To ensure sustainable economic development, it is necessary to have macroscopic policies and microscopic adjustments working together closely.
Unfortunately we lack such considerations and strategies when it comes to controlling property and goods prices.
Second finance minister Johari Abdul Ghani recently announced that the cabinet had instructed relevant authorities to halt the issuance of construction permits for luxury condominiums and serviced apartments priced above RM1 million, as well as shopping malls and office towers with effect from November 1 this year.
As a matter of fact, Bank Negara governor Muhammad Ibrahim had warned of a glut in the supply of highrise condominiums, malls and commercial spaces as early as May, and had instructed financial institutions to cut back loans for these three categories of properties, highlighting the fact that there were 20 shopping malls along a 40km stretch of LDP.
The issue of vacant properties has been in existence for two decades now. Some shoplots in my neighborhood have remained vacant for more than 20 years and unoccupied lots have become a ubiquitous sight in our cities and towns today.
Answering a question in the Singapore parliament in May 2015, then culture, community and youth minister Lawrence Wong warned Singaporeans of a glut of private residential units and possible slump in property prices in neighboring Johor Bahru.
“Some 336,000 private residential units will soon come on stream in Iskandar Malaysia, more than the entire private housing stock in Singapore!”
This number was not made up by the Singapore statistics department but was provided by our National Property Information Center (NAPIC).
Singapore saw the crisis, but we just sat on the numbers doing nothing.
Even after a clear directive from the second finance minister, works minister Fadillah Yusof clarified on the following day that not all projects were subjected to the stop-work order, depending on the demand in specific areas.
The works minister has his dilemma. If all projects were to be halted, mega projects like Tun Razak Exchange (TRX) and Bandar Malaysia would have to be aborted.
Indeed, federal territories minister Tengku Adnan confirmed that 1MDB’s TRX project would proceed as planned.
The government has lately launched several gigantic real estate development projects like KL 118 slated for completion in 2024, offering 1.07 million square meters of office spaces and 900,000 square meters of commercial spaces.
The vacancy rate of commercial spaces in Klang Valley currently stands at 24%. With 140 new malls joining the market by 2021, how can the government be sure that the property bubble will not burst after the completion of KL 118, TRX and Bandar Malaysia?
Real estate development policy must never be ambiguous nor selective, or the control measures will not work.
I made a trip to Iskandar Malaysia last year and saw many condominium projects under construction there. The sale of Malaysian private residential units to Singaporeans plummeted by a whopping 70% in 2015, while property transactions in Iskandar Malaysia slumped by 30%. The control measures have come just a little too late.
Financial institutions channel their excess funds to borrowers of high-end property projects, resulting in stalled sales and high vacancy rates. There are two negative effects. Firstly, the resources have not been put at the right places. If they were instead redirected to value-added economic activities, the multiplier effect will be evident, an example being the RM12.26 billion worth of unsold properties during the first half of this year. Secondly, the imminent burst of property bubble will impact the stability of our banking system and may trigger a new recession.
As such, the government must monitor the real estate market from macroscopic perspectives to make sure the demand-supply equation will not become off balance and that houses are within public affordability. An excellent example is the stringent control by the German authorities to protect the citizens’ right to affordable housing.
Where goods prices are concerned, the government must cap inflationary pressure and draw up plans to regulate factors that may trigger a rapid rise in the cost of living, for example by systematically tackling continuous rise in fuel prices instead of making a hasty announcement to introduce new measures to lessen the people’s burden only after retail prices of RON95 and diesel hover above RM2.50 per liter for three straight months, or consider scrapping the weekly ceiling fuel pricing mechanism.
Excessive inflationary pressure will eat into the rakyat’s incomes and assets. As a result, many developed countries have set a threshold of 2% CPI growth. Our CPI grew by a relatively high level of 3.7% in October.
Without macroscopic strategies and microscopic adjustments, we won’t be able to effectively deal with our economic problems.