Johari defends decision to freeze luxury property projects
KUALA LUMPUR: Second Finance Minister Datuk Seri Johari Abdul Ghani defended the government’s decision to freeze the approvals for luxury property developments last year.
He cited Ireland as an example, where its economy was ravaged by a collapse in housing prices, unemployment and a financial sector meltdown in 2010.
This followed years of reckless lending to developers during the “Celtic Tiger” boom.
“The freeze is needed so that Malaysia will not face the same situation as Ireland, where its rating was downgraded from ‘AAA’ to ‘BBB+’ because of its property market,” he said to a question from CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak at the CIMB 10th Annual Malaysia Corporate Day, here, yesterday.
“At one point, 32 per cent of Ireland’s economy was derived from the property market and when the property market crashed, the country was badly hurt.”
Between 1995 and 2001, Ireland’s growth was driven by exports and return migration, while from 2001 until 2007, domestic credit fuelled growth and the property market.
Fitch Ratings had cut Ireland’s rating, citing large numbers of residential mortgages and home loan defaults. In 2010, Ireland sought a bailout from the International Monetary Fund and European Union.
Over the years, the Irish property market recovered.
Johari had said the government would not bail out property developers, particularly those building high-end projects, which failed to sell their units and were in financial difficulties.
“Looking at the broad property market in the Klang Valley, we have some 132,000 unsold units comprising high-rises, some 42 million sq ft of offices as well as 32 million sq ft of shopping malls.
“It has got to the point that some shopping malls, in order to get tenants, offer three years of free rental plus renovation. That’s essentially giving space for free. This is why we have to implement the freeze, to stop these kind of practices.”
Johari said it was not a total freeze for all projects, but before an approval was given, the developer would have to justify the need for the development. Lidiana Rosli