Sunday, April 22, 2012

Will Property Bubble Burst in Penang Island?

People talked about property bubble burst in Penang Island 2 years ago. Some said it had already the peak and today the history repeats itself. People is still saying the same thing, the property in Penang Island is already peak and going to burst soon. So, how true is this?

You get all kind of answers depending on who you ask. :D Generally, these are the answers that you can get:

Yes, It Will Burst Soon

  • It is about supply and demand. The supply has already more than demand. You can do your own research especially at night especially for those luxury houses that has already obtained the OC. Try to count how many of the houses have their lights on. You will only see < 30% occupied on majority of the ready house development. Thus, it is going to burst soon.
[My Comment]: This makes sense but the location is the key here. Not all location have the similar symptoms and it also depends on when you do the research. A ready housing development takes 1 to 2 years to have > 80% occupations. Probably 1.5 years is a good time for you to such research. 

  • I just don’t afford to buy and I hope it will burst soon. So, I am waiting for that moment and tell everyone that the property is going to burst soon.
[My Comment]:  I guess just need to ignore this because no supporting data. Many people are telling that property bubble will burst and in reality is they “hope” it will be burst. Not a smart argument anyway.

No, It Will Not Burst
  • The property is in good shape. Generally property in Malaysia or even in Penang Island is still a lot more cheaper than our neighbor countries. Thus, it will not burst anytime soon because we have a lot of foreign investors.
[My Comment]: About 30% are foreigner investor including those Malaysian who worked out of the country. This is what the most developers told me. However, assuming if you do your own research and found out that only 30% of houses being occupied. So where does the 40% go? Yes, speculation but it still doesn’t mean the bubble will burst.

  • Penang property was undervalued in 5 years ago and  it was not appreciating as it supposed to be. Therefore, the recent past few years rapid appreciation was just catch up with the past. So, it will not burst.
[My Comment]: Yes, it makes sense but it also depends on how long the appreciation goes. If it still continue appreciate like crazy, it may burst. However, you have seen government and the banker have taken steps to control the peak by slowing it down. When it is slowing down, the burst won’t happen.

What Should I Do Now?

I know you desperate to know the answer but from my comments above, you can kind of can guess that I”m more bias towards to say there will not burst in Penang property market. In my opinion, when the supply more than demand, it will not burst but it will only be stable down for probably 2 - 3 years. This is because most investors including speculators are rich (I believe) and they will not easily to let go to sell at lower price. After the property market correction, it will then catch up again.

However from a personal finance perspective, you should always plan for the worst. You should always assume the property bubble is going to burst. Let’s say if you’re buying a $1M house, you should expecting of losing of 35%  (based on the US sub-prime crisis data – refer here: worldwide house price trend till 2010).  So, if you afford to lose $350K, then you can go for it.

P/S: If you interested on looking at the average transaction property market in other states of Malaysia, you can refer to here.

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