysia is getting form, and concerns of the worries as what subprime mortgage happened in United States. In responses, the guidelines for loan borrowers were tightened.

Personally I believe, to form property bubble there is still some way to go, but kind of unsure how far the prices can further drive away. However, the worries of household debt in Malaysia is considerably heavy, the high residential property prices is one of the reasons drive up the household debts. The household debt to disposable income ratio is 140%, one of the highest in the world, while Singapore and United States has only a ratio of 105% and 123% respectively, according to Bank Negara 2010 Annual report.
Click here, for the information of Malaysia household debt.

How do these all relates to our citizens? From my personal point of view, the property bubbles is not at the point of forming yet, and the residential property prices growth is sustainable, it might continue at a upward trend but a slower rate, where how much the extent in increase in residential property will depends on the areas. But what makes this to happen? It is definitely not demand is over the supply, but the market is just too speculative.
Napic Property Overhang report shown the volume of residential overhang units in Malaysia has declined 15.2% to 19,607 units in 2011 compared to 23,133 units in 2010. (Overhang units are defined as completed units that have obtained certificates of fitness for occupation (CFO) but have not been sold for more than 9 months after official launch for sale) However, Kuala Lumpur has the highest number of overhang residential units and recorded a rise of 19% to 2,871 units from 2,400 units in 2010. The construction activities was remain positive in residential sector, looking another 36.6% rose in new start construction from 84,496 units to 115,448 units in year 2011.
Click here, for the article news of overhang residential units.

The property sales and developer are optimistic and being positive in supplying residential houses, and shaking the flag of ‘the high prices are reasonable’. Although there are still closer to 20% of overhang new residential units. Other than this, one thing that we must aware is the occupancy rate. Remember, sold doesn’t mean it is occupied. There are many units that are bought for speculation, which is not rented, not occupied.

The speculation activities are all done by foreigner buyers and high income professionals. The current condition is sustaining and this is definitely need attention of property sector and our government. Constructing a project of lower cost residential houses for the lower income workers are just not the way to fix the problem out. The cost transferred to the government is not a long term measures, and the lower-cost residential units are just not sufficient for our Malaysia citizens. In contrast, is that means the government shows no measures to control and limits the upward trend of residential prices?

Personally thinking, first and foremost the speculators who make up this are foreign buyers and high income professionals. The central banks could not raise up the borrowing rate as it eventually will dampen the economy. I will suggest the government or the property development should limits the foreign buyers, where every launching new construction there are maximum units/percentage that are available for foreign buyers. On the other hand, for the people who buying second, third properties should be only allowed a maximum of 70% to 80% loan to value.