The freeze on approvals for luxury property projects is needed in Malaysia so that it will not have the same fate that Ireland suffered back in 2010, said Second Finance Minister, Datuk Seri Johari Abdul Ghani at the CIMB 10th Annual Malaysia Corporate Day.
He was referring to the Irish economic crash which followed years of reckless lending to property developers during the 12-year “Celtic Tiger” boom.
“At one point, some 32 percent of Ireland’s economy was from the property market and when the property market crashes, the country was badly hurt.”
Ireland’s growth was driven by return migration and exports between 1995 and 2001, while domestic credit-fuelled growth and the property market from 2001 to 2007.
In 2010, Fitch Ratings cut the country’s rating by three levels from A+ to BBB+ amid a large number of residential mortgages as well as home loan defaults.
A lifeline, in the form of GBP61 billion bailout, was then extended to Ireland by the European Central Bank, The European Commission and the International Monetary Fund.
The Irish property market has recovered over the years and is expected to be on the upswing again as at end-2017.
But unlike Ireland, Johari has said that the government does not intend on bailing out developers, especially those building luxury projects and subsequently faced financial difficulties due to their failure to move units.
“Looking at the broad property market, just in the Klang Valley, we have some 132,000 unsold units of high rises, some 42 million square feet of offices as well as some 32 million square feet supply of shopping malls,” he said.
“It has gotten to the point that for some of these shopping malls, in order to get tenants, they will offer three years of free rental plus renovation. That’s essentially giving the space for free. This is why we have to implement the freeze, to stop these kinds of practice.”
Johari, however, noted that it is not a total freeze on all projects. Developers can still build high-end projects, provided they can justify that there is a need for such development, he explained.
Image sourced from NST.
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