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IDEAS Fellow: The property bubble is about to burst. What’s next?

Kuala Lumpur, 24 July 2018 – Over the past decade the Malaysian property market has experienced a peculiar evolution; the most visible effects of such evolution today are the high number of unsold properties, concerning the high-end segment of the market, and a partially unsatisfied demand for affordable housing. A new paper has shined the spotlight on this issue authored by IDEAS senior fellow, Dr Carmelo Ferlito. IDEAS’ new policy paper “Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market” explores the problem behind the Malaysian property market and provides a few policy suggestions.

This paper shows that the spectacular growth of the high-end property segment was ignited by rising profit expectations, supported by a growing demand and, at a later stage, by a supportive credit market. The mix of these elements has generated a bubble which, following the property transaction dynamics, reached its peak between 2012 and 2013. That bubble is should now be expected to burst.

Commenting on the paper, IDEAS senior fellow Dr Carmelo Ferlito said, “The focus on the high-end segment was justified by high demand and it is therefore natural that investment expanded in that sector. However, now that it appears clear that unexploited profit opportunities are disappearing, a capital allocation restructuring appears necessary.”

“The high involvement of government agencies in the affordable housing market risks to crowding out private initiative and preventing the necessary restructuring from taking place. It is important to let the bubble to burst; too much credit will only delay the bursting, keeping prices artificially high and putting at risk the financial solvency of buyers. Without credit support the crisis will happen faster and force both capital restructuring and prices to move downwards”, Dr Carmelo adds.

Dr Carmelo suggests in this paper that the government needs to be ready for the bubble to burst and the risk that this leads to an economic crisis. The paper recommends the government respond with market-oriented solutions and pay special attention to the household financial exposure. Second, the government needs to downplay its role in the property market by reducing the number of government agencies and encourage the private sector to get involved in the affordable housing market. Third, the government must enhance Malaysian financial literacy, with an orientation toward the value of saving and the possibilities offered by the rental market. Finally, the government may open and easing up the regulation in the property market to foreigners who are in possession of a regular working visa and paying taxes to help the industry in a crucial moment of difficulty.

The paper can be accessed from the attachment below. The paper will also be distributed and discussed during the Affordable Housing Conference 2018 organized by COMFORI on July 25th to July 26th, 2018 at Manhattan VIII (8), Level 14, Berjaya Times Square Hotel, Jalan Imbi, Kuala Lumpur. Dr Carmelo will be a speaker in the conference on July 25th, 2018. The details of the conference can be found in the attachment below.

Affordable Housing Conference 2018

Policy Paper No.51 : Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market can be downloaded here.


2018-07-24T10:36:54+00:00 24th July 2018|Media Statements|Comments Off on IDEAS Fellow: The property bubble is about to burst. What’s next?