you have a valid point here

Car loan forms a bulk of household debts. A used car for 20k is still expensive when in US we can get for a couple of thousand. Remember how much did sam witwicki bought bumblebee in transformers 1? U think we can get such car in malaysia at dat price?

And lots of malaysians do buy car 1st hand. And i hav given example of a 100k rundown flat in d middle of KL that many younsters dont want to buy. There are choices of flats at 100k 600sq ft. Check back my past posts.

I believe car price is an issue. People go bankrupt because of this. cannot pay for their car more than cannot pay for the house. I mean thats waht i see from the list of bankruptcy reason, anybody can prove me wrong?

An excerpt from an article

Malaysia Insolvency Department (MID) state director Zalina Yacob said yesterday that the main cause for bankruptcy was failure to fulfil hire-purchase agreements.


Read more: http://www.theborneopost.com/2013/05/16/24.../#ixzz2aVbX1Z7b

House prices at any point in time, like that of any other asset with a built in cycle, depends largely on irrational sentiment and emotion. Fundamentals only tell you what the price OUGHT TO BE, not what the price WILL BE at any given point in time. Fundamentals in the US were largely constant, but the price for certain houses fell as much as 70% during the crash, way below the cost price of the house, and way lower than the fundamentals would indicate. Sentiment is a fickle b*tch, both on the way up, and on the way down.

What we are seeing in Malaysia is a newfound positive public sentiment towards purchasing housing at the highest possible end of affordability, and this is encouraged by prolonged historically low interest rates and a sustained period of consistent outsized gains, which has led to, rightly or wrongly, a perception among many ordinary Malaysians of reduced/zero risk, guaranteed outsized returns and a fear of being priced out in the future. How many Malaysians who hold millions worth of property and mortgage debt are invested in other asset classes? So long as this sentiment lasts, many ordinary Malaysians will continue to bet their next 35 years of earnings on houses which they can barely afford, fundamentals be damned.

Again though, sentiment is fickle, and I think there is a relative lack of sophistication in the average Malaysian investor who tends to decide based on limited anecdotal experience instead of statistics and dispassionate macro analysis. Such investors are just as quickly inclined towards fear on the way down as they are to greed on the way up.

I have a theory that the mentality of those who disregard macro analysis is analagous to the mentality of those going to a casino, or those buying lottery tickets. Let me elaborate.

Statistical data and mathematical analysis necessarily lead to the conclusion that an average person who gambles at a casino is more likely to lose money than gain. Logically therefore, nobody in their right mind should go to a casino. However, there are necessarily people who have had personal experience winning money, and due to the logical fallacy called hasty generalisation, they will tell you that your theory is wrong based on their own limited experience. (i.e. I have won the last 5 times, and my friend has won the last 5 times, and his friend has won the last 5 times, and therefore I believe I will continue to win) There are those who read, understood and agree with your data will tell you that they are exceptionally skilled or lucky (i.e. I am different, I am special, your theory does not apply to me). Ultimately though, regardless of all the theorizing and discussion the casinos are still packed with very wealthy and educated people, and the casino owner laughs all the way to the bank.

Caveat: Macro analysis at the layman level at least will not help you predict the future, and any prediction made by experts with any degree of specificity is usually wrong. Asset markets are inherently unpredictable, and the rules of the game may change at any time with a simple announcement of a new government policy, whether here, China, the US or elsewhere. Nonetheless, my analysis leads me to the conclusion that based on current conditions, people, especially the overleveraged, should start diversifying away (not exiting completely of course) from the property market which is looking increasingly vulnerable.

I do agree with you on that car prices are stupid. Nevertheless, it is a false comparison. Mortgage debt is seldom a cause of bankruptcy during a rising market, as the debtor can simply sell off his house for a price higher than his mortgage debt in lieu of defaulting. On the other hand, in a falling market, your house depreciates in the same way as your car. A rising market obscures the flaws, and a falling market exposes them all. That's precisely why nobody knew about the dangers of the subprime problem in the US - it simply wasn't leading to significant levels of defaults until prices stopped appreciating.

Hire purchase bankruptcies my guess is due to loose lending practices of banks, and not much to do with car prices per se. Many lower income workers aspire to own cars at great sacrifice to quality of life (an attitude that is not sustainable in the long run). Again my guess - a large bulk of bankruptcies comprise this group, who are also not likely to own a mortgage or property in the first place. So its not exactly fair to compare house purchasing habits to car purchasing statistics imho.

Correct, but if car price are cheaper then probaby a bulk of your income can be put on property. And the reason subprime reason is more complicated than just a simple defaulting. They call it subprime because they are giving out people who cannot afford to buy. In Malaysia that is not the case. Controls are there to manage these. We can go many angles here, but believe evrybody made up their minds already. And there are cheap rundown homes out there, look around, you'll find it. It is just that people want to buy a Ferrari instead of a rundown proton.

It doesnt matter if loose lending is the case, if they were cheap, we will always have extra disposable income that can go to other places.

just to share

http://www.danielloh.com/2013/07/qe.html

the chart basically shows the impact of the begining of QE tappering (Early Stage).....Bonds yield started to rise, Share prices started to correct and property prices started to adjust.

Once QE confirm exiting the market, bond, share, property prices will see major correction

Last stage, after the draining of QE.....interest rate will hike......this is when Gold, Property, stocks market will be hitting hard.....bear market.

If US is draining the QE in early 2014 coupled with the oversupply of high rise.....i think property correction may come earlier than expected.

Now we fear the recovery of US......

I know, and i too always believe car prices are distorting our disposable income in a bad way. However knowing malaysians, if car prices are cheaper they'll stretch to the max (with the current lending system) and buy the nicest one they can back to square one.

Well said but ignored by people blinded by greed

Seriously, I been thinking that it could be the free flow fund moving back to US. As with the end of QE, investor would like to hands on US dollar.

Agreed that we do not have an apparent subprime problem. (Some would argue that there are others kinds of hanky panky which would go on in Bolehland, but that's pure speculation) The only issue is that the ability of property buyers to repay their loans is not tested in a rising market, so the financial resilience of property buyers cannot be determined simply from current mortgage default rates. My angle is that I'm not comfortable making up my mind in this market of ours, and nobody else should be.

Why do u think thats nt the case in Malaysia? There was once nt long ago, just couple of months before GE a couple of banks offered loan at 90% margin up to 50-70%% of my gross income... If I accepted the loan, I would definitely end up eating roti daily.. Luckily the deal fell through though... BNM have to play hardball on this matter n should constantly monitor these so called "controls"..

I am afraid there will be more bankruptcy cases if the interest rate is increased, as I can observe that there has been irregularities in bank practices which allowed too many people to leverage on cheap credit and push it to the max.. The slightest increase could push them out of window n we need to bear in mind, it's easier to sell a car but nt a house..

House transaction takes a very long time, thus for someone to bail out within a short period of time is quite challenging.. Luckily not many lock-in type of loans anymore..

This post has been edited by all blacks: Jul 30 2013, 03:44 PM

When recession hit the US in 2007/8, Malaysia was not effected. Few people will buy the idea that tapering of U.S. QE will have an impact on local property price or demand.

As long as banks do what they do house prices will keep rising...

It's funny, all of this. The 2007/2008 crisis was paradoxically good for our asset markets, not just because of the investor pullout in developed markets, but also because of their stimulus money which had no where to go. As I recall, the asset bubbles which led to the Asian Financial Crisis was in part due to Japanese monetary easing in the aftermath of their own property bubble back in the 80s. Deja vu anyone? Most people don't understand this relationship, and think that our surviving the 2007/2008 crisis is proof of our resilience. It isn't. It's the magic of fiat money.

We are more prepared for a crisis now than back in 1997/98, but I remember being in Singapore where interest rates were at a stupid ~0% even though inflation was hitting 5%, simply because of the hugely profitable carry trade between the USD and the SGD. My colleagues were actually feeling forced into buying property as mortgage rates at 2% were lower than inflation at 5%. In that period, I note that Singapore, Indonesian and Filipino asset markets actually did even better than us. While the withdrawal of stimulus monies is expected to hurt our asset markets by restricting credit growth, I'm still of the view that the most likely scenario is that any fallout can be controlled and contained because of strong government financials, the fact that the withdrawal of QE is expected to be gradual, and I foresee Japan, GB and Europe to continue easing for a while.

This post has been edited by Anon_1986: Jul 30 2013, 04:00 PM

Well that is actually not bad all blacks. But US case was much worst, they believe that house will just increase that you dont need to go and prove to them how much you actually make. some banks just say, o u wanna buy a house? Ok sign here and your loan is approved. If u hav trouble getting loan becuase of ur income is low. we can give u loan but at a high interest. That was the practice in US and i think UK too. At least malaysia check your income. I feel it coz it was so hard for me to get the second loan approve. But i know i can pay up.

Thats crazy..

Yes, that is how bad the practice was.

This report doesn't sound so convincing, RPT-Fitch revises Malaysia's outlook to negative; affirms IDRs at 'A-'/'A' ...