UNRAVELING THE INFLATED
HOUSE PRICE IN THE NEW
HOUSING SUPPLY
RAHAH ISMAIL, PH.D,
DEPARTMENT OF VALUATION AND PROPERTY SERVICES
rahah@jpph.gov.my
rahah_ismail@yahoo.co.uk
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
Period of
Study
Transactions of 2
Storey Terrace
House in Primary
Market
10 years period
Transactions of 2
Storey Terrace
House in
Secondary Market
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.
LOCATION OF ISKANDAR MALAYSIA
ISKANDAR MALAYSIA
BASIC FACTS ON ISKANDAR
MALAYSIA & SINGAPORE
Iskandar Malaysia
Singapore
Population
1.35 million
5.3 million
No. of Households
329,268
1.5 million
Average Household 4.10
size
Income per capita USD 14, 790
3.5
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
USD 51, 162
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
INVESTMENTS IN ISKANDAR MALAYSIA
RM’ Bil
Cumulative Committed Investment
Local vs Foreign
120.0
74.87
67.78
64%
100.0
50.64
40.70
80.0
30.08
60.0
18.92
60%
58%
54%
45%
40.0
20.0
22.83
55%
46%
25.48
42%
28.78
40%
34.14
38.53
2011
2012
36%
38.83
0.0
2008
2009
2010
Foreign
Local
Source: IRDA, Khazanah, IIB , MIDA as at Dec 2012 & corporate announcements
2013
(APRIL)
QUOTA ON FOREIGN OWNERSHIP
Category
(Land Use)
Condition
Foreign
quota Minimum Price
1.Double storey terrace &
above
2.Double storey cluster &
above
3.Semidetached double storey
& above
4.Double storey bungalow &
above
5.Vacant lot for bungalow
6.Apartment/Service
apartment/holiday home
20%
20%
30%
30%
30%
50%
1.3stories & above shop lot
Commercial 2.3 stories & above shop/office
Building
3.Office / shop lot in shopping
complex
10%
10%
20%
Residential
Building
RM 500,000
RM 500,000
QUOTA ON FOREIGN OWNERSHIP (CONT’D)
Category
(Land Use)
Industrial
Building
Condition
Foreign
quota
Foreigners are allowed to have
an ownership for the land in
No limit
industrial category without
consent from State Authority.
Minimum Price
RM 500,000
HOUSING SUPPLY IN
ISKANDAR MALAYSIA
Terrace
HOUSING SUPPLY
IN ISKANDAR
MALAYSIA
Existing Housing Supply :
409602
No. of Household : 329,268
Population 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.
Existing Supply
Incoming Supply
Starts
Planned Supply
New Planned Supply
Existing Supply
Incoming Supply
Starts
Planned Supply
New Planned Supply
Existing Supply
Incoming Supply
Starts
Planned Supply
New Planned Supply
Existing Supply
Incoming Supply
Starts
Planned Supply
New Planned Supply
others
Total
2009
207824
182971
390795
9744
29388
39132
6337
2014
8351
53634
52758
106392
6459
212152
13246
7833
49382
3542
215396
22242
7910
49421
8057
5197
2010
186178
28783
8115
52035
3052
2011
187447
37811
8123
51420
11656
398330
42029
15948
101417
6594
402843
60053
16033
100841
220529
23430
6873
50133
7449
2012
189073
45854
10693
55185
15506
409602
69284
17566
105318
6996
13327
20323
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 FRAMEWORK
Institutional
Approach to
Housing analysis
House buyers’
profile
Sellers’ strategy
Foreigner versus
local
Market
information
Financial
capacity
Marketing
incentives
Government’s
Role
Ownership
Policy
Lenders
Operations
Risk
Management
Business KPI
DATASETS
Transactions
Data of 2
storey terrace
houses
Foreign
Purchasers’
Participation
• Median House Price
• Primary Market
• Secondary Market
• over the period of 2002 to 2012
• Overall market
• Primary Market
• Secondary Market
SURVEYS AND INTERVIEWS
House
Buyers
Real Estate
Agent
Banks
Developers
MEDIAN HOUSE PRICE
MOVEMENTS
PRICE MOVEMENTS IN THE PRIMARY
& SECONDARY MARKET
)
Price(RM
600,000.00
500,000.00
400,000.00
Primary market
300,000.00
Secondary market
200,000.00
100,000.00
Year
0.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
FOREIGN PARTICIPATION IN
THE LOCAL MARKET
FOREIGN
PARTICIPATION
IN THE LOCAL
HOUSING
MARKET
Number of foreign
participation in the
local housing
market increase
substantially each
year
Average annual
increase of 40%
over the period of
10 years
Number of Foreign Purchasers
3500
3000
2500
Number of
Foreign
Purchasers
2000
1500
1000
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
FOREIGN
PARTICIPATION IN
THE LOCAL
HOUSING MARKET
With the exception
of 2010 and 2013, the
percentage of
foreign purchasers
in the local housing
market is not more
than 5.5%
25000
20000
15000
Number of Foreign
Purchasers
10000
5000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Total
14,038
Residential
Property
Transactio
n
15,936
21,490
15,735
14,554
14,354
12,967
15,625
15,465
18,556
15,003
Number of NA
Foreign
Purchasers
301
329
350
371
448
660
813
1952
1018
3076
Percentage
of Foreign
Purchasers
in the
Local
Market
1.9%
1.5%
2.2%
2.5%
3.1%
5.1%
5.2%
12.6%
5.5%
20.5%
0.0%
PARTICIPATION OF FOREIGN BUYERS
IN THE HOUSING MARKET
3000
2500
2000
Secondary
Market
Primary
Market
1500
1000
500
0
2006
2007
2008
2009
2010
2011
2012
• 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
• Local house
buyers turned to
secondary
market when the
price is too high.
Unit
3000
2500
2000
Secondary
1500
Primary
1000
500
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
IS THE SALES
PRICE THE
ASSET PRICE?
• 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
Incentives Offered
No. of
Free Loan
Free
SPA
Developer
Agreement
Legal Fees
Legal Fees
14
93%
Developers
Rebates Interest
/cash Bearing
Scheme
29%
64%
Other Incentives Include free gifts:
• Home appliances
• Finishings
• Furniture and fittings
• holiday packages
• High speed broad bands
Others
50%
57%
LOCAL PARTICIPATION - WILLING
BUYER, WILLING SELLER, WILLING
FINANCIERS IN THE PRIMARY MARKET
FINDINGS
BUYERS
• 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
FINDINGS
DEVELOPERS
• 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
FINDINGS
REAL
ESTATE
AGENTS
• 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 widespread
• Agency fees is perceived by
purchasers as not cheap
FINDINGS
BANKS
• 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
FINDINGS
MARKET
INFORMATION
• 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
CONCLUSION
INFLATED
HOUSE
PRICE
• 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
RECOMMENDATIONS
Continuance 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