Property prices here under pressure if Fed raises interest rate

KUALA LUMPUR: The Malaysian property market will see further pressure on prices if the US Federal Reserve increases the interest rate, which would affect all Asian economies, said VPC Alliance (Malaysia) Sdn Bhd managing director James Wong Kwong Onn.
"There are reports that the US Federal Reserve are likely to raise interest rates. If they do, there will be a snowball effect on all Asian economies. Likewise Asian economies will raise interest rates and dampen the property market further. Less people will be able to afford to take up housing loans," he told reporters at the 8th Malaysian Property Summit 2015 (8MPS) yesterday.
Wong, who is also the organising chairman of 8MPS, said the possible interest rate hike is one of the factors that would lead to a consolidation in the property market this year.
He said the property market has been showing signs of correction last year and it is time for a mild correction as property prices, which have been on the rise over the past few years, should not be rising forever.
Wong said the housing loan reform started in the fourth quarter last year with developers putting up less projects for launch. In addition, there are also signs of more property auctions.
"These are clear signs of correction. Banks are getting stricter with housing loans. Coupled with oversupply, we suspect it won't be a good year for the property market," he added.
He said the mismatch between supply and demand within the residential property sector is due to developers focusing only on high-end and mid-upper homes.
He said these developers only started paying attention to the affordable housing segment in the last two years.
He added that certain sectors are experiencing an oversupply situation namely offices, high-end condominiums, hotels and shopping malls.
Valuation & Property Services Department (JPPH) deputy director-general Faizan Abdul Rahman said the property market will moderate this year in view of the uncertain global economy coupled with various government interventions which took effect from 2010.
"Nevertheless, the residential property market will continue to sustain, underpinned by the growing working population and first time home buyers," he said in his presentation titled "Overview of the Malaysian economy and property market" at the summit yesterday.
He said houses priced below RM500,000 will be the highlight of the housing market this year while the high-end housing market priced above RM1 million are likely to wane.
Faizan said the commercial sub-sector is also expected to moderate. However, this sub-sector has the potential to leverage on the prospective multinational companies, which would be on the lookout for Grade A buildings.
"Among the major projects that are much-awaited are the TRX, Warisan Merdeka and the recent Tebrau Waterfront City Johor Bahru," he said.
Commenting on the impending implementation of the Goods and Services Tax (GST), Wong said Malaysians have adopted a wait-and-see attitude.
He said developers may not raise property prices as current prices are already high and demand may fall if developers add on the cost of GST.
"If prices increase to a certain level beyond what people can buy, banks will not lend and there may be a price correction," he said, adding that price hikes are more likely caused by supply and demand rather than GST.
Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector Malaysia (PEPS) vice president Foo Gee Jen said buyers may not be prepared to pay and developers would have no choice but to review selling prices.
"It's a big purchase, they (buyers) will feel the pinch," he said.