My first post; motivated by the active debate over the current state of property in Malaysia. Though when I share my thoughts, I think a brief introduction is warranted. I imagine, the value of posts needs to take into consideration of real life experiences. That said, I am but 30+ in age, so pray, if you find my contribution too shallow, please forgive my ignorance as one can only try to please : ). Part of my job, to create ‘value’ so to speak, requires me to know a little, just a little about the drivers of the economy. given how interlink the different asset classes (which include property) are today, it means I also take an interest in the property markets globally and regionally. And yes I do trade a little in property, but it is not my bread and butter (DISCLAIMER!). When I compare property markets, I do so firstly on a top down approach, but later drill down on details in the market of interest. Comparison is based on the various popular measures, looking at AFFODABILITY ratios, that is average income/ disposable income etc of city dwellers, I look at GDP, inflation, banks loan to deposit (and the trend of the ratio), Foreign Direct investment and often on foreign investors radar, the factor which is top on their list, POLITICS (stability). Unlike most, yield is secondary to me, only important when I am valuing at EXTREME cases, ie if I were force to hold an investment (if no bids in the market, only artificial offer px), how well the property will yield and compare that with risk free assets in that local currency.. ie how much with Msia treasury bonds yield ? On this forum I have come across many property bulls referring to HK and Singapore – whoa! Psft in these country has moved up 50%! Or vice versa, bears will be saying – hard landing in china! Property bubble in KL will burst! Well my view is such, I divide the market in 2, very simply where the Chinese (or the speculators) would buy and where ultimately end users, this category is the every day Malaysians whos mindset of ‘NEED to own property’ has been ingrained since young. However, based on experiences of other growing cities, there will come a time, when people will ask,” is NECCESITY for a roof over the head equates to the NECCESSITY to OWN? “ Demand in general is stochastic, and as much as we try to model it, inevitably randomness overrule…. However that said, work can still be down on the supply side. Simple rule, more stock, cheaper price. Going back to my view on KL, and the division of speculators vs end users; and worthwhile to note, my approach here is deep value.. risk reward has to justify investment. IE, there is a right price for everything, normalized by risk/ liquidity of the assets. If most of the investors in areas such as Mont Kiara, KLCC, Bangsar etc, are foreigners, and as foreigners are facing losses in their respective hub, I am afraid their investments elsewhere will likewise, be put under scrutiny. Markets are more interlink today than it is used to be, and if you have the view that China has peaked, and Eurozone crisis is not over (European banks are major financiers of infrastructures in this part of the world), and the deleveraging force is still in trend, than you should wait for better entry level. Especially true for most individuals, and end users! How many 30 yrs mortgage can you take up? How many mistakes on property investment can you make in your lifetime? If you get 1 shot, you better get it right. The first sign of warning in any market, is when people of different expertise, starts to take interest into another, of little correlation/ or transferable skills. IE, the old saying of getting out of the stock market when you see house wifes buying (not true with the watanabes?? ). This is the herd behavior, and in assets classes which are liquid, the damage can be limited by tight and discipline approach. So.. here, given the overhanging risk from a macro perspective, I think we have seen the peak in properties at least for a while. Risk reward is not great, why risk 10usd to make 1? For end users however, areas which speculators have not touch and your purpose of buying is simply to hedge against inflation, than look elsewhere, buy in areas u think speculators are not in that market. I believe more good offers will come in the coming months. Renting is a good option too. AGAIN, If you only have one shot, make sure you get it right! Even if some may argue there are many local investors, a big part of them has been motivated by leverage, 80%-95% type of financing or even zero financing during construction period. Couple of observations here, marketing materials by developers are now rival that of developers in London, HK, Singapore.. and I think they have done an excellent job! New launches backed by great cheap financing has been excellent, with most projects seeing good demands… ok, lets rewind time to 2005-2008, the period which most KLCC properties were sold at launch.. and most offers ZERO financing. GREAT! Prices were finally catching up to Singapore and HK. GREAT! If its such a great investment, lets buy another? I pay close to nothing (5-10% downpament)? A good trade, is a good trade no? ok hold that thought, now fast forward it to today. Has prices really gone up? Did investors buy on the assumption that it was a free option? Ie; if I cannot find an offer, I simply forfeit the deposit – all I have to do is buy via a company without recourse? Now this is when reality bites.. Offer prices today on KLCC properties are a good 30-50% above launched prices. Good? So good that there were hardly any transactions in the secondary market since these launches were completed from 2010 to now. So good that asking price is irrelevant when there are simply no buyers. Asked the guy who has invested in 2005, and now looking to sell : ). in this scenarios, YIELD comes in play. If you can get positive yield (rental less mortgage) great, if not, why not just unwind the company and cut the loss (initial deposit of 5-10%). In this scenario, what you think banks who ended up with such properties? Watch out for auctions.. : )
I guess I sounded a little more bearish but I am ‘DEEPVALUE’ after all , as such I leave you with a quote from the sage.. Warren Buffett
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Hi - why is 13 A not a good number? Developer gives specific discounts because it is not 8A, 18A, 28A or 88A? Even if you are right, can the discount be as much 20%? Regardless if the default party is foreigner or local, we have a default - which I cant help but think
a - These units were put on the market for a considerable time, but was not able to fetch the desired value
b - They are not leased out of even if they were, not enough to cover the mortgage (interest plus capital). As a result owner had to default on the payments
c - Why these failed auctions concerns me? Well, simply because i have the view that they will affect sentiment. The guys who purchased it at launch, there will be a portion whom are flippers. Seeing how auctioned units like Troika and Avare failed, they may create a selling frenzy, as currently these units are negative carry (the longer they hold on, the more losses they will incur as long as there is no capital appreciation).
From what i am aware, the owner paid significantly more than what this unit is currently auctioning for and frankly it is not unsold for no reason (assuming the upcoming auction for this unit meets the Reserve price, we are talking about 30% losses; pity the bank....) . And yes, the previous owner is Hongkonger. I think it is criminal for our governing body to allow this to happen. To allow developers in manipulating the property market with their 0 repayment 0 downpayment schemes, creating the bubble which to me has already burst in KLCC.
If the most prime of areas is under such severe pressure, i cant imagine what that means for less desirable locations. That said, it would be a good test to see which area can holds up. I suspect this would be places locals can call home - Ecopark? Mont Kiara? Bangsar?

Anything be it Tulips, gold, stocks, properties, as long as speculators are in the market, will inevitably be expose to cycles. I have the view that the peak of the cycle is now behind us. This time the Chinese and the Middle Eastern, whom have their respective issues closer to home, will not be coming to prop up Bolehland. A bursting bubble may not be catastrophic... infact i do not think this would be the case BUT Bank Negara need to act quickly to stop it from getting worst.
It takes more than 1 data point to conclude, but it would be too lengthy an essay if we were to go though all the factors.. There are some blogs which i find extremely helpful; Agent's Diary is one.

you mean to say if a foreigner wants to buy a property now in KLCC, they are paying 40% more because their RM is not the same as local RM? In any case isn't auction price transparent enough and stand as the 'real' value and not the silly asking price i notice of the properties listed in the classified of local newspaper.

That said there is no one unit which will be exactly the same even if its in the same building. However, I will be very worried if I am a foreigner who bought at 40% more, and now units in the building are auctioned at 30% lower than where i bought it at. I suppose Europeans, Chinese, Middle Easterns, americans and locals alike are waiting for another bull run in property?

If the world is powered like a 747, on 4 engine, it would be Japan, US, China (BRICs) and Europe. Anyone seeing any bright spots? BRIC = Brazil, Russia, India and China.. B is not BOLEHLAND

well, i am not an expert in property and is not in the business of investing in it to make money either. Though i am involve in plenty of speculation nonetheless... The first step is to identify and recognize the issue. Here i see the main risk as twofold - political and the banking system. Politically, BNM, although Zeti, well regarded in the region as independent, will still be subjected to the ruling party's agenda. Very much like China, there will be widespread unrest, if property price were to continue the appreciation trajectory of 2005-20010; thus with the crisis in Europe and the monetary tightening measures in China, coupled with outright regulation on property, pxs came off and is in check. The Chinese took two very important measures to stir the market lower (the measure were introduced before but the timing of the cooling actually coincides with the default of greece - The Communist party will claim full credit nonetheless), one direct regulation on property ownership and restrict lending on 2nd or 3rd property -think foreigners are shut out of local financing also.. cant be too sure of the details... Second, they turn the tap off for developers, directing the banks to NOT lend to developers. Well, but frankly we can only control supply side and liquidity but DEMAND is stochastic. ie, if SNP breaks 2008 high, or China A shares sky rocket 200%, be sure that DEMAND will pick up regardless. on the flipside, if Italy or Spains next to blow up.. more measures on property may be not the right Medicine.

For the banking system, the risk is if banks takes took large a hit on the loan portfolio which ultimately will than force BNM to bail them out. Local banks have transform their books from predominantly corporate to household loans.. the rapid increase in household debt is unprecedented (this is consistent with many developing countries but Msia is up there on the most impressive year on year increase). The good news is the country treasury is abundance, and if theres a need for bail out, it should still be manageable if its not widespread. This time unlike 1997, the trigger will not be corporate debt defaulting, but household.

If we could turn back time, with the benefit of hindsight, the following can work

A - We want inflow, and we applaud the marketing (Najib and his crew has been infront of the foreign investors since 2009 when they start communicating their willingness for a strong ringgit - which most asian countries try to stir away as a stronger local currency will hurt exports) to bring in more capital inflows . But if this is flowing into property and unintentional consequences, than intervention is needed. We can slap duty/ tax on purchase of sales within x amount of time. ie if sold within 2 yrs, the stamp duty even for the seller would be x %, if 3 yrs y% etc.

B - More Regulations governing banks lending to developers or household on properties not finished yet. Stop financing 5% down payment with 0% financing during construction period programmes.

C - If you want to help young middle class, make it official instead of doing it at the developer level. Create a government body which can make up the difference for the required 30% downpayment. Ie, the govenrnment body pays 25%, and the couple pays 5%. For the 25%, the couple will have to pay a set interest rate determined by the government body. Thus the bank will be safeguarded and the government takes the first 25% hit, if the property falls in value.

These are some to share for now... notice i said if we can turn back time.. at the moment i think more careful consideration is needed before more measures are implemented. The bubble has already burst. I suspect if anything, there will be more curbs post election as policymakers for sure is taking into account that the election is a 'risk point'.