How To Spot A Housing Bubble In Malaysia

PropertyGuru Editorial Team
How To Spot A Housing Bubble In Malaysia
For most Malaysians, buying a home is one of the biggest financial decisions they’ll ever make.
Because of the amount of money involved, it’s important for potential homebuyers to pick the right time to buy a home.
For many, this is when interest rates are low or when they’re likely to get a good deal on the property of their choice.
But, if there’s a period that is less than ideal to buy a house, it’s during a housing bubble. This occurs when prices skyrocket on the back of speculative buying.
Typically, a housing bubble starts with an increase in demand that’s fuelled by limited supply.
Speculators then enter the market and drive demand up further by, for example, holding on to properties and keeping them empty. But, as with everything, what goes up, must come down.
Eventually, demand decreases, leading to a glut of inventory that drives down prices and causing the market to crash.
Malaysia last experienced a housing bubble between 2012 and 2014, and it caused a massive imbalance in supply and demand.
Since then, Bank Negara Malaysia has introduced several cooling measures and launched responsible lending guidelines that helped the housing market bounce back.
Indeed, changes in government policy can correct the market, but this can take many months, if not years. But how do you know if you’re buying at the ‘right time’?
Well, without further ado, here are 4 signs of a housing bubble:
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1) Low Availability Of Properties

Declining property inventory is typically the first sign of a housing bubble. The shortage of properties causes prices to go up, and these prices don’t decrease even if more inventory comes on to the market.
Current statistics in Malaysia show that enough houses are being built in pace with population growth.
According to the National Property Information Centre, the number of unsold residential properties has been rising since 2011, and peaked sharply in 2017.
The gap, however, is in the number of affordable homes.
To keep prices fair, the Malaysian government has introduced many affordable housing schemes that allows those with smaller budgets access to properties, where prices range from RM150,000 to RM500,000.

2) Rising Interest Rates

Rising interest rates are another tell-tale sign of a housing bubble. If interest rates are high, borrowing money for your home will cost more.
If interest rates are low, you’ll pay less in interest during the loan period (hooray).
Taking out a home loan is a huge decision, and one that’s likely to impact you for decades.
So, it’s not surprising that interest rates play a huge factor in a home buying decision – and the higher the interest rate, the less likely it is that potential buyers will opt for a loan.
The best defence against a bubble and housing market collapse is to be PATIENT. If you feel like you’re stretched thin financially, then it’s probably a wise idea to continue renting.
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3) Assess Historical Pricing Trends

One of the best ways to determine if you’re in a real estate bubble is to compare past pricing trends to the prices that properties are selling for today.
If property prices are considerably higher, your market is likely to be in a bubble (or is on the brink of entering one).
This is not the situation in Malaysia, though. Because the market was buoyed by improving consumer sentiment and proactive government policies, property prices are expected to fall in 2019.
However, this doesn’t mean that Malaysians are rushing to purchase homes.
Budgets are tight and with plenty of supply in the market, many Malaysians prefer a wait-and-see approach, hoping to benefit from the various affordability schemes by the government, or even the annual PropertyGuru Deals.
At PropertyGuru, we’ve also launched the ‘Own Your Home’ programme through which we hope to empower 100,000 Malaysian families to become homeowners by 2020.
So far, we’ve helped more than 12,139 Malaysians find their dream home!

4) Housing Prices In Comparison To Income

An effective, but less straightforward way of knowing if you’re in a housing bubble, is to compare income and employment levels to property prices.
If your income levels can’t keep up with property prices, then it’s definitely a sign to exercise caution.
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So, what’s the best way to navigate a real estate bubble for Malaysians eager to buy a home?
Because buying a property is such an expensive investment, if you find that homes are way beyond your budget, it’s important to know when to draw the line. Here are some things to consider instead:
  • Renting

If the market is currently in a bubble, it’s wise to adopt a wait -and-watch approach and to continue renting in the meantime.
This puts the power back in your hands and gives you the flexibility to choose the right time to buy your own property that’s best suited to you and your financial needs.
  • Broadening Your Search:

If you’re still keen on finding your dream home during the housing bubble, then consider expanding your location preferences.
Suburbs and far-flung areas may still be within your budget, and may prove to be a blessing in disguise.
Who knows, the safety, serenity and family-friendliness of the suburbs might start to appeal to you!
While it’s true that older properties often require more effort in terms of renovation and repair, it isn’t always the case.
While more recent properties may require less maintenance, older properties are often more spacious.
Be sure to do your research and ask the right questions, such as about the home’s history, so that the cost of renovations don’t exceed your budget.
  • Taking A Step Back:

If you haven’t managed to land your dream home after months and months of house hunting, then take a step back to reassess your strategy.
Taking some time away from a market in the throes of a housing bubble might turn out to be the best decision you make.
There’s no one right answer to the question of when is the best time to buy a home.
But, it’s important to consider a combination of factors such as market sentiment, personal financial situation, and plans before you dive right in.
Ultimately, making an informed decision means you’re less likely to have regrets.
If you are considering to buy your home, start your journey early, do your research and begin comparing houses for sale in Malaysia today.
Disclaimer: The information is provided for general information only. PropertyGuru International (Malaysia) Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.