As a young people, I had seen the price of property steadily increase overtime.

I am interested in how much is the cost of buying a house at the developer price and sell it later when the house is complete.

For example, let take a not so prime area: tanamera

The house for developer price is 400k in year 2003.

But in year 2009, the price of the house is Rm 480k. (let assume)

However, as far as I concern, When the buyer purchase the house in year 2003 till 2009 this timeline, they will still need to pay intrest every year am I correct?

So let say 400k at rate of 7% per annual.( just paid interest)

400kx7%= 28k per year

Then 28k x 6 years= 168000.

So at 2009, a 400k house will now cost 400k + 168k= 568k.

So at 480k asking price, the owner will still making a loss of 88k because of interest.

I not too sure is this a correct calculation? I think my rate is too high even in year 2003 not sure need advise.


My theory is that the reason why house price have been steadily increase in area with high occupancy rate is because the interest rate is an added cost to the purchase of the house, this in turn induce the owner to price the house at high price to cover the interest cost and also to cover the risk the 1st hand buyer bare?

What do you guys think?

This post has been edited by mikro: Apr 27 2009, 11:30 AM

from your calculation above, the interest is on a fixed over 6 years where in actual fact all housing loans are on a reducing balance, some even up to daily rest. in this case the interest is lower than what you calculated.

if its at 2003, 7% is quite reasonable to begin with.

looking at the asking price, if you take into consideration of the interest rate, stamp duty for loan and property, its definitely at a loss. if the owner was occupying the unit for the last 6 years, must take into consideration of the opportunity cost as well..

This post has been edited by leanman: Apr 27 2009, 11:45 AM

So how much the interest suppose to be?


How much will the cost of stamp duty?

Cause I was thinking even if the owner selling the house at 495k which i saw in the newspaper, It unthinkable if they are making a lost on interest rate.

Mind to clarify me on this, cause I am quite new.

This post has been edited by mikro: Apr 27 2009, 06:39 PM

Both calculation are not correct.
When the housing proceed to the next phase, bank will release a certain sum of money to the developer.

There is no reduction of principle during these periods.
Interest are counted on the release sum.

Bank loan are based on reducing balance calculation. And now, daily calculation.
Investment game are for the rich. Buy and sell? By purchasing with cash or flexi loan and u dump in whole lot of sum into the account, you most probably would earn.

When house are under construction, normally bank will ask you to pay progressive interest only. BUT you can request to serve installment, you get to serve some interests that way.

er, By using common loan since I doubt speculator have enough cash.

Let say a 400k house, in year 2003 and complete (getting cf) and selling 3 years later which is 2006.

How much the speculator need to paid to breakeven it cost?

There is a schedule in the SNP that determine the amount needed to be paid from bank to developer at different stages of construction. And the amount of interest keep on increasing. The progress speed various from developer to developer..

This post has been edited by eugene jk: Apr 28 2009, 12:38 AM

Hmm, there is an extensive section on available home loans in Malaysia in The Star's website:

http://star-space.com/homeloan/loantable.asp

If you click on the individual loans, you go to a page that allows you to set variables like property price, margin of financing and loan tenure. Based on that, the page then tells you how much you would have paid in total including the interest.

Are the calculations there accurate?

Would it be a good idea to pick a zero entry loan with a short lock in period? I mean u wont have to pay for the legal, stamp and other fees up front.. short lock in period so that u wont get penalized for selling the house early.

If there are such packages, the rate sux.
When the rates is good, the T&C sux.

Winner = bank

that's why financial intelligence is very important.. unfortunately, it's something that are not taught in school.

if you want to see how a loan ages.. go and get an amortization table. the loan doesn't age in a linear rate like what was put forth.. there're lots of elements within a housing loan (blr is just a factor)..

i bet you guys have never heard of "bank profit ratio"?

anyway, to discover the ultimate question underlying the cost of ownership.. is to realize an "opportunity cost" in real life.

This post has been edited by lwb: Apr 28 2009, 09:24 PM

kind to clarify what the opportunity cost?

Anyway, I just want to know when buying a house, does the person who buy from subsales market will be eventually the loser.

The 1st buyer= winner.

So for the 2nd hand( subsales buyer) what are the opportunity cost another than the obvious (financial cost) ?

Sorry if I sound a bit tense.

it's helpful to first adress your fallacy(wrong perception) that prices of property ALWAYS goes up..
you probably have not seen or experience first hand when the property cycle comes to its full circle..

as per any other asset prices.. it does fluctuate within a cycle (do you know that, once upon a time, you can get a reasonable property in manhattan, new york city for just a mere usd$1? that's how low a property can go down to)

opportunity is when you know that the price is fluctuating downwards whereas the long term intrinsic value of the place/area is less affected.. opportunity for profit can be realized once that happens..

however, seizing an opportunity that turned out into a loss.. will rendered that onto your opportunity cost. (opportunity cost is an economic term, if you don't know what it is.. do your own homework and read about it)

now, it may seems overtly simple.. but it involves alot of homework.. homework that you seldom find it here in this forum(wasting time talking nonsense most of the time)..

Folks,

What happen if the developer abandon the house half way?? This happened regularly over the last 97/98 recession. You will be stuck with house payment in an half completed house.

Remember a developer always start a new company to develop a new housing estate. So, they can bankrupt that company and abandon the development without hurting the main company.

Buyer beware..

There is a half completed condo building next to Klang Jaya Jusco. The buyer of the condo is still paying the loan.

