LETTER | Bank Negara Malaysia (BNM) reported that as of 2017 quarter one, total unsold residential properties stood at 130,690 units, the highest in a decade and about 83% of the total unsold units were in the above RM250,000 price category.

There is no doubt that there is a risk of property market imbalance and therefore policy measures need to kick in.

The government decided to freeze approvals for luxury property developments indefinitely from Nov 1, 2017 to control the oversupply in the property market.

The directive temporarily stops development of shopping malls, commercial complexes and condos valued above RM1 million until excess supply is cleared.

However, this raises several concerns where the government is directly interfering the market and lacks the consideration of ramifications of adopting such a policy. Such a policy is an excessive demonstration of government powers to suppress the free market.

Commenting on the issues, Ideas Senior Fellow Dr Carmelo Ferlito said:

“Even if the burst of the Malaysian property bubble seems unavoidable, the proposed solution does not go in the right direction.

“The emerging of unsold properties is just the final symptom of a process. Government intervention at this stage would only impede the readjustment phase that is necessary for the property market to discover how to be consistent with the present economic system.”

Carmelo further explained that the reasons why freezing approvals for luxury property development is not the right policy is because of the unique nature of luxury products.

He said: “The peculiar nature of luxury products makes them less sensitive to cyclical fluctuations, and such a measure might generate panic among small investors, accelerating and aggravating the pace of the crisis.”

“What it seems advisable, on the other side, is an information campaign, oriented to create awareness about the present property market conditions in particular among those people that got involved in the bubble without a proper finance knowledge,” he concluded.

The writer is coordinator, Economic and Business Unit, Research Division, Institute for Democracy and Economic Affairs (Ideas).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.