Housing Bubble

IntroductionWhat is Economics Bubble??

Situation in which asset prices appear to be based on inconsistent view about the future

Trade in high volume at prices that are different with the intrinsic values or fundamental value

Different Types of BubblesMarket Bubble (Housing Bubble)

Commodity BubbleOccur when the price of commodity increase

Stock Market BubbleOccur when the value of stocks & shares increase

rapidly

Credit BubbleRapid growth in consumer and business credit to

finance higher consumer spending

History of Economic Bubbles

1.Tulip Mania (1600s-1637)

2.Stock Market and Housing Bubble in U.S (2006)

3.Dot-com Bubble (1990s-2000)

Social Psychology TheoriesThe Greater Fool theory

Over-optimistic , Buy and Sell higher price

Herding theoryMimic the actions of a larger group

Extrapolation theoryProjecting historical data into future on the

same basis

Moral Hazard theoryRisk return relationship altered Agency problem emerge

Effects of BubblesStock Market Bubble

Loss of confidence & Reduce spending

Housing Bubble Decrease in consumer spendingRecession

Commodity Bubble (Gold/Oil price) Uncertainty

Good or Bad ??

United Stated Housing Bubble

Why United State Housing bubble will burst?

One of the Main Reason :

Collapse of the Dot-Com Bubble

• Stock market fell, Real estate become the primary market for the speculators

Impact on U.S. Housing Bubble Employment

Is that Malaysia got

housing bubble ?? yes

What causes the housing $ ↑ ??

When 2006, terrace house in city area (KL) worth RM290,000When 2014, the same house worth over a million !

Shortage Of LandKlang valley & Penang – limited land ( but is

the development state, so a lot buyer want to own property in this 2 states. )

Speculative buyersNational House Buyers Association (HBA) secretary-general Chang Kim Loong : “Low Real Property Gains Tax (RPGT) has been a reason which has fuelled false demand and excessive speculation.”

“ Mm2h “Malaysia my second home• Promoted by the Government of Malaysia to

allow foreigners who fulfill certain criteria, to stay in Malaysia for as long as possible on a multiple-entry social visit pass.

• The Social Visit Pass is initially for a period of ten (10) years, and is renewable.

• Attract a lot foreigner : Korea & China Buyer

• China is the biggest beneficiary for this program.

• Malaysia still haven’t set any housing policy for foreigner buyer like SG & HK.

• Foreigner buyer requirement : • Housing $ 500,000above• Need to open a fixed deposit account of RM300,000

( below 50years old); RM150,000 ( above 50years old). Etc.

“ Mm2h “

Government want to prevent the housing bubble by this way:• Supply and demand

1Malaysia Development Bhd (1MDB)

• 1Malaysia People Housing Programme (PR1MA)• Which is charged with the task of building affordable

quality homes, must be doubled and intensified.• 20,000 units of PR1MA homes made available to

middle-income earners across the country.

• Housing Project for the Hardcore Poor (PPRT)• aimed at building affordable homes which are then

rented to the poor at very affordable rates.

In Budget 2014 announcement,

• Curbing Speculation

• Increase in Real Property Gains Tax (RPGT) rate • Increase 10% to 15%• 5% of RPGT introduced- holding period > five

years. (holding period count begin the date of completed the sell & purchase agreement)

• Change the behavior of investor, although cant solve the housing crisis, but can reduce market instability.

• Stamp duty imposed to buyers ( 2nd , 3rd …house ↑)

Malaysia housing bubble will burst?

Future? Depends on others

factors!

Now ? Won’t burst

Why did Malaysia housing bubble won’t burst so soon?

PEAK2013

This is because : China investor !Actually they wish to buy property in Singapore and HK. BUT…SG > curbing the speculation > property speculation tax to foreigner! 10 % in 2011 ↑ 15% 2013 HK - stamp duty on certain real properties has been doubled to 8.5% to cool off the property market.

If loosen, the china investor will go back to SG and HK.

The end Q&a

Presented by :

Goh Chun HongWoo Chia Yuen