M'sian property talk

Should house buyers be wary?

Property consultants say the recent price rise in properties in select locations reflect pent-up demand after the market slump in the first half of last year.

Should house buyers be wary of rising property prices? Anecdotal evidence seem to point to significant price increases in the Klang Valley and Penang although the National Property Information Centre report for 2009, which was released on April 23, noted that residential property prices remained stable for the year.
The all-house price index, which is a gauge of national prices, saw a gain of only 1.5%.
ECM Libra Capital Sdn Bhd research head Bernard Ching says in a report dated April 26 that the gain is “the lowest annual gain since 2001.”
Several property consultants say the recent price rise in properties in select locations reflect pent-up demand after the market slump in the first half of last year.
They also say that the Malaysian residential property market sentiments are, while not immune to global economic factors and price movements, largely driven by house buyers here.
It was recently reported that the uptrend in property prices was driven by easy financing schemes offered by banks in partnership with developers and that this had led to some speculation in the market.
However, the consultants feel that any increase in property prices will still be selective and overall prices will not rise drastically but gradually.
CB Richard Ellis Sdn Bhd executive director Paul Khong says there have been some price increase but only for landed residential properties and in selected locations.
“Over the past one year, residential landed property prices have gone up 15% to 20% in good locations in and around Kuala Lumpur and Petaling Jaya,” he says.

Paul Khong says prices for the luxury condominium sub-segment of the residential property market, are still between 10% and 20% below the market’s peak.

Khong says prices for the luxury condominium sub-segment of the residential property market, are still between 10% and 20% below the market’s peak.
This sub-segment has been badly hit by the financial crisis as a considerable portion of sales are to foreigners. The number of foreign property buyers have dropped since early last year.
Khong feels that fewer launches and higher demand will affect the prices of landed residential properties.

Dr Teoh Poh Huat says the recent property price increases reflect the different economic fundamentals at play compared to a year ago.

Ching says property launches have been moderate after bottoming out in the first quarter of 2009. This trend was in line with on-the-ground observation of developers preferring to launch in smaller parcels.
“We expect moderate growth in property launches to continue in 2010. This is supported by declining building plan approval,” he says.
Ching says the last quarter of 2009 was a record quarter for both the residential and commercial segments of the property market despite the uninspiring set of numbers for the year as a whole.
He says in 2009, the residential segment recorded a marginal improvement in overall transaction value of 1.3% to RM41.8bil while the commercial segment contracted marginally by 1.4% to RM16.4bil.
Henry Butcher Malaysia (Penang) Sdn Bhd director Dr Teoh Poh Huat says the recent property price increases reflect the different economic fundamentals at play compared to a year ago.
He says the property market is driven by the sentiments of Malaysian buyers although these buyers may take into consideration factors at the macro or global levels. “But these factors are short-term whereas investing in property is long-term,” Teoh says.
He says the significant increase in transactions for the first quarter of this year is a reflection of these sentiments following an unexpected expansion of the economy in the final quarter of 2009.
“Confidence in the economy is quite strong. There is liquidity due to pump-priming measures as well as the high savings rate in the country. This is reflected in the transactions,” Teoh says.

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Rising house prices: coping with the big tickets




ALTHOUGH there are buyers who have no qualms paying the prevailing high price for their dream house in a well sought after location, many Malaysians are really worried about the rising house prices and wonder how they are going to manage.
There is certainly cause for concern as a property is a big ticket item and paying for it takes up a big chunk of a person’s income. Depending on how much downpayment has been paid for a property, mortgage loan repayment can easily takes up to 40% of a borrower’s monthly paycheck.
National Housebuyers Association (HBA) honorary secretary-general Chang Kim Loong laments that even new graduates are finding it increasingly difficult to make ends meet these days.
He says a new law graduate who earns RM2,200 a month is also not in a position to sign up for a new house on their own (unless they have rich parents to chip in).
A decent terrace house in a relatively good location cost nothing less than RM400,000.
Owning a car is also another must-have item at least until the public transport system gets a total overhaul. Add them up with the other daily ancillary expenses including food, toll rates and petrol, among other things, we see why many people must be struggling to make ends meet.
There are some industry players who have the habit of comparing property prices in Malaysia with those in other countries like Singapore, China, Hong Kong and Bangkok, and comment that local property prices are still much cheaper.
It is not healthy to make such conclusions based on the property price alone. Other factors also should be factored in and it is important to see how much disposal income they have left after paying for all their expenses.
One of the most important considerations is the people’s income level. Malaysia is not yet a high income economy and most Malaysians are still stuck in the middle income trap. Although there is the aspiration to move the country up the income ladder, it will take a few years at least before that can be realised.
The whole economic structure needs to be revamped. Even at the service industry sector such as restaurants, employers have to be prepared to employ only Malaysians and pay them higher salaries.
Instead of relying on the cheap foreign labour, it is about time to revert back to our local staff. This is one of the necessary early changes that need to be implemented for the realisation of the Prime Minister’s New Economic Model.
As we know, things are getting more unpredictable these days and we are witnessing first hand that the only certainty is uncertainty.

