R A H A H I S M A I L , P H . D ,D E P A R T M E N T O F V A L U A T I O N A N D P R O P E R T Y S E R V I C E S

r a h a h @ j p p h . g o v . m yr a h a h _ i s m a i l @ y a h o o . c o . u k

UNRAVELING THE INFLATED HOUSE PRICE IN THE NEW

HOUSING SUPPLY

INTRODUCTION

Public outcry on the inflated house price in the housing market, especially in Iskandar Malaysia and where it is perceived to be caused by foreign purchasers

Considerable increase in the house price is observed in the primary housing market, i.e. new supply.

The sales price of existing supply, or the secondary market, remains stable or increase marginally

This research will give an understanding on why such difference in the two markets exist.

FOCUS OF STUDY

Place of Study

Iskandar Malaysia

Subject of Study

Transactions of 2 Storey Terrace

House in Primary Market

Transactions of 2 Storey Terrace

House in Secondary Market

Period of Study

10 years period

From 2002 to 2012

SCENE SETTING :ABOUT ISKANDAR MALAYSIA

ABOUT ISKANDAR MALAYSIA

A especially created economic corridor in the southern part of the Peninsular Malaysia. Strategically located within the Indonesia –Malaysia – Singapore growth triangle and along the east-west shipping route.Easy accessibility by air and sea, with an international airport, 3 major seaports, excellent road and rail networks.

ISKANDAR MALAYSIA

LOCATION OF ISKANDAR MALAYSIA

BASIC FACTS ON ISKANDAR MALAYSIA & SINGAPORE

  Iskandar Malaysia SingaporePopulation 1.35 million 5.3 millionNo. of Households

329,268 1.5 million

Average Household size

4.10 3.5

Income per capita

USD 14, 790 USD 51, 162

Land Area 

2,217 km2 710 km2

 Density 631 persons/ km2 7464 persons/km2 Currency Malaysian Ringgit

(MYR)Singapore Dollar (SGD)

Exchange rate 1 MYR= 0.31 USD =0.24 EURO

1 SGD=0.78 USD = 0.59 EURO

INTERNATIONALISATION OF ISKANDAR MALAYSIA

Positioned itself as an international metropolis by :-reducing trade barriers, -increasing human mobility as, well as-reducing restrictions on property ownerships.

Iskandar Malaysia has been successful in attracting foreign investments.

- 40% of total investments are FDI- ranked top three popular FDI destination in Malaysia- mostly in manufacturing and real estate

Source: IRDA, Khazanah, IIB , MIDA as at Dec 2012 & corporate announcements

2008 2009 2010 2011 2012 2013 (APRIL)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

22.83 25.48 28.78 34.14 38.53 38.83

18.92

30.08 40.70

50.64

67.78 74.87

Foreign Local

RM’ Bil

58%

42% 40%

60%

36%

64%

45%

55%

54%

46%

Cumulative Committed Investment Local vs Foreign

INVESTMENTS IN ISKANDAR MALAYSIA

Category

(Land Use)Condition

Foreign

quotaMinimum Price

Residential Building

1.Double storey terrace & above2.Double storey cluster & above3.Semidetached double storey & above4.Double storey bungalow & above5.Vacant lot for bungalow6.Apartment/Service apartment/holiday home

20%20%30%30%30%50% RM 500,000

Commercial Building

1.3stories & above shop lot 2.3 stories & above shop/office3.Office / shop lot in shopping complex

10%10% 20% RM 500,000

QUOTA ON FOREIGN OWNERSHIP

Category

(Land Use)Condition Foreign

quotaMinimum Price

Industrial Building

Foreigners are allowed to have an ownership for the land in industrial category without consent from State Authority.

No limit RM 500,000

QUOTA ON FOREIGN OWNERSHIP (CONT’D)

HOUSING SUPPLY IN ISKANDAR MALAYSIA

  Terrace others Total  2009Existing Supply 207824 182971 390795Incoming Supply 9744 29388 39132Starts 6337 2014 8351Planned Supply 53634 52758 106392New Planned Supply 6459 5197 11656  2010Existing Supply 212152 186178 398330Incoming Supply 13246 28783 42029Starts 7833 8115 15948Planned Supply 49382 52035 101417New Planned Supply 3542 3052 6594  2011Existing Supply 215396 187447 402843Incoming Supply 22242 37811 60053Starts 7910 8123 16033Planned Supply 49421 51420 100841New Planned Supply 8057 7449 15506  2012Existing Supply 220529 189073 409602Incoming Supply 23430 45854 69284Starts 6873 10693 17566Planned Supply 50133 55185 105318New Planned Supply 6996 13327 20323

Existing Housing Supply : 409602No. of Household : 329,268Population Growth Rate : 2% per annum• The housing market is

full of optimism,• In anticipation of

demand from Singapore and the oil and gas hub in Pengerang.

