THE property buying frenzy has cooled down, but elements of a bubble brewing are very much intact.
So far, none of the major property projects have been shelved or delayed in Kuala Lumpur and Johor Baru, suggesting that developers are confident of a successful take-up despite statistics showing that there is a slowdown in demand.
According to Bank Negara, the evidence of a slowdown in the property market is obvious, backing the claim with statistics.
It says the Malaysian House Price Index has declined to 9.6% in the fourth quarter of 2013, the first time it has dipped below 10% since the third quarter of 2011. The dip was recorded across most states and most dwellings.
Sales and new property launches slowed towards the end of last year, while borrowers with three or more outstanding housing loans declined to about 4% from a peak of 15.8% before the implementation of the macro-prudential measures to cool down the property market in 2010.
According to the central bank, borrowers with three or more property loans outstanding account for only 3% of total borrowers, and some 84% of housing loan borrowers have only one outstanding loan.
Banks are also seeing an improvement in their buffer against any possible slide in property prices, as the proportion of outstanding housing loans with a loan-to-value ratio of above 70% had declined to 46.6% towards the end of last year compared with 50.1% in 2012.
However, a slowing property market is not equivalent to it not being a danger to the financial system.
The signs of slowing down are there due to the macro-prudential measures that have been put in place since 2010.
A severe blow came about during the budget last year when the Government imposed a 30% real property gains tax (RPGT) on property sold within the first three years of purchase.
This effectively quelled speculation to a large degree. The 30% RPGT ruling effectively shaved off the profit margins of those wanting to offload the property as soon as they received the keys.
However, what's perplexing is that while the macro-prudential measures seem to have an impact, there does not seem to be any stopping the over-building situation in Kuala Lumpur and Johor Baru.
In the city, the continued building of commercial space is a cause for concern, while in Johor Baru, the massive launches of apartments by developers from China have gotten even government agencies worried.
What's worse is that the bulk of the over-building of commercial space in the city is coming from government-owned developers.
The Tun Razak Exchange (TRX), a project by the government-sponsored 1Malaysia Development Bhd, is going ahead, thanks to the cheap land it managed to get on a silver platter.
According to property consultants, the first phase of development is slated to kick off with some six million square feet of commercial space coming into the market over the next four to five years.
This is bigger than the commercial space that came into the market from the KLCC project in the late 1990s.
The TRX project is a 15-year development, and eventually, some 30 million square feet of commercial space will be coming into the market. This is based on the present planning approvals. As the years progress, the authorities may get generous with plot ratios, allowing for more building of commercial space.
Apart from the TRX, there is also the 100-storey Menara Warisan that is being built by Permodalan Nasional Bhd, and the Bandar Malaysia project that is being planned on the 495 acres that presently house the air force base in Sungai Besi, Kuala Lumpur.
Over in the south, Johor Baru is expected to see a massive supply of commercial and residential space in the next few years, with the carpet-bombing style of development undertaken by the big guys from China.
Country Garden Holdings Ltd launched 9,000 units of apartments one to two years ago and sold 6,000 units. So far, there is little news on whether the rest of the units have been taken up.
Country Garden is the first of the developers from China to flock to Johor Baru. Many more are coming, with one developer said to be looking at launching some 30,000 units of apartments in Johor Baru.
Existing developers in Johor Baru and Iskandar Malaysia are worried, with good reason too.
It has prompted a government strategic investment arm to undertake a study, which revealed that the number of apartments and commercial space coming into Johor Baru in the next few years is 30 times that of Mont Kiara.
Obviously, the macro-prudential measures have not stopped developers from building.
The macro-prudential measures taken by the Government and Bank Negara are only measures to delay a property bubble. They help to reduce the overwhelming optimism and prop-up demand when the overall environment is sober. It helps smoothen out the boom-to-bust cycle.
Such measures have been taken by central banks from Asia in the last four years to help reduce speculative demand and over-building.
However, questions remain on how effective these measures are in curbing property bubbles.
Many a time, developers and speculators exploit loopholes in the system. For instance, the Government had put in measures earlier this year to stop developers from offering retail buyers with schemes that allow them to reduce their down-payments for purchases.
But it was not effective because speculators had established property clubs to buy property in bulk and circumvent the ruling.
The ruling on a 30% RPGT for the first three years of disposal that came into effect at the beginning of this year has had an impact. But for how long it will be effective remains to be seen.
Over the last four years, central bankers all over the world have been grappling with containing the asset inflation due to ample liquidity without having to raise interest rates.
They have been able to cool off demand on a short-term basis. But the over-building persists and is fuelling a property bubble.This suggests that macro-prudential measures are no replacement for conventional tools such as tightening monetary policy to curb speculation.
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