Property flipping here to stay as lower-income earners get into the game

By Syed Jaymal Zahiid

KUALA LUMPUR, Jan 12 — Back in November last year, Malaysian social media went into overdrive when a 31-year-old mother of three boasted about owning six properties in the span of seven years despite earning a salary of just RM2,500 a month.

She bragged about buying her first property — a medium-cost flat in Shah Alam worth RM98,000 — in 2010 when she was only earning RM1,500 monthly.

The house was first rented out and eventually flipped for RM220,000, earning her a hefty profit of RM122,000. The same process was repeated for the next five properties, she claimed.

As the Malaysian internet community does not take to braggarts lightly, she was “attacked” and one critic — citing proof — accused her of using her position to buy property through the state-backed Rumah Selangorku programme and then cashing in on desperate single women by renting out a flat meant strictly for families, not property speculators.

But as some of her critics inadvertently suggested themselves, aspiring homeowners would have likely cheered her so-called success story.

Rather, the backlash came not from the fact that she profited from flipping properties, or that she was renting out a state-subsidised home. The furore was about her condescending and boastful tone on social media.

The state-backed Rumah Selangorku project in Setia Alam.

In fact, analysts argue that property flipping has become acceptable and celebrated even as excessive speculation was deemed to be the root cause of today’s housing quandary, with people like her demonstrating how the appetite for property flipping has transcended class.

Up to mid-2000, real estate investment was a game limited to wealthy individuals or government-linked funds.

Experts believe poor policies, lapse in regulation and easy credit helped enable a new wave of rapacious speculators that cuts across all income brackets to flood the market, causing disproportionate speculation and supply-demand distortion.

Some property market analysts have suggested that the media was also complicit. Between 2010 to 2014, when property flipping peaked causing house prices to shoot off the charts, the number of self-professed “property gurus” exploded, said Foo Gee Jen, president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants (PEPS) which represents the private sector.

Property publications filled their pages with rags-to-riches stories which helped these gurus market themselves.

“If you look at data back in 2011 there was a surge in people claiming to be property gurus… they have been spreading propaganda or whatnot and started their own property investors clubs…  everybody talked about the same formula, how Trump made millions from property,” Foo said, referring to American president Donald Trump, a real estate billionaire before he was elected into office last year.

These skewed stories, often embellished to conceal the negative effects of property flipping,influenced thousands of otherwise genuine first-time home buyers to flip their homes for profit and normalised the idea of commodifying their mortgages, Veena Loh, associate director at Research and Consultancy, JLL Malaysia, said.

“Some project marketers, media and some success stories by investors during a property boom have painted a rainbow on property investment and have thus given a positive picture without highlighting the flip side of this activity,” she said in a recent email interview with Malay Mail.

Gurus of lies?

Foo believes property investors clubs (PICs) are a huge part of the problem facing the country’s housing market today.

These clubs typically comprise rich individuals but recent data suggests membership among lower- or middle-income earners have increased in the last five years, the PEPS president said.

PICs distort the market by creating artificial demand when buying properties en bloc, usually with discounts of up to a fourth below market price.

They exploit procedural loopholes to acquire properties without deposits and then flipping them at highly inflated prices on the back of supply shortages which they themselves create through a practice called “hogging.”

Hogging is a practice whereby speculators hog or keep the properties bought through bloc purchases to create artificial shortage and leverage on high demand to inflate the price.

They will eventually release the units into the market to flip for profit, usually at around 15 to 20 per cent higher than retail, or up to 40 per cent if discounts given by developers are factored in.

Despite consistent complaints about their activities, PICs remain unregulated. In January 2014, the National House Buyers Association and the National Housing Department (NHD) held discussions with several parties, including Bank Negara Malaysia (BNM), the Police’s Commercial Crime Investigation Department (CCID) and representatives of the Companies Commission of Malaysia and the Ministry of Domestic Trade, Cooperatives and Consumerism.

NHD later issued a statement in the same month saying its investigations found that the clubs have not breached any laws.

These speculators also have the freedom to promote their activities through the media because they help with advertising revenue. But with social media platforms like Facebook, these clubs took advantage of its free services and massive reach to intensify recruitment.

Between 2010 to 2014, the number of new real estate agents joining the market increased by at least 15 to 20 per cent, Foo said, noting that majority of the agents were first-time home buyers.

“Some of them have become millionaires by just buying and selling properties… and I think (social media) helped, yes. Unfortunately, people believe everything they hear on social media,” the PEPS president said.

Speculative transaction value at the height of the flipping era was estimated to be half of total transactions. In the first half of 2016, total value of unsold units stood at just over RM8 billion. But in the same period this year, the number increased by more than two fold to more than RM20 billion, Foo said quoting official figures.

Greed is the driver… as always

Property flipping has since dissipated since the government rolled out cooling off measures in 2014.

Bank Negara Malaysia made borrowing tougher while the government increased the Real Property Gains Tax and prohibited interest-free schemes, decelerating home price growth to about 4 to 5 per cent yearly for the past three years.

But the housing problem is far from fixed. In November, BNM released data indicating a massive property overhang war which it blamed on speculation and warned that failure to address the supply imbalances could undermine stability in the financial market.

PEPS in a statement issued as a response to BNM’s report blamed structural weaknesses; housing policies are misplaced as exemplified by the problems facing state affordable housing agency PR1MA, while overlapping bureaucracy and incompetent local authorities continue to cause supply-demand disparity.

And while some of the stringent measures introduced by Putrajaya may have succeeded in curbing excessive speculation, the appetite for real estate speculation may have grown too big too suggest that property flipping is entirely dead, Foo said.

“Greed… it all boils down to greed. As long as there is greed, we will always have this problem,” he said.

Malay Mail conducted a mini straw poll to find out if multiple property ownership and speculation is normal and two-thirds of those polled said they either own more than two homes or want to own more than one property — either for hedging or flipping.

Malay Mail also found that a simple search on the internet found that PICs and so-called property gurus are still active through blogs or Facebook.

These speculators continue to offer “tips” on how to stack up properties. The advice with the most hits are often those on how a Bumiputera can capitalise on their privileges like discounts, easy access to loans and subsidies to buy the first home and either flip it later, or rent it out as capital for a second purchase.

Ahyat Ishak, a speculator and author of the book The Strategic Property Investor, said a turbulent property market will not dampen demand and speculation will continue to grow, pointing to the low cost and medium price range market as a reliable potential for “investment.”

“If some were to say that speculators are the root cause of housing problems, this would be quite funny. Speculation happens all the time everywhere around the world. It is what keeps the market exciting,”he told Malay Mail.

“Current overhang is trouble. How to flip or dispose when there are still so much unsold primary market in the market.

“But... then again, what kind of products are overhang? Recheck the data. Properties within range of working class Malaysians still have strong demand. The real issue is mismatch between supply and real demand,” he said.