KUALA LUMPUR, April 3 — Malaysia is not experiencing a property bubble and price increases of up to 20 per cent per year is acceptable, said Deputy Finance Minister Datuk Donald Lim today.
This comes as increasing numbers of Malaysians, especially city dwellers, have become concerned over the affordability of housing.
Lim said the government wanted to ensure healthy growth in the property market which would give better returns than money parked in fixed deposit accounts.
“An average increase in house prices of 10-15 per cent per annum is healthy as compared to fixed deposits in the bank,” Lim said in a press conference today. “For areas like KL, a 20 per cent increase is quite acceptable.”
When asked whether such a high annual increase in property prices is out of sync with annual income increases in the general population, Lim said that KL is still cheap compared to some of its Asean neighbours.
“We know at the moment that prices are low compared to Thailand and Singapore,” he said. “We are talking about the coming three to five years (for house price increases) after which there is a stabilising period.”
Lim said that the government was monitoring the situation and had taken pro-active steps to avoid a sub-prime crisis from happening in Malaysia.
“We will intervene when we find the figure (for property) has shot up too high,” he said.
He said, however, that one of the measures introduced last year to combat rampant property speculation — the increase of the real property gains tax (RPGT) from five to 10 per cent for houses sold within two years — had not met with stiff resistance.
“A lot of people find it (the increase in RPGT) reasonable,” he said.
Property prices in urban areas such as Penang and Kuala Lumpur rose by up to 40 per cent in 2010 fuelled by low interest rates and a surge in speculative buying, although prices grew slower last year due to dampened sentiment from tightening measures such as a hike in the real property gains tax for early disposals.
Some reports have also estimated that property prices jumped from 5.9 times income in 1989 to 10.9 times in 2010.
The Demographia International Housing Affordability Survey rates markets, whose property prices are 5.1 times median income or more, as “severely unaffordable”.
The House Price Index (HPI), as prepared by the Valuation and Property Services Department, rose 7.5 per cent in the second quarter of last year as compared with the same period in 2010.
For urban centres like KL, to which young working adults are gravitating, the HPI has seen a rapid increase since 2004, growing relatively slowly from 100 in 2000 to 108 in 2003, before rising sharply from 115 in 2004 to 167 in the second quarter of last year.
Lim said in a speech today that the overall HPI has increased 6.6 per cent to 156.9 in the fourth quarter of last year.
He said that the value of All House Price in Malaysia hit RM217,297 in the fourth quarter.
Kuala Lumpur had the highest All House Price at RM487,219 followed by Selangor at RM327,237.
While Asia appeared to have escaped the house price crash that affected the US and parts of Europe, some governments in the region took steps to cool the rapid increase in house prices in an effort to avert a property bubble.
The value of Singapore’s private homes suffered their first quarterly drop in nearly three years following government-imposed measures to cool the property market.
Advance estimates from the Urban Redevelopment Authority (URA) yesterday showed that private home prices fell 0.1 per cent in January-March as compared to the last three months of 2011.
Chinese Premier Wen Jiabao was also reported as saying on March 14 that home prices in the world’s second largest economy were still far too unreasonable and the Chinese government could not relax curbs on the property market as it could result in “chaos”.
Wen also said that reasonable housing prices should reflect personal income, investment and reasonable profits.
HBA Secretary General Chang Kim Loong said in October last year that the increase of RPGT from five to 10 per cent for houses sold within two years of purchase would be meaningless to short-term speculators looking to flip houses for profit.
He pointed out that properties are typically not allowed to be sold during the construction stage, which takes two to three years, and therefore, raising the RPGT from five to 10 per cent for properties sold within two years would have little impact.
Chang said that under the revised RPGT, speculators could purchase properties from developers during a launch and flip the properties on completion after two years and would have to pay only the same existing five per cent up to the fifth year, after which all profits are not taxable.