bro for me im looking for something which would not tie me down. My previous loans were rm230k and rm240k approx both financing LO and MRTA. My recent purchase most likely will go with LO but this round will opt for MLTA instead.

RM150 isn't a big deal but not willing to pay the same thing. but if you are sure that's the place you are going to stay for the next 10 years I think it's a good idea to take a fixed rate loan. As for myself I forsee myself staying max 3 years only in that place. I've been shifting quite frequent in the past 6 years.

Now I see, that officer has made a mistake then. He can not do that. BNM will have an issue with this if they know. I tried to convince the loan officer, look at perannum salary with the bonus, they won't accept. At least the major flaw that I see here is they did not put in your car loan in 70%? That is already a big NO NO for BNM. Now the 2008 crisis is because we give this kind of non supervised loan like this. Looking at Malaysia Banks, they are ok. but then first time I heard of this sotong bank doing this. Definitely cannot do it in the bank I am working now.

1) Actually increasing interest will bring in foreign investors for bonds and cash deposits. Foreign investors that come in to invest in industry tend not to borrow in Ringgit anyway, and will not be affected by domestic interest rates. Again though, I foresee any interest rate movements to be gradual instead of sudden.
2) Generally blue chips are less affected by fluctuations in the economy, but I was talking specifically about inflation and currency depreciation. If you throw in a recession in the mix, unemployment will leave condos untenanted and the entire property bubble will collapse as well, and the safest bet is foreign equities then.
3) You are correct that blue chip returns tend not be leveraged, but your risk is much smaller because you are not leveraged, and because entry/exit costs are lower. RM 60k in blue chips, if the market dips 10%, you lose RM 6k, RM 60k initial investment for a 400k property requires like RM 10-20k for closing costs and taxes. A depreciation of 10% (40k) will wipe out your entire RM 60k. God forbid you lose your job, or are forced to sell for some other reason. You will then have to incurr another RM 10-20k to sell it, and will have to wait a gawd awful long time to get your money. I do agree that rental yields can cover part of the costs, but that assumes optimistically that interest rates stay low, and that your property will remain tenanted. There's a precarious balance between interest rates, occupancy rates and rental rates whereby the cost of leverage can greatly outweigh the income from tenanting.

Here's a thought provoking calculation for you (all hypothetical numbers. Feel free to substitute your own)

Property price = RM 400,000
Downpayment = RM 60,000
Loan = RM 340,000 at a conservative average interest rate of 7% over 30 years (ARM interest ranges from 4.2% to ~10%)

Without counting your rental yield, you would have paid RM 60,000 upfront, and RM 2262 a month for 30 years.

Assuming property price appreciation of average 5% per annum for 30 years, your RM 400,000 property will be worth RM 1.7 mil at the end of 30 years.

Now let's look at investing in a sizable basket of blue chips using dollar cost averaging.

Initial investment = RM 60,000
Monthly investment = RM 2262 for 30 years.
Assuming capital gains of 5% per annum for 30 years (unless you have reason to believe equities will underperform property in the long term), and without counting your dividend yield, you will have equities worth RM 1.8 mil at the end of 30 years.

Consequently, there is no real long term advantage for owning property versus buying blue chips. The only reason to buy property over equities is if the rental yield (including periods of vacancy) minus all expenses (taxes, maintenance, vandalism, tenant damage, legal fees, agent fees, reno costs etc over 30 years) is greater than blue chip dividend yield (of a growing stock portfolio) during the same period. Note also that with blue chips you have high liquidity, and low entry-exit costs.

This much is obvious to the educated observer. If properties were really an absolute superior to equities as an investment, why hasn't all of the world's money poured into owning nothing but properties over the past 100 years? Why would anyone ever buy stocks or bonds? I think the equilibrium where buying property is superior to buying stocks is where prices are below historical price to income ratios and price to rental ratios. Both ratios are not making much sense at the moment, and will make even less sense if interest rates rise. In such cases, a portfolio readjustment will be in order.

I was in V11 last, dunno about v10 but Anon, you were never this thorough on your posts last time. Now, WOW! what happened? just asking.

Anon1986 has actually made a lot of very detailed and very informative posts, but that was V9 or V10.

Bro you are right with most of the point but you miss out the most important part about property investment.

Initial investment = RM 60,000
Monