The importance of price discovery


KHONG & Jaafar group of companies managing director Elvin Fernandez says this is the first time house buyers are having so much challenges getting loans – due to stringent lending requirements – against a backdrop of tightening household incomes and a rising cost scenario.

Going forward, there will be more difficulties for households as they will need to spend on day-to-day needs like transport, rent and food.

“While that is the damper on the overall property sector – and the overall economy – I do not think the market is going to plunge. It is stable to a large extent. Going forward, the goods and services tax (GST) will add further pressure to household income and it will take a bit of time before income levels go up,” Elvin says.

On the slide in global oil prices, he has yet to examine the link between oil and property prices. It will reduce cost, but it will also mean a decrease in government revenue, which will impact government debt. The creeping interest rate will further result in an increase in the monthly mortgage payments in an already-challenged scenario, he says. All these factors, says Elvin, will have an effect on the property sector.He says the retail mall sector, which is a part of the commercial sub-segment, is rather subdued today because household spending has dropped.

“People are not throwing away money,” he says.

He does not want to see plunging house prices because this will adversely affect the economy, but adds that it is a positive thing that house prices are “no longer being hijacked” by excessive speculation.

Just as a bit of inflation is good for the overall economy, so a bit of speculation helps boost the sector, but not execessively as was seen between 2010 and 2013.

As for rising fixed deposit (FD) rates being more attractive to investors , he says that is not a like-for-like comparison. “With FDs, there is no capital appreciation. In the residential sub-segment, even at the worst of times, there is that possibility.”

His main issue is transparency. He says developers have yet to declare the real price of a property.

“That is not happening. By looking at the advertisement, the buyer must know what is the real price minus the incentives. When prices are fudged, there is no clarity. This is important for price discovery and for an efficient market.”


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