The contagion effect of the global financial crisis is still raging in some parts of Europe and may spill over to other parts of the world.
Like pendulums, economies and industries are being subjected to the vagaries of the ever changing external environment. The most susceptible will be industries that depend on external demand, including commodities and manufacturers of products for export.
While the landed property market is still quite well cushioned from the external factors, there is still some degree of influence as far as foreign demand is concerned.
Being quite a “domesticated” market has its advantages as developers can depend on local buyers to drive demand.
The country’s relatively young population provides a ready catchment market and consistent demand for houses, especially mass housing products.
But the high-rise condominium market, especially in the KLCC area, is still languishing.
It will take a while for the new supply of condominiums to be absorbed and for prices to get back to their previous high.
For landed housing, demand has been kept robust by the prevailing low interest rates and easy availability of bank financing.
Given the intense competition among banks and ample liquidity in the system, mortgage rates will likely remain accommodative.
Nevertheless, it is important for all stakeholders to keep a close watch on the market and make the necessary changes whenever necessary to ensure the market remains stable.
Deputy news editor Angie Ng hopes buyers and industry players will exercise prudence for a sustainable and healthy property market.

http://starproperty.my/PropertyScene/TheStarOnlineHighlightBox/4494/0/0

Economic data are usually released by Bank Negara. Prime Minister Datuk Seri Najib Tun Razak rushed all the way from Sibu to Putrajaya Thursday (14 May) to announce that the Malaysia economy has recorded a robust growth of 10.1% in the first quarter of 2010. He was trying to tell the people that under his governance, the country has walked out from the impact brought by the financial tsunami, ended the negative growth and started to recover.

Similar to other Asian countries, the main factor for the strong economic rebound is because of the country's fund injection and huge stimulus plans. But when the market confidence is restored, hot money will flood into Asia, giving birth to assets bubbles.

There are also bubbles in Malaysia, particularly because of high-priced housing.

From newspaper advertisements, we can find that housing prices around Klang Valley have been rapidly surging. A terrace house was sold at about RM400,000 two years ago but today, it costs over RM700,000 per unit. And it is common to find semi-detached and detached houses to be sold at more than RM2 million.

When being asked to comment on the soaring prices, those in the industry will always say: It is still cheap compared to foreign countries, the prices are reasonable.

But please do not forget that only 20% of the people in this country are high income earners, while 40% are middle income earners and the remaining 40% are earning less than RM1500 per household. Some of them even earn only a few hundred ringgit per month. They can never afford a million-ringgit-house even if they starve themselves.

I believe those who buy expensive houses are rich people, permanent residents and foreign citizens. Would these people be able to accept and digest all the houses that have been continuously introduced to the market? Many developers are competing to build high-priced houses as they bring high profit margin. But once the market collapses, who is going to clear up the mess?

High-priced housing speculation will also bring up the prices of other houses and eventually lead to inflation. Middle and low income earners will be the victims of the plight.

It is worrying that the government's economic development strategy is actually stimulating the bubble. For example, the government and the Employee Provident Fund (EPF) will form a joint venture to develop a 3,000-acre tract of land in Sungai Buloh into a new hub for the Klang Valley.

In addition, the government has been partnering Naza TTDI KL Metropolis Bhd to build a RM628 million premier convention centre, the country's largest exhibition and convention centre, in Jalan Duta, Kuala Lumpur.

The Prime Minister's New Economic Model (NEM) should be heading towards a knowledge-based, high value-added and high-tech development. It is not the government's responsibility to take part in the real estate industry. And real estate is also a non-productive economic activity.

China, Hong Kong and Singapore are in the implementation of control measures to cool down the housing market frenzy. After the outburst of the European sovereign debt crisis, the world economy may face another decline. If we do not address the issue of assets inflation now, once there is another financial crisis and the bubble bursts, the consequences will be more severe.

Starting from end of last year, China has raised minimum down payment for second homes while Hong Kong has increased stamp duty for luxury houses, cancelled internal pre-sale and provided that first released units can only be sold to individual buyers.

The government should uphold the principle of "people first" and control housing prices as the people will be the one who suffers when housing prices keep soaring.

Too much of international spare and hot money will create a crisis while the real estate bubble will bring the biggest calamity. (By LIM SUE GOAN/Translated by SOONG PHUI JEE/Sin Chew Daily)

Ok, with these few articles to start the ball rolling.

A year ago, many lamented that the prices of DSL were RM300k-RM400k. Now, new developers are pricing it RM500-RM600k eg. Puchong area, Kajang, Shah Alam AND MANY MORE.

Now, if someone where to offer you a DSL for RM400k, do you think it is still relatively cheap? Assuming the DSL being offered is in a very nice environment and you like it very much.

Do you think it is cheap?? That is the question.

The price of houses (whether double storey link i.e. DSL or otherwise) very much depends on 2 main factors : location, and probably more importantly, the price the developer paid for the land. There will be other factors involved also, such as price of building materials (cement, steel, bricks, tiles, etc etc etc)

The question isn't about whether a house is "cheap".

The real question is whether you can afford to pay the price of a house that a developer is asking for in any specific location. This is what a developer is always going for, a game as well as a risk.

i bought 2 apart in front Sunway Piramid area, Bandar Sunway.
purposely bought them for rental out purpose. my finding that this area hv a lot of private international college ie Taylor College, Monash, Metropolitan, INTI , Sunway College etc. also got a lot of working area, shops, banks & Subang Medical Centre. its a very high demand for apart because safety reason (guarded 24hrs) compare to DSL.
now i rental it out RM2200/mth. loan repayment to bank only around 1000/mth.
what i want to share here is, good investment due to factor location & demand.

Here are some updates..

Emerald: bandar kinrara

Double storey link house going for 728,888 to 1,725,888 Only 63 units. No doubts ppl will be lining up overnight to buy this. Last time Kinrara nobody wants wan lah. The prices there tak move wan. Semi-dee big big only under RM700k.

History.
Bandar kinrara is rubber estate land. taman kinrara is mining land. IOI mall is also on mining land.

What reverend say is correct, developers are taking a risk by pricing their property at secondary market value, not like last time, at developer value. The problem with this is if I take the example above, the DSL going for RM728,888 will be offered to the market @ RM1,000,000 the very next day its sold. Thereby compounding the problem of excessive capital appreciation. Good news for the owners though.

There are many properties right now unsold by developers being advertised; yet at the same time the secondary market is also selling the same property at developer price + 40%. Example : You could buy a RM1mil home now, and offer it to the market at RM1.4million. There are tonnes of examples of these in iproperty.com or thinkproperty.com or other media.

Is there going to be a subprime crisis in M'sia? My bankers (both IB and Consumers) are telling me to put off all property purchases for now, until EU and China corrects itself. Economy is not out of the woods yet. US is still very fragile. Bankers are bracing themselves for an eventual correction! However, they still continue to provide cheap loans, so as to maximise profits!!!!

What will happen if you purchase a property say RM1mil and one day it drops to RM500k and never recover? Who will bear the cost?

Its been quite some time since I was involved in the construction industry. In those days, it was virtually laughing all the way to the bank!! 50% profit is a norm (even after all the bribes etc ). Most of the construction cost were in land acquisition, land conversion, clearing and piling works which make up the bulk. I dont think material costs that much, the norm is still 7% of total construction costs.

If I were to take the example of Kinara above, the RM728,000 DSL.

Cost of construction (overall) RM250,000.
Profit = RM478,000. (65.7% GP). 5 years ago, developers would price this DSL equivalent @ RM357,000 (this is what I term as developer's pricing with 50% profit). Now they price it at RM728,000 which is the market value/secondary market value.

If you were the buyer from the developer, would you buy it knowing that the developer is making RM478,000?

If you were a secondary market buyer, would you pay RM1,000,000 for it knowing that the developer had made RM478,000 and the 1st owner had made RM250,000? Would you be so willing to part with that RM728,000?

Think about it. Anyway, we'll wait and see.

Donny, not so simple wan la when developing a piece of land.

Costs involved include (percentages are more or less thereabouts la) :

Land acquisition cost + stamp duty + lawyer fees + misc
Infrastructure on land (avg. about RM3-4 psf)
Construction cost (say RM50psf x gross built-up area per unit x # of units)
Professional fees (6%)
Contributions to authorities (5%)
Project management fees (2%)
Sales & marketing fees (2% of gross dev value)
Contingencies allocation (3%)
Finance charges (about 30% of total construction cost x financing agreement)
If land needs to be converted, conversion premium (% depends on land value and conversion)

Most PLCs will want a ROI of not less than 21% at the minimum. So if they do a feasibility and they find that to reach 21% ROI they need to price the units at the highest possible, then they may just be gung ho and go and buy the land, develop it and launch at highest possible price.

In any case, personally speaking, I think there is never a bad time to buy a property for own use (forget about any potential downturn in property prices... still got roof over your head ma). But ATM I'd advise to be careful when buying for investment, esp if buying to rent out coz rental market (depending on type of property as well as location) is kinda uncertain in my opinion.

Pay through the nose — Tay Tian Yan
September 23, 2010SEPT 23 — Even with property prices almost hitting the sky, housing developers and “pundits” still keep telling us that property bubble is non-existent in Malaysia, and the housing market is in perfect health.

They seem to hint that housing prices will keep rising, and those who want to buy a house are urged to rush into the scene, while those not intending to get one now should reconsider their decision, or they will be “left behind.”

Before the global financial crisis, pundits from across America and Europe assured the world that no bubbles had been formed in their markets, and potential buyers were urged to rush into action.

Like a mesmerised lot, people dashed blindly into the property market, many taking out their pensions and unemployment benefits, while some emptied their bank accounts to grab a piece of the action.

Subsequently the housing market crashed, and the properties they had just bought became their insurmountable liabilities. Many had to hold on to the houses they now could not afford to for or get willing buyers to absorb their agony. With their houses now auctioned off by banks, many ended up sleeping in public parks.

Two years have lapsed, many of the houses remain vacant and unoccupied today, even with drastically slashed prices.

A recent issue of Time magazine highlighted the plight of Cleveland, Ohio, where the erstwhile posh residential neighbourhoods have now been reduced to hangouts of drug addicts and homeless beggars.

No, I do not hint at a bubble fast taking shape in the Malaysian housing market nor an imminent collapse.

No, I am not an expert, and am in no position to make any such prediction. Neither am I a potential house buyer or having any interest in the real estate industry.

What is happening now cannot stop me from getting furious, that kind of wrath that any people in the street will feel.

Property developers are only interested in building multi-million mansions while speculators help fan the flame by pushing the prices sky-high. The government, on the other hand, tries to stay out of the whole thing, having least idea what to do to cope with the dilemma.

So a condominium that cost RM150,000 a couple of years ago now fetches RM300,000, and a RM300,000 terraced house now goes for RM600,000.

Any newly launched condominium can retail for a million ringgit, and I am not talking about the luxurious condominiums in expatriate enclaves around KLCC.

This is not what we call an economic take-off, and is not spurred by real economic growth. This is called economic distortion, a consequence of unrestrained greed.

The country’s economic indicators have been paltry over the past few years, from negative growth to a mere five or six per cent expansion which is even more pathetic if the inflation rate is factored in. I can foresee that we will remain very much a medium to low income country in 2020.

That said, it wouldn’t take too many years for our property prices to double. Such illogical rise has not been built upon a solid economic foundation.

Developers and pundits will keep telling people to hurry up to snatch their offers before it’s too late.

The problem is: Can we afford them? Or are they worth the money we are going to put in?

Malaysia is not as crammed, as land-scarce Hong Kong or Japan. Neither is our economy as prosperous and thriving as China or Singapore. And our real estate market is also not half as established as those in the US or Europe.

Do ordinary people like us have the ability to grab the exorbitantly priced houses? On what grounds should the housing developers and market speculators push the prices over the ceiling? What makes the government think it should stand aloof and remain helpless?

In the past Malaysians used to take pride in the fact that they could easily afford a house, but now even a middle income household will find it tough to get a roof over their heads. — mysinchew.com

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.

A property boom myth


IT IS enlightening but worrying

to read the report “Is a property bubble forming ?” (The Star, Sept 18).

Those with the credentials seem to concur that the bubble is still in the early to mid-phase of an up-cycle. It’s the same song sung by analysts in developed countries just before the real estate bubble burst in 2008. A similar phrase telling the people it’s better to buy now or you can never afford to own a house as prices will be spiraling high.

The point of contention is about speculation and high leverage

exposure of property investment and its inherent risks affecting the common people and the overall market.

In general, for the middle and lower working classes, owning a house and a car could literally take up 1/3 to 2/3 of their monthly income. In chasing the high

property prices on fear of even higher prices in future, it’s the ordinary folks who will suffer the most when the bubble bursts due to excessive speculation and

leveraging.

The systemic risks of high

leveraging on fixed assets like

property can be highly destructive.

Logically, any counter measure should be viewed from a distant perspective to ensure that the

benefit derived from it is

sustainable.

However, that does not seem to be the case, as measures taken and policies implemented by a majority of regulators worldwide are very much geared to provide instant results to satisfy the immediate expectation. It may seem beneficial to the majority but in reality, it’s just pushing forward or delaying the imminent problems.

While we know that derivatives are speculative because typically it’s highly leveraged, some as high as 20 to 40 times of their capital. In the same dimension, let’s examine the magnitude of leveraging on the property market in Malaysia.

With the availability of 5%-95% loan package, a house valued at RM500,000 requires only RM25,000 as deposit to make the purchase until its completion. From the owner occupiers’ perspective, it’s a positive move as it provides them an opportunity to own a house.

However, from the investor’s point of view, the ratio of leverage is 20 times the house value. The gains and losses are equally magnified by the same magnitude.

As greed equates the high

potential gain, speculation seeps in, pushing the house value to RM650,000 (30% gain) within a year. When the next buyer purchases the same house at RM650,000 he/she has to pay a deposit of RM32,500 and service the loan of RM617,500 instead of RM475,000 when the house was valued at RM500,000.

For the bank to justify the

borrower’s financial ability to repay the loan, the borrower either has to increase/decrease the monthly repayment or shorten/lengthen the tenure in relation to the

borrower’s age. This is where the cycle of destruction begins.

Speculation and high leverage exposure is not a bubble, it’s a

visible inflated balloon passing from one hand to another, easily burst with any external force, the last to hold the balloon bites the dust.

In this respect any investment with leverage ratio of more than four times of initial capital, the potential risk of bursting increases proportionately.

Therefore, to ensure a house for every family, speculation and high leveraging should be curtailed. Possibly a loan package of 10%-90% for first-time home owners, followed by 25%-75%; 30%-70%; 35%-65%; 40%-60%; 50%-50% on each subsequent purchase. The same may apply for other factors like stamp duty.

SEEONEMAN,

Penang.

There has been much ado over the spike in property prices of late. Those in the industry tell Chai Mei Ling strong control measures must come in to curb the acceleration.

AN industry observer has called it "escalation gone mad". "Property prices, after going through the roof, are reaching for the sky," said another.

It is public knowledge, said Brig-Gen (R) Datuk Goh Seng Toh, that over the past one year, the price of houses has skyrocketed.

"Prices have been going up all along, but of late, the rise has been very sharp -- in the last six months to one year especially," said the honorary vice-president of the National House Buyers Association (HBA).

A real estate negotiator, known only as Lee, concurred, pointing out startling examples of house prices in prime areas that leapt by more than 50 per cent in less than a year.

Ten months back, one could get a double-storey terrace in Taman OUG, Kuala Lumpur, for RM380,000. Today, it's RM590,000.

Another example: in July last year, a corner lot double-storey link house in Damansara Jaya could fetch RM520,000, but now, a basic unit is going for as much as RM850,000.

An ever-expanding population concentrated in urban areas has made land scarce and expensive, said real estate agent Joanne Low.

"There has been an increase in construction costs, but the main factor is that land has become a costly commodity."

When land gets increasingly pricey, developers fear that the profits they reap from developing a certain parcel would not be enough for them to buy another piece of land.

So, they factor in the estimated cost of the next parcel of land into the price.

This is why the focus is on building high-end residences, which would bring in higher profits, said Universiti Malaya lecturer Dr Wan Nor Azriyati Wan Abd Aziz.

But developers maintain that they have not sidelined affordable developments.

A few quoted by the New Straits Times' Property section said there was still a lot of "bread and butter housing", but that has been overshadowed by the publicity given to high-end developments, thus creating an impression that developers have shifted focus away from low- and medium-cost projects.

High rise and landed property in the outskirts of the city are on sale from as low as RM150,000 and RM250,000 respectively, they said.

A developer, identified only as Vincent, said people often put the blame on developers without understanding the many hidden costs incurred.

"We don't just build houses. We have to build infrastructure and amenities. We also have to cater to the discount quota for Bumiputera. All these add to our costs."

Goh, however, is not sympathetic. He said the increase in construction costs does not correspond with the escalation in house prices.

"It's the teh tarik syndrome. When the price of sugar goes up by 10 sen, a glass of teh tarik also goes up by 10 sen. Similarly, when the cost of construction rises by 20 per cent, there's an equivalent increase in the price of houses."

HBA honorary secretary-general Chang Kim Loong said the problem becomes more massive when the system allows such greed to fester.

"It is all due to unsustainable speculation fuelled by easy credit and low interest rates.

"There exists an 'unholy alliance' between certain developers, valuers and certain banks. In an environment of hot demand, the banks work in cahoots with developers, assisted by wayward valuers."

As property loans incur less risk than business loans, banks "go berserk on housing loans".

Easy credit then allows the public to amass more properties. Developers, encouraged by the positive response, raise their prices. This vicious cycle feeds on itself.

Speculative home buyers are just as responsible, said Lee, adding that easy credit results in flipping.

Flipping -- buying and selling properties quickly for profit-- hurts the market, marking up property prices so much that it's almost impossible for first-time house buyers to land their first deal.

"It'll be very, very tough for them. But do take advantage of good bank loans. It will be wise to start young," said Lee, who works for Oriental Realty, one of the largest real estate agency networks in the country.

At the rate prices are escalating, Lee believed there will come a time when property owners would find it hard to upgrade or change houses.

"Properties, at today's prices, are already quite out of reach for a lot of people. Malaysia may still offer one of the most affordable properties compared with other countries, but our income is not as high."

Low, however, said Malaysians could still afford buying property.

"Prices are increasing, but I won't call it a bubble yet. It's not really overpriced, because there's demand -- people have the money."

Low added that young adults with a steady income wouldn't have problems securing a home because banks favoured them.

HBA calls on the government to form a task force to identify where the speculations are and how to curb them. It should also look into the possibility of identifying houses as an essential item.

The good news is Bank Negara has decided to implement policy changes that would make it harder for Malaysians to buy more than two houses, as a means to curb speculative buying.

Previously, all house buyers enjoyed 90 per cent financing. But now, the margin of financing has been capped at 70 per cent for third-time house buyers onwards.

Wan Nor Azriyati said a way to ensure sufficient affordable housing is for a quota to be imposed on developers to build middle-cost houses, much like what is being done to cater for the lower-income group.

Lee said if the government improves public transport, making Greater KL more accessible, sub-urban areas would prosper.

"People wouldn't mind staying further out. When demands spread out to the fringes, prices in the city would stabilise."

HBA proposed that the real property gains tax scale be introduced, where taxation is done in accordance with the number of years the property has been bought. The quicker one disposes of the property, the higher he or she will be taxed, cutting off speculation by non-genuine buyers.

NST

If a person bought a house located in hot area in May 2010, and trying to sell now. Would he make some handsome return?