Latest government cooling measures can help stabilise property market

Big take: Bulk buying creates artificial demand in the early stages of a project

THERE are many ways to stabilise the residential property market and the latest measure by the Government to curb bulk buying is a step in the right direction to ensure a more equitable market that is led by real demand.

On Monday, Urban Wellbeing, Hou­sing and Local Government Minister Datuk Abdul Rahman Dahlan said developers selling more than four residential units to a single buyer or group must now obtain prior approval from the Controller of Housing. The new enforcement would be made compulsory in all real-estate advertising and sale permit materials.

Property consultants gave their thumbs up to the move aimed at reigning in property speculation and flipping activities for fast gains.

Property consultancy Khong & Jaafar managing director Elvin Fernandez says the curb will in the medium to long term help to stabilise the housing market. “It is very good that these measures have come out. Bulk buying has been misused and the current intended curtailment to limit such buying to four units is good. Bulk buying by speculators with the intent of flipping and crowding out genuine buyers is not healthy,” Fernandez says.

He says bulk buying can distort the market when speculative groups of buyers signal to developers demand which in fact is not real demand in the market. However, Fernandez believes bulk buying is a good thing if it is done for genuine reasons such as parents buying houses for each of their children when there are favourable interest rates.

Property clubs

“Bulk buying by a group of property buyers under property clubs can be disruptive only when they feed on rising prices. If such clubs are more investment orientated and are highly transparent about their operations, I see no harm in them,” Fernandez observes.

Fernandez: ‘Bulk buying has been misused.’

VPC Alliance Malaysia Sdn Bhd managing director James Wong discloses that bulk buying are mostly done via property investors club and by foreign buyers from China, Singapore, Japan and South Korea.

“They are mostly financially strong and are interested to buy in strategic locations with public amenities such as projects nearby to MRT stations and LRT extension lines, which usually have higher opportunities for capital appreciation. Bulk property buyers normally have the financial muscle to buy in bulk to get good pricing and discounts, and they usually go for properties of RM500,000 or more.”

Wong contends that bulk buyers of properties are indirectly providing shadow banking financing for projects and assisting developers to fast-track the required sales target for bridging loan drawdown.

As such, bulk purchase of properties tend to distort the market as they are sometimes “intermediary” buyers and after buying, wait for opportunity to flip and dispose the properties.

Concurring, CB Richard Ellis Malaysia executive director Paul Khong says bulk buying creates artificial demand in the early stages of a project’s launch.

It usually involves high-rise residential strata properties where supply is high, but rarely for properties with genuinely strong demand especially landed segment in prime locations.

According to Khong, bulk buying has been successful in hot areas and allow developers to report 100% sales on the first day of a project’s launch.

“Due to the artificial demand of a big take up at attractive prices in the early stages, the stock available to the market quickly dries up and it creates a rush and a buzz for the balance units which sends the unit prices rocketing further. This also sets the tone for prices in the next launch,” Khong explains.

Cooling the market

Due to the high number of units booked, developers would be willing to offer more discounts to push sales and pare down their risks.

The property clubs are used to bring in quick sales by offering good discounts prior to the actual launch. Developers can get their sales numbers high from the start and prices will rise even higher.

Khong says the curb on property bulk buying to reduce unhealthy and excessive speculation in the market needs to be closely monitored and has to be enforced effectively to ensure a fine balance prevails in the market.

While excessive speculation and false demand will create problems affecting the capital values of properties, he says too much legislative intervention in the property market will affect its “free market” status.

Pang Tee Chew
Khong: ‘Property investments will always be a favourite

Besides bulk buying, there are other contributory causes for the spike in property prices: developer interest bearing schemes; attractive funding/financing rates; low fixed-deposit rates and the weak foreign exchange that attracted more foreign buyers to the local market in recent years.

“On the whole, the curb gives a fairer chance to more genuine Malaysians to own properties at reasonable prices or even at the developer’s original list prices.

“The public will continue to invest and make profits from property purchases. With inflation all around, property investments will do well as it is a hedge against inflation and will always be a favourite investment choice for all,” Khong concludes.

Fernandez foresees more measures and tweaking of the measures to be introduced moving forward.

He singled out the DIBS and not property bulk buying as one of the main factors that has caused the sharp price hikes in the local housing market in the last few years.

“The sharp price hike in selected areas of Kuala Lumpur, Penang, Johor Baru and Kota Kinabalu has more to do with the DIBS. Largely, as a result of the DIBS in 2009, transactions in the primary market climbed from about 25,000 housing units a year or about 12% of the residential market in 2009, to about 60,000 units in 2012, or 22% of the residential market nationwide last year,” he says.

He says after the DIBS was banned under the Budget 2014 announcement, short-term property investors or “flippers” are finding it hard to operate in the current market, which is an objective of the Government’s cooling measures.

When the flippers have been subdued, it will give more room to first-time house buyers, upgraders and investors to participate in the market; the phenomena has been observed in other markets including Hong Kong.

“Bulk buying came on more recently in the last year or so when buyers with purely speculative intent came forward to take advantage of the rising market. Until the end of 2012, house prices have been rising in line with household income, increasing at 5% per annum. It is only selected hotspots that prices have spiked to more than 10 times the annual average household income,” he says.

As to the practice of pre-launch sales and its impact on other genuine buyers, Fernandez observes: “Pre-launch sales are acceptable market practices for developers because it enables them to gauge demand and is, in fact, a risk mitigation measure. It is only when it is used incorrectly that it becomes questionable such as when genuine first-time buyers, upgraders and investors are excluded. Many pre-launch sales have, for example, been open to only the developers staff, or friends.”

He says pre-launch sales should be allowed but some controls must be put in place to ensure all Malaysians who want to buy on the first day are given a chance.

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