Dreamer

This post has been edited by dreamer101: Apr 29 2009, 02:39 PM

Hi dreamer,

I am not a owner or anything, but sometime i think people do indeed get lucky.

In my case where there is abandon apartment in usj. They had been abadon about few year but the block before abandon is more than half complete, so i think some developer take it and complete it.

I know about abandon project cause my parent is one of the victim. But if we buy from reputable top 5 property developer( not sub company), the chance of abandon project is at it lowest.

Anyway, if the property happen to be quite hot like those lot where sell fast and people waiting overnight just to buy the developer unit.

I think these unit pretty much price won't fluctuate very much and therefore buyer will not able to live the day to see these property price drop ( in 6 years time) and needed to paid higher than developer price to buy from subsales market.

With the worldwide financial system getting mature and controlling monetary policy improved and the credit market going international. I don't think the we will have a economy crash exactly like 97 and 98 where the property price drop drastically even for those price location. It just ain't possible even with what is happening right now.

It a paradox, we want to buy a prime property lower than what it used to be, but it just happen only when the market is not good. And when market is not good, we risk losing jobs and the credit market freeze up, so we end up unable to buy because we have no credit.

So I am confuse. Should we buy from developer ( assume that the risk of abandon is not present i.e.: sime darby, sunway) and paid for developer price which is lower.

Or,

we could buy from subsales market and paid +- more than 100k compare to the original developer price developer price.

Is this base on buyer preference ( do you think it worth it) ?

I new to this and didn't own any property before.

So what you guys think?

come to think of it... why haven't there an insurance company that creates a product that bets on an abandon project? since there's a gap within mrta(which lies on owner's burden.. but not the developer), i'm sure there're some smart actuarial guy who can figure out the odds of such a policy to underwrite?

it does give me a chill to think about getting the committed to pay off the entire loan on an abandoned project.. the most parasitic situation(monetary wise) that i can ever think of..

i seriously think hba ought to enforce such insurance to be take up by developers.. something that can act as a hedge.

ppst.. there're subsales properties that are priced below their developer's price.. and no, they're not shitty pieces of mortar either. there're lots of things that will probably defy(debunk) your convention understanding regarding properties..

i'm not heavy on properties.. but i understand that if one takes the tremendous amount of effort and time to do some homework, there are opportunities hidden around.. they don't come aplenty.. but keep a vigil and it'll appear.

This post has been edited by lwb: Apr 29 2009, 10:13 PM

Er, do you have any example? Old 1 will do even if the house i sold.

I think can learn something.

This post has been edited by mikro: Apr 30 2009, 03:28 PM

Dunno about the rest but personally, have never seen any good properties selling below developer's price.

Unless one considers bukit beruntung, Talam properties etc as good properties lah..........

---

Added on April 30, 2009, 7:37 pmnot necessarily.

Give you an example. ParkView KLCC by Mayland was launched in 2003-2004, and developer's price was 180k-220k for the smallest studio. Upon VP, it was a hit (due to insufficient supplies of studios in KLCC) I took a look and was offered 310k for the smallest unit. This means that the 1st buyer made 100k clean profit in less than 3 year.

I didnt bite, as I thought there's no more upside to this development. I was dead wrong. Today, there are no units going for anything less than 390k. I would have easily made almost 100k if I had bought it 2 years ago and sell it today for 390k or more.................


The story however had a happy ending. I choose to buy a almost completed studio in KL city instead(technically its a undercon property) at 160k and today its estimated value is approx 250k, give or take.


Bottomline, even subsale buyers can still make decent profits provided they bought the right property(type n location) at the right price and at the right time.

This post has been edited by Pai: Apr 30 2009, 07:37 PM

Guess there is no free lunch in this world.

i'm holding one, bradder..

which development is this? *super curious*

My take is that if the property upon VP is still selling at below dev's price, it can only meant 2 things :

1. Property workmanship is beyond terible. (Some Talam's properties today still sells at dev or even slightly below dev price)

2. Developer launched the property at staggered pricing, and the later buyers paid a huge premium for the last few developer's unit. Great example of this is IJM's PJ8. Studios was launched for sub 200k in 2006, and now the remaining dev unit now going for 300k.

i'll let you have your confidence and >25% returns.. but i'm surprized that you can't find what i'm holding.
they're neither of the 2 factors that you've mentioned..

This post has been edited by lwb: May 1 2009, 07:53 PM

Sigh - everything was launched by a "developer" once upon a time.

Sri Putramas was selling at a developer price of 160K and was launched 7 years ago. Today, the market prices is about 220K, and yet "someone" managed to get it at 140K. Using your lingo - it's still below developer's price. Obviously, there are many strategies and methods to acquire such properties "below market price". e.g. finding a motivated seller, putting 20% down etc etc.

So - pls be specific and elaborate. If not, what's the point of posting something which may be full of ambiguity?

By the way, having known Pai as a friend - u don't have to let him have his confidence. His portfolio returns are admirable, and I've seen them myself. At least he substantiates his opinions with concrete examples. Am I'm not talking about bragging rights, ok?

cheers.

Thats bcoz im no mind-reader

agreed... not reasonable to expect pai to read your mind!

In many outlying areas like Sungai Long, Bandar Seri Putra, and Bandar Botanic, you can find houses at or slightly below the developer's price:

eg
http://thinkproperty.com.my/realestate/Buy...ngor/39139.html

This post has been edited by gilabola: May 2 2009, 02:56 AM

exactly my point........just look at the sample given by gilabola, these properties are selling below dev price for a good reason ----> nobody wants 'em