HOUSE prices are not expected to fall sharply next year, said economists who disputed speculation that the property market will crash due to a glut.

Experts interviewed by The Malaysian Insight said they did not see signals of an impending crash or a sharp plunge in prices next year, despite recent Bank Negara (BNM) data that 83% of unsold houses were in the above RM250,000 range.

Independent economist Azrul Azwar Ahmad Tajuddin said it would take something on the scale of the 1998 Southeast Asian financial crisis to trigger a property crash.

The government’s House Price Index (HPI) from 1989 to the first half of 2017 indicated that the country had been spared the devastating impact of property crashes, except for 1998 and 1999, said Azrul Azwar.

The HPI measures the rate at which house prices increase.

This “historical guidance” alone discounted the risks of a “great property crash” in Malaysia in the foreseeable future, he said.

In the unlikely event that prices do tumble sharply next year, it may be good news for those looking to buy houses but bad news for the wider economy.

“A possible sharp slide in property prices is a good opportunity for first-time home buyers to consider buying a house,” said another economist Lee Heng Guie.

But Lee of the Socio-Economic Research Centre (SERC), said even if prices dropped, houses in good locations, with high investment value would not depreciate as much as expected.

Unaffordable homes

Speculation of an impending crash in the housing market were fuelled by observations by experts interviewed by news portal Free Malaysia Today over the past few months.

Economist Carmelo Ferlito had said Bank Negara’s lending rates and the property market’s business cycles had created a housing bubble of unsold homes.

Veteran chartered property surveyor Ernest Cheong also told FMT that prices would start tumbling after February as developers hurry to reduce their property glut.

BNM statistics also showed that there was a huge oversupply in residential properties – the highest in a decade – because most Malaysians could not afford them.

From 2016 to April this year, only 21% of newly launched houses were priced at RM250,000 and below, insufficient to meet the income profiles of 35% of Malaysian households, BNM said.

Second Finance Minister Johari Ghani had said 48% of buyers demanded affordable homes priced below RM300,000 but the market was supplying 28% of that.

The government also announced a case-by-case freeze on approvals for luxury projects in order to clear the excess supply. 

Although houses prices are out of reach for the majority of Malaysians for some time, Azul Azwar said they had stabilised after BNM started measures to cool the market in 2012.

These included prudent lending guidelines to bring down excessively high household debt and weed out speculators who were driving up prices.

The measures brought the HPI down to 5.6% in second quarter of 2017 from a high of 14.3% in late 2012.

“(Although) prices have not declined enough to levels that could allow household incomes to catch up with skyrocketing house prices,” said Azrul Azwar.

But the situation was far from that of a bubble where house prices were inflated and artificially high, he said.

SERC director Lee said the HPI has remained stable at 6.9% in the first half of 2017.

“House prices are not expected to fall sharply in 2018 as there are no stress signs indicating a sharp correction in the property market, which has been consolidating in recent years.”

Impact of a crash 

The probability of a crash in the property market was small, said Lee, but if it did happen, its effects would cancel out the benefits of cheaper house prices.

“The plunge in prices as a consequence of the bursting housing bubble will have subsequent ripple effects on consumers, builders, construction and financial institutions.”

Banks and lenders would see more loan defaults. Businesses involved in the property sector, such as builders, raw material suppliers, engineers, architects and even lawyers, would suffer as projects dry up, he said.

“The slackening demand will take time to recover until the housing crisis and overall economy stabilises.”

The government would also earn less from taxes related to property transactions, said Azrul Azwar.

“Despite its lower frequency, if a property bubble deflates, in general, it could have (more) far-reaching macroeconomic implications than the bursting of a stock market bubble,” said Azrul Azwar.

“Historically, such bursts have lasted longer, which could subsequently cause banking and financial crises.” – November 22, 2017.