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.