HOUSING SUPPLY IN ISKANDAR MALAYSIA

FRAMEWORK FOR ANALYSIS

Institutional approach to housing analysis

goals and ideologies of agents and institutions, agents’ relative power in the urban development process, nature of interactions among agents and institutions and constraint they impose on each other

characterize the property market and also shape the built environment

Ball, 1986, 1998; Bassett and Short, 1980; Healey, 1991, etc

RESEARCH FRAMEWORKInstitutional Approach to

Housing analysis

House buyers’ profile

Foreigner versus local

Financial capacity

Sellers’ strategy

Market information

Marketing incentives

Government’s Role

Ownership Policy

LendersOperations

Risk Management

Business KPI

DATASETS

• Median House Price• Primary Market• Secondary Market• over the period of 2002 to 2012

Transactions Data of 2

storey terrace houses

• Overall market• Primary Market• Secondary Market

Foreign Purchasers’ Participation

SURVEYS AND INTERVIEWS

House Buyers

Real Estate Agent

Developers

Banks

MEDIAN HOUSE PRICE MOVEMENTS

PRICE MOVEMENTS IN THE PRIMARY & SECONDARY MARKET

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00

100,000.00

200,000.00

300,000.00

400,000.00

500,000.00

600,000.00

Primary marketSecondary market

Year

Price(RM)

FOREIGN PARTICIPATION IN THE LOCAL MARKET

Number of foreign participation in the local housing market increase substantially each yearAverage annual increase of 40% over the period of 10 years

FOREIGN PARTICIPATION IN THE LOCAL HOUSING MARKET

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

500

1000

1500

2000

2500

3000

3500

Number of Foreign Purchasers

Number of Foreign Purchasers

With the exception of 2010 and 2013, the percentage of foreign purchasers in the local housing market is not more than 5.5%

FOREIGN PARTICIPATION IN THE LOCAL HOUSING MARKET

0

5000

10000

15000

20000

25000

Number of Foreign PurchasersTotal Residential Property Transac-tion

Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total Residential Property Transaction

14,038

15,936 21,490

15,735 14,554 14,354

12,967

15,625 15,465

18,556 15,003

Number of Foreign Purchasers

NA 301 329 350 371 448 660 813 1952 1018 3076

Percentage of Foreign Purchasers in the Local Market

0.0% 1.9% 1.5% 2.2% 2.5% 3.1% 5.1% 5.2% 12.6%

5.5% 20.5%

PARTICIPATION OF FOREIGN BUYERS IN THE HOUSING MARKET

2006 2007 2008 2009 2010 2011 20120

500

1000

1500

2000

2500

3000

Secondary MarketPrimary Market

• Foreign purchasers are active in the primary market.

• Local buyers have to compete with foreign buyers

• Foreign purchasers appear to have impact in the local housing market

LOCAL BUYERS INCLINATION IN THE 2 STOREY TERRACE HOUSE MARKET SEGMENT

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

500

1000

1500

2000

2500

3000

SecondaryPrimary

Unit

Year

• Local house buyers turned to secondary market when the price is too high.

No. of Developer

Incentives Offered

Free SPA Legal Fees

Free Loan Agreement Legal Fees

Rebates /cash

Developers

OthersInterest Bearing Scheme

14 93% 29% 64% 50% 57%

• Developers’ sales price is not the asset price

• Sales price include marketing incentives

• Incorporation of marketing incentives in the sales price inflate the selling price

IS THE SALES PRICE THE ASSET PRICE?

Other Incentives Include free gifts:• Home appliances• Finishings• Furniture and fittings• holiday packages• High speed broad bands

LOCAL PARTICIPATION - WILLING BUYER, WILLING SELLER, WILLING

FINANCIERS IN THE PRIMARY MARKET

FINDINGS

• Usually are financially constrained to pay for the high transaction costs

• Prefers buying from developers because transaction costs is included in the package deal

• Do not mind paying slightly higher price

• Do not mind paying slightly higher installment

BUYERS

FINDINGS

• facilitate purchase• accommodate purchasers’

requirements• incorporate cost in sales price to

get higher loan• arrange for purchase loans with

lenders• Inflating of house price is

rampant

DEVELOPERS

FINDINGS

• constrained in inflating the house price

• Subject to seller’s agreement• will take into account of seller’s

tax implication• Inflating of house price is not

wide-spread• Agency fees is perceived by

purchasers as not cheap

REAL ESTATE AGENTS

FINDINGS

• Provide project financing to developers

• Receive ready pool of clientele from developers for end-finance/ housing finance

• Risk-management versus bank’s KPI• More than 50% sold considered as

accepted by the market• Allow drawdown if project is 50%

sold

BANKS

FINDINGS

• Information is widely disseminated and easily accessible

• Local purchasers knew of the inflated house-price

• Local purchasers knew the options

• Foreign purchasers have more information on new housing from developers

MARKET INFORMATIO

N

CONCLUSION

• widespread in the primary market

• not contributed by market misinformation

• mutual agreement by parties involved

• Foreign purchasers have an influence in the primary market

• developers try to capitalise on foreign purchasers

INFLATED HOUSE PRICE

RECOMMENDATIONSContinuance of such inducement by the developers can affect the landscape of the secondary housing market.

Will be less investments in upgrading and improvements.

Wealth of the owners in the secondary market will be affected.

In an economic melt-down it affect the stability of the financial institutions and the economy

Government should regulate :- Developers should be mandated to price each of the sales incentives given - Lenders should only lend based on the real value of the collateral - Ownership policy to be reviewed

THANK YOU