{Long post ahead...fellow forumers kindly ignore if }

I normally avoid commenting on 'heated' thread but I feel there is a need to address your 'facts' from a source (GlobalPropertyGuide.com) which is based in Manila. While most of their information is sourced from 'valid' sources such as NAPIC or WTW, I need to raise issues on the following items:

(i) From the article: "House prices in Malaysia are still below their pre-Asian Crisis levels". I was scratching my head, is that so? I went to NAPIC website to dig for information and found http://www.jpph.gov.my/V1/pdf/IHRM_Q1_2011_P.pdf . Try to get the price index from 1980 to 2011 but only managed to get information from 1990 to 2011 on Page 13 of the report. On the surface, all house price index in 1Q2011 (140.7) seemed to be lower than in 1997 (216.8) but it is NOT comparable as the index has been rebased since 2000. With a little mathematical rebasing/linking, the all house price index in 2011 is definitely ABOVE the pre-Asian Crisis levels. As far as I am aware, I do believe most properties (except for some high-rise ones, low-cost and abandoned ones) in Klang Valley and Penang have increased above the pre-Asian crisis levels (pre-1997 price levels). Caveat: I am NOT a property expert like some fellow forumers, maybe some people with more information can throw more light on the pricing.

(ii) From the article: "After the Asian Crisis, prices of luxury detached Kuala Lumpur houses fell by no less than 39%, between 1997 and 1999.". Yes, there were some bungalows in Damansara Heights/Kenny Hills up for sale at 'fire sale prices" during 1998/99 but the "cheap bungalow" supply was rather limited. But they have since recovered and shot past the previous peak in 1996/97. When I was house hunting in 2007/08, my Malaysia-based colleagues mentioned that bungalows in Damansara Heights and Bangsar were the first to run after RPGT removal, and selling prices were already higher than in 1997. Take a look at the detached house price index (for whole M'sia), if 2011 is rebased to compared to 1990s, it is also higher. As for KL, the increase in detached house price index (it's the steepest as well) from 100 (2000) to 187.4 (2010). Detached house price increase is the steepest among different types of housing during 2000s is to be expected as the higher-income group's annual income increase is significantly higher than the lower-income group's...means widening income gap (a common global phenomenon) but also MORE $$$ chasing after high-end properties. I am not saying high-end properties will not drop (anything that moves up too fast will have to "rest/pull back") BUT in the long run, if the rich gets richer and the number of bungalows in Damansara Heights/Kenny Hills remains constant, so what happen? Unless, you feel M'sia has no hope in the future - then all bets are off.

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Back to the topic discussion, fellow forumers are entitled to write their opinions, experiences and etc...that's what make a forum both informative and entertaining. Since I was just discussing on property prices in Klang Valley with some friends over lunch, I am adding our discussion to this thread:

(i) Negative impact from worsening global economic outlook
What Debtismoney mentioned on the dire economic outlook is generally quite true (albeit sounded like Nouriel Roubini)...Europe debt problems are getting worse and US leading economic indicators are also deteriorating-> global economic picture is likely to worsen. M'sia economy will face headwinds and that will dampen demand for properties.

(ii) Negative impact from flippers/speculators/weak holding investors
There could be some fire sale/urgent sales from speculators if the market turn flattish or decline. There is no data on the number of such property flippers/speculators and as such, those with better feel on the ground (e.g. real estate agents) will have a better idea. I can only presume there will be more when the markets get hotter - particularly concerned on those purchased on 5/95 scheme and those buying multiple units on high leverage.

(ii) Positive factors supporting property market
(a) Low interest rates. The current low interest rate environment is expected to last another year or more (Bernanke is holding Fed rate near zero until mid-2013 and with current weak economic outlook, central bankers are inclined to loose monetary policy). The "positive carry" and negative real interest rate is expected to provide support to the property market BUT it is also one of key factors for the recent skyrocketing properties in KL and regional countries (double-edge sword)

(b) Inflation (or inflationary expectations). This factor is cooling off but was a factor driving/supporting higher property prices in 2009/2010. You can ask around how much building materials and labour costs have gone up in the past five years. How was much was a plate of chicken rice in 2000 and now as compared to a terrace house in PJ during the same period(please consider in percentage increase)? We should consider inflation-adjusted pricing (real term) of the property prices over the period.

( c) Lessons from Asian financial crisis, Lehman liquidity crisis, etc. A number of developers and seasoned investors are already prepared for the upcoming recession...their balance sheets are "cashed up" + low net gearing and ready to acquire 'cheap stuff'. They have all learnt from previous lessons, are much better prepared for the storm ahead and that is expected to provide some support.

(iii) Too fast, too furious
I told my friends that the asking prices of properties (particularly, new launches) have gone bonkers- price increases of more than 60% in two years is just too much. While a couple of them agreed that the "asking price" is getting ridiculous, they asked to me to view the price increase more holistically - to consider:
(a) overall DD/SS (one mentioned Greater Klang Valley population was likely to increase 3%-4%, higher than national average. You can work the annual demand. Supply? - there is limited comprehensive data, even from NAPIC - the numbers are aggregated);
(b) affordability of mortgages (yes, a number of forumers have mentioned stagnated fresh graduate income BUT a friend mentioned to me that the mean household income in Klang Valley is likely to be around RM6,000/mth (it was RM5,011 in 2004) and households in some PJ/USJ areas were around RM8,000-RM10,000 according to his market research survey. I cannot find EPU/DOS/Census latest numbers). A loan of RM500,000 at BLR-2.2% for 25-year tenure is around RM2750/mth - affordable or not?
( c) M'sia property prices have stagnated for a number of years after Asian financial crisis with 911 + SARS + UMNO Youth Keris incident, and only started to move after 2006/2007 but got derailed by global financial crisisin 2008 - so, the price rocketing after that in 2009/2010 with a convergence of favorable factors (low I/R, inflationary pressure, etc.)...during the years post-2000, the mean household income has increased substantially (some forumers may dispute but most of those I know are earning a lot more in 2011 than in 2000).

(iv) Other factors discussed
(a) M'sia politics + increasing polarization in race and religion issues + education system + brain drain + equity market-> all these have impact on demand for properties. In particular, there will be a waiting game (particularly for foreign investors) for GE13 results and consequences...wait-and-see for the local property market.
(b) I kept harping on housing affordability BUT we went into an unresolved stance..arguing around (i) an average house price in KL is a high multiple of annual household income (ii) mortgage monthly repayment is still reasonably affordable?

My personal opinion is that the local property market is likely to take breather in the coming months (i.e. flattish or even slight decline) but a crash is unlikely UNLESS the whole world goes into a recession deeper than the 2008 one.

My usual disclosure: I am vested in properties with minimal gearing and not a property-industry expert. With my current asset allocation, I will benefit more from a property market downturn.

If RPGT is reinstated to the 'original form' - starting from 30% (2012 budget in an hour's time), we can expect this thread title to revert to the original title in V1 and V2. Property market is expected to have a NEGATIVE knee-jerk reaction - coupled with speculators possibly panicking.

{Ed: revised RPGT not as bad as expected: only 10% for first two years, 5% for year 3-5. A token move by Govt. to appease unhappiness over fast rising house prices}

I don't want to sound too negative but market is currently quite "toppish" (for a 12-month view) + there is a stand-off between buyers and sellers in the secondary market. Key supporting factor is the low mortgage rate but headwinds are getting stronger as well.

For those intending to buy in new launches to 'flip', PLEASE, please buy with your eyes open... IMHO, most of the easy money ("low-lying fruits") have already been made for this cycle (nowadays, business cycles are getting shorter). But in the LONG run, property will always have a place in most investors' portfolio unless you no longer believe in the country's growth or development.

The above is merely my personal opinion - feel free to criticize or counter-view ... we all learn more from disagreeing rather than agreeing.

This post has been edited by chabalang: Oct 7 2011, 04:55 PM

From the article: "The international real estate service firm said the residential market is also beginning to ease as capital appreciation has reached its peak, and rent in some high-end areas of the city have come down by almost 50 per cent."

"The consensus among analysts and industry veterans appears to be that sales have slowed as the market enters a cooling phase and will continue to slow as buyers take a “wait-and-see” approach, although a hard crash landing of the property market is not expected unless the economy plunges first."


In the current run-up, the ones that ran first were the higher-end ones (i.e. the bungalows in Damansara Heights and etc.). Now, their pricing have stagnated in the past three months or so. Yes, there are still CRAZY asking prices in IProperty but what are the actual transaction prices (ask valuers or bankers)? Lately, things have been cool in the secondary markets...some new projects are still selling well with deferred payments and etc.

I think I wrote before Budget 2012 that things are looking toppish and a higher RPGT will tip the scales (but RPGT was benign - so, it did not turn out be a 'tipping point'). Anyway, ASKING prices (for prime areas) are certainly toppish for the moment - the signs are not only in Malaysia but also in countries such as HK and Singapore where prime areas cooled down first. So, you want to Speculate, please be very careful.

As for buying to stay, it is anyone's guess - boils down to affordability and price range.

This post has been edited by chabalang: Oct 31 2011, 06:25 PM