KUALA LUMPUR (Mar 19): Amid concerns over the property sector outlook due to rising supply and Bank Negara Malaysia's (BNM) efforts to curb household debt, another indicator of its health is also sending negative signals.
According to data provided by Property Auction House Sdn Bhd, the number of property auctions in Malaysia rose from 36,646 in 2009 to 39,951 in 2011, an increase of 10% within three years.
In 2011, more than 40% of these auctions occurred in Selangor followed by Johor (19.5%) and Penang (9.2%), with most of the properties defaulted on priced at up to RM500,000.
Interestingly, it was found that Kelantan, Perlis and Sarawak had the lowest levels of auctions, indicating that residents in these states were able to afford properties in the area and had the income to support mortgage payments, said an analyst.
"Also, those in the lower income bracket, usually outside of Kuala Lumpur and the likes, have other undeclared income to help support payments," he said.
"Affordability is the key issue," Loong Kok Wen, a chartered financial analyst, said in a report last week, adding that there has been a strong interest in mid-end properties valued between RM400,000 and RM600,000. In 1989, the income to property price ratio was 5.9 times, however in 2010, it had risen to 10.9 times, indicating that property prices had not risen in proportion to wages, Loong said in an earlier report.
The new BNM guidelines of computing bank loans based on net income, although pre-emptive and prudent in nature, may inadvertently be a hindrance to first-time home buyers.
"For example, assuming an individual's gross monthly salary is RM5,000. If the mortgage is to be calculated on a net pay basis, the house value that one can afford would be reduced to RM231,000 from RM300,000 (or RM277,000 from RM360,000), using the rule of thumb of five times (or six times) gross salary per annum," Loong said.
However, using the number of property auctions to gauge the health of the property market may not be accurate, as it is a lagging indicator of how the economy has fared, said Patrick Wong of Property Auction House.
"The banks will never straight away declare default [on a mortgage], it will try to restructure the debt, and then it has to go to court, and all this takes time," he said.
Perhaps after a year and a half at the very least, will auction numbers show whether or not people have been defaulting on their loans, Wong said.
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