Property market, south Johor

It is becoming too common for players in the property market to inflate their sale and purchase agreements. Examples would be, concluding a sale at say RM200,000 but in the sale and purchase agreement its stated as RM220,000. With that, and a 90% loan from the ever so friendly bankers in the present situation, the buyer practically gets 100% financing. And thats only assuming the mark-up is only 10%! There are cases noted where the mark-up even goes to about 30-40% above the actual price.

Now, some might wonder that this isnt such a bad thing after all. People continue to buy properties. Unfortunately this is the signs of a bubble economy. Waiting to implode, and hurt, again, and again, and again. We never learn. Our administrators of the economy have short term memories, always.

Assuming almost everyone marks up their agreement, on record it appears as though prices keep on rising, indicating a booming market! Government compiled records dont factor this anomaly. Everything appears to be rosy for the past year. For stamp duty purposes, the Government would be happier if the agreements are marked up as the taxes are based on the sale price or market value, whichever is higher.

The rest of the players indulging in this activity i.e. the solicitors, estate agents, loan facilitators a.k.a. 'runners' etc, couldnt care less either. As long as the buyer gets the loan and the sale goes through, nobody could care less of the repercussions.

Which leaves us the banking sector. Almost gone are the days where bankers are prudent and insist on protecting the interests of the bank. The frontliners are mostly sales people. People who work on commissions and with high sales targets. Theyre pressured to deliver. To ensure that the banks have a fantastic loan growth.

In the late 1990s we started having bankers undercutting each others interest rates by offering staggered rates with subsidized levels in the first year of two. This was to encourage re-financing of loans. Whilst the end-user or borrowers benefited, so much of work was generated without much real benefit to the economy. The left hand was passing money to the right hand.

And now, so many at the local level appear to be dropping their guard and closing an eye to this "marked-up" agreements situation.

Property consultants have a major challenge in their hands. Gone are the days where they can rely on records of property prices being transacted and form an opinion on the value of a specific property. The declared sums on agreements, now more so than in the past, cannot be relied at all. To do so, would be to the detriment of their practice.

The act of developers providing "discounts" to the prices of their developed units doesnt help the situation either.

Over the past few years, too many developers have simultaneously lauched andd developed big mixed residential schemes in the outskirts of the city centre. And the past few months see many of them having unsold units that have been completed and issued with Certificates of Fitness for Occupation. In an apparent act of desperation many have been giving discounts or rebates, along the lines of the marked-up agreements. For example, one could buy a double storey terrace house for RM220,000 by paying perhaps around RM1000 only, and upon signing of the loan documentation and release of funds, get a rebate of RM20,000 from the developer! Yes, the 100% financing days are back. Many banks are openly condoning this practices.

As to why regulating bodies of the financial industry has yet to take any action, I have no idea. It is not prudent lending to lend margins of 100% or even 95%. Is greed the motivating factor that is blinding the players?

As always the property market will move in cycles. Without real growth in the southern johor region, nor any new major investments coming in, current events appear to be worrisome. Whilst properties within the city centre and immediate prime residential suburbia appear to be resilient and to a certain extent appreciating, the outskirts of the city centre appear to be very shaky.

As always, ceteris paribus is the qualifying statement. It means, assuming all else is constant, as at this present time. Whether this present prognosis will hold water, remain to be seen. Personally, I am very very cautious now, bordering on pessimism.