Tuesday, August 2, 2011

Buying Asian property risky but not in KL, says report

August 02, 2011

KUALA LUMPUR, Aug 2 — Kuala Lumpur’s residential market has been rated as a regional standout as key Asian capital cities face challenges from government-imposed cooling measures, said property investment consultancy Pacific Star in its mid-year report.

The report said that governments in China, Hong Kong and Singapore have been bent on curbing inflation and cooling the residential market through a combination of tightening measures, higher interest rates and management of supply and demand but this was not always the case in Malaysia.

“Although fundamentals for Asian residential real estate remain intact, residential investment at this juncture carries a disproportionate amount of policy risk,” said Pacific Star. “We view that the Kuala Lumpur market will stand out given that policy risk is relatively low and economic conditions are generally healthy.”

The report noted that the sharp rise in the equity market in Malaysia this year has also helped to support residential demand.

“In particular, the pace of rate hikes in Malaysia has been more measured and will support residential purchases,” said Pacific Star.

While the report will be welcome news to property investors, aspiring homeowners are unlikely to be happy that the Malaysian government appears to be lagging behind its regional counterparts in tackling residential property prices which have largely outpaced income growth.

The price of residential properties in and around the Klang Valley had increased by up to 30 per cent last year thanks to a combination of low interest rates and ample liquidity.

While Malaysia does not have a housing affordability index, a rough calculation shows the average price of a KL residential property is now about RM485,000, or roughly nine times that of the average urban household annual income of RM54,000 and a possible sign that the market is experiencing a bubble.

The Demographia International Housing Affordability Survey rates markets whose property prices are 5.1 times median income or more, as “severely unaffordable”.

The National House Buyers Association (HBA) had warned in May that an entire generation of young adults risk being locked out of the property market due to runaway house prices.

Malaysia’s central bank, Bank Negara has raised its key overnight policy rate (OPR) four times since the start of 2010, to the current level of three per cent which is still below the pre-crisis level of 3.5 per cent and the statutory reserve requirement rate of three per cent is also below the pre-crisis level of four per cent.

“Although Bank Negara Malaysia has initiated monetary tightening, inflation is expected to stay above 3.0 per cent, which implies a negative real policy rate,” said Pacific Star.

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