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    « The basics of stock market, forex, commodity and financial economy models
    Honourable men act honourably
    - Dr. Peter Achutha, 30 December 2009
    The alternative technical analysis for commodity and stock market analysis »

    Malaysian property price property bubble property crash in 2012

    Why am I writing on this topic property price, property bubble and property crash in 2012? Well I have received many visitors to my site wanting to know whether the property market will crash by 2012. (Please read my previous article on the Malaysian property price and property bubble) This is the question on property price or property bubble or property crash I get regularly from my Real Estate clients. Why 2012? I do not know and it’s anybody’s guess. May be it’s a query resulting from a postulation of the Mayan calendar cycles. To tell you the truth the world will not end in December 2012 because the Mayan’s did not finish their calendar … they ran out of stone.  

    Now let us say that the Mayans got it right, without any super computers, which means the end of the world is coming. On December 2012 the world will come to an end. That is the date of Rapture, that is, the date our Lord Jesus, the Messiah, will come in the clouds and take away many people from the earth before the final calamity – Armageddon. …. Let me think about that … hhhmmmm … errr… I don’t think many people will be taken up into the clouds to heaven, may be several … then again looking at the state of affairs of this world may be just one or two of us (me included).  

    Oh my God, a frightening thought just occurred to me. Has Rapture happened? Are we the remnants left behind on earth to face Armageddon?  

    Heaven is an empty place; there is no one in heaven yet. Do you honestly think that you are qualified to enter heaven? Therefore, for heaven’s sake I would suggest that you start worrying about the property price, property bubble in Malaysia and if you are reading this from another country, I would suggest that you begin worrying about the property price, property bubble in your country.  

    Let us look at events leading up to the current query regarding the property price in Malaysia and whether Malaysia will see a property bubble burst or property crash in 2012.  



    1. Malaysian property price crash due to Rapture

    If Rapture is going to occur on December 2012 (probably 25th December 2012 or a few days earlier ... because I have to get to heaven in time for the Christmas celebrations), and if you think you will be going to heaven, I would suggest that you don’t need to worry about property prices in Malaysia or about a property bubble or a property crash in Malaysia and for that matter, in any other country or in any other part of the world.  



    2. A property bubble due to population growth in Malaysia

    In the 1960’s the population of Malaysia was about 12 million. I don’t know what the world population was back then as I was too young to comprehend the meaning of a billion. It was a very, very large figure. Today, by the latest estimates, Malaysia’s population is about 28 million and growing. Where did we house all these extra people? Where are we going to house their children when they grow up? We have to grow more plants … especially rice to feed them. We have to clear more jungle to build more houses, roads, drains and when they get bored we have to build more cinemas and pubs … not forgetting the hotels. The population growth by itself is creating demand, a long term demand. Hence property prices and prices of everything else is going up. Over the long run, at least in the Klang Valley, the property price has been climbing at 8% per year. And you can bank on that figure. Sure there were some ups and downs in the property price along the way but generally it has been about 8% inflationary rate for property prices. … Wow, 8%! And you say you want to keep your money in the bank at a lower interest rate or in the stock market?  

    Please do note that I do expect our Malaysian population to be 33,000,000 by the year 2020, 41,000,000 by the year 2030, 88,000,000 by the year 2050 and 230,000,000 by the year 2060. In 2060, our population will be larger than Indonesia’s and Thailand’s put together. That is within a space of another 50 years our population would multiply by a factor of 10. It looks like we are on track to achieve these population figures. When we achieve these population targets the price of food and property will be out of reach of most people. Now, where are all these new comers (those born after 2020) going to live and what are they going to eat? What jobs would they have? Where would they go to school?  

    By 2020 we will be clearing a lot of rubber plantations and oil palm estates to make way for housing. This has already begun. Our exports of rubber and palm oil will dwindle and jobs in the agricultural sector would begin to disappear as more land is converted for housing. As a result land prices (& property prices) will increase and it will become less and less profitable and more and more costly to undertake agricultural activities. Eventually, all agricultural activities will cease. This will lead to more unemployed folks moving to towns and cities looking for jobs for which they have no basic training. Hence, original skills would disappear and salaries will begin to drop and no one would be able to afford their own homes due to the high property price of converted land.  

    By 2030 would you have sufficient income to send your children to school, let alone feed them? Don’t depend on government scholarships as these will be rationed out to the politically connected or to those who can afford the under table greasing.  

    Looking into my crystal ball, I see that by 2060 Malaysia would overtake the Philippines as the world’s largest exporter of foreign maids; Malaysia will overtake Indonesian and Bangladesh as the world’s largest exporter of foreign unskilled workers. Will your children or grandchildren be one of them?  

    I would suspect that by 2020 the authorities would launch a ‘1 Malaysia 1 child’ policy.  



    3. Property price increase due to lack of availability of land on the market

    Many large corporations have bought up much of the idle land around Klang Valley. A lot is owned by the AmBank Group and a few other corporations. Hence there is some apparent shortage of land in the Klang Valley. Added to this is the fact that many outsiders, like me, have moved from the other states to the Klang Valley, so we have been compounding the problem. Thank you very much. Will we become another Hong Kong? Oh God forbid that as that would mean horribly high property price climb. On the other hand it is good that these corporations are sitting on vacant land as this will provide sufficient time for new technologies and newer and better home designs to materialise. Hence future homes may be more comfortable and pleasing to stay in and of course they will cost you an arm and a leg, … may be two.  

    A thought just occurred to me, the low cost flats are simply a nightmare to live in. Have you tried living in a low cost, two bedroom, 600 square feet flat with 5 to 10 other brothers and sisters? Why do they call them low cost when it is expensive to feed that many siblings, considering that the price of eggs will go up, too? You can see how the property price will move? 



    4. Malaysian property price increase due to world population growth

    The world population, today, turned 7 billion. Happy Population, Earth. All those young children will eventually, one day, grow up and want to own their own homes. Probably in the next 10 to 20 years. So do expect to see another jump in price of raw materials in the building industry, in Malaysia, because demand for proper housing is expected to grow in the emerging economies. You can see how the property price will move? 



    5. Jump in commodity prices causes the property price to climb

    I have reproduced my chart here again to show you how raw material prices and food prices had jumped at the turn of this century. See below.


    Malaysian property price property bubble property crash in 2012
    Malaysian property price property bubble property crash in 2012
    Malaysian property price property bubble property crash in 2012
    Malaysian property price property bubble property crash in 2012

    You can see that prices had jumped by x1.5 of their January 2000 prices. This will happen again soon in the not too distant future.

    Furthermore, from my analysis of commodity prices, I am expecting that Brent Crude has the potential to rise to US$600 per barrel which means that your current price of petrol at the pump will not stay at RM1.90 (USD$0.63) per litre. Currently petrol Ron 95, in Malaysia, is subsidised by RM0.80 (USD$0.27) per litre. If and when Brent Crude hits US$600 per barrel the petrol prices at Malaysian pumps would be around RM28.00 (USD$9.30) per litre or USD$35.20 per US gallon. House prices sound cheap? The problem lies in the fact that we have been a ‘closed’ economy in some respects but an ‘open’ international labour market.  



    6. Indian and China are growing economies

    Their peoples have been set free of spiritualism (I mean poverty) and have developed a new found taste for materialism (I mean get rich quickly before the opportunities disappear). Actually, who wants to live in poverty all their lives? These people want the greater creature comforts of life too and we should not stop them in their pursuit of happiness, health and wealth. These two great nations account for about 30% to 40% of the world population and their middle class is growing. You didn’t notice? All the signs were there since the 1980’s when factories in Malaysia moved to China. As their middle class grows there will be a greater appetite (I mean Demand) for cars, tours and travel, luxury homes or just plain houses, slippers, shoes, clothes, rice bowls, bread... World production has not really caught up with this extra demand (for what? If demand increases, prices go up and the suppliers make more money so what’s the big hurry to produce more to meet the demand?). Don’t you think there is something not quite right about Supply and Demand Economics? See how the property price in Malaysia will be affected? 

    So what is it that we, in Malaysia, can do better than India or China? … let me think about it. … give me another minute to think about it. … let me think about it. … let me think about it. … … … let me think about it. … … …    



    7. We learned from our property bubble bursting or property crash in 1998

    This time around we have been more careful after the lessons we learned from the events leading up to the 1998 Asian Financial Crisis, the property bubble and the property crash and the aftermath. Just before the 1998 Asian Financial Crisis every Tom, Dick and Harry had ventured into property development. There was an excessive oversupply of all types of properties. I would hazard a guess and suggest those speculators who ventured into property development have ceased operations or never recovered until today hence by 2011 there does not seem to be too much of an oversupply of property. If you drive around the coastal roads in some states you will see rows and rows of empty houses and apartments. During their heydays they were touted as the ‘place to be’, ‘paradise on earth’, ‘guaranteed rental income forever’, ‘the home of your dreams’. Today these buildings, in the middle of nowhere, stand as a testimony to the home owner’s nightmare, mosquito infested, sand fly bugged abandoned squalor. Someone should convert them to bird’s nest breeding grounds. Come to think of it Malaysia can be the world’s largest producer of bird’s nest if they convert many of these abandoned properties to house these birds. And if they convert the high rise apartment blocks into birds nest centers we could promote our bird’s nest as ‘Heavenly Bird’s Nest’.  



    Early signs of a property bubble as a result of property price increase leading to a property crash

    One of the early signs of a potential property bubble, as a result of property price increase, is when the whole country is at it, building properties. You will find those who have no expertise, rhyme or reason to be in property development, joining in the fray. Today in 2011 you don’t see this happening.  

    So what do you think will happen to the property price in Malaysia? Will a property bubble materialise resulting in a property price crash in 2012? Should we tell the rest of the world to stop building more houses so that the price of raw materials will come down? That would lead to lower cost of new houses, lowering of the property price in Malaysia resulting in the prices of properties in the secondary market dropping … just may be … if you could find someone who is willing to sell his house at a lower price.  



    My biased opinion about the property price, property bubble or property crash in 2012

    I tell you my biased opinion about the property price, property bubble or property crash in 2012. It’s biased because I am a Real Estate Agent. My biased opinion is that property prices in the Klang Valley will double over the next 10 years. A RM2,000,000 (USD$670,000) bungalow will cost about RM4,000,000 (USD$1,340,000) by 2020 and it will cost about RM9,000,000 (USD$3,000,000) by 2030. This means that the property prices will double (x2) by 2020 and will increase by a factor of x4.5 by 2030 if there are no serious hiccups to the world economy during this period.  



    My unbiased opinion about the property price, property bubble or property crash in 2012

    I will tell you my unbiased opinion about the property price, property bubble or property crash in 2012. It’s unbiased because I am an Engineer and an Economist. My unbiased opinion is that if property prices crash in December 2012 due to the Rapture, the banks won’t lend you the money to buy cheap property. Banks, worldwide, have a very long historical tradition of not lending for the purpose of purchasing properties for at least two years after a property bubble bursts or the property market crashes. Don’t you remember that during the World Wide Recession of 2008 many Malaysian banks closed their loan offices and stuck a tiny piece of paper on their walls? Those who wanted to apply for loans had to call the mobile phone number written on that tiny piece of paper. The officer on the other end of the phone line would try to convince you not to apply for the loan. So if you are waiting for December 2012 you will not be able to buy a property until 2014 or 2015. Do you have the cash to purchase a property in 2012?  

    This time around, since the 1998 Asian Financial Crisis, we have been more careful about over building hence I don’t think the property market will crash. Worse come to the worse, if there is a crash in property prices, it will be very mild fall of the order of about 10% which I don’t think anyone will notice.  

    Don’t worry that the property price is high as you can join the one million odd Malaysians who have gone overseas to earn better income. Vision 2020 here I come … errrr… there I go. You will then be able to repatriate RM10,000 (USD$3,300) back to Malaysia every month. So what is the big deal about property prices?  

    Lastly, my unbiased opinion is that you reread points 1 to 7. Please read my article on Malaysian pupolation growth and Malaysian property prices.

    - Dr. Peter Achutha, 1st November 2011


     


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