Price mismatch concerns
V Sanjugtha | 08 Jul 2016 00:30
The numerous incentive packages offered with impunity by some developers to spur interest and aid ease of home purchases in the 2010s is believed to have distorted the Malaysian House Price Index (MHPI). This leads to growing concerns if the value of homes pledged as collaterals will hold, especially when the property market has eased off its bullish run. Fears are surfacing. If the valuations truly fall short as people try to liquidate or loan defaults begin emerging, then the impact could be severe. The Valuation and Property Services Department (VPSD) warns of such trouble on the horizon. This is because the MHPI’s steep rise post-2009 was largely attributed to additional costs due to various incentives and packages that were passed on by developers and incorporated into the final house price as reflected in the sale and purchase (S&P) agreements, thus captured in the index. VPSD director-general Datuk Faizan Abdul Rahman says the elements of artificial pricing in the final house price that affected the MHPI could be far worse than reflected as the index takes only a cross-section of the primary market, which currently makes up 30% of the property market. The rise in MHPI began in 2009, with a compounded annual growth rate (CAGR) of 3.47% in the period of 2000-2007, rising marginally to 4.33% during 2008-2010, before its steep ascent of 11.07% during the period of 2011-2013. The cooling measures imposed by the government lowered the CAGR to 8.3% for the 2014-2015 period. Faizan attributes the steep rise in the MHPI to the numerous incentives offered by developers, notably beginning 2005 to spur buying in a then-lethargic market. University of Reading Malaysia’s Henley Business School associate professor in real estate economics Dr Walter Tan says that the possibility of a market value that is lower than the loan value is there, but he believes it depends on the date of property purchased. “This is likely to happen to the property purchased right after 2013, as the market price increased steeply after 2010. You still can make a 100% profit if you purchased the property before 2010, when prices were more moderate,” he reasons, concurring that house prices peaked in 2013, largely due to developers offering DIBS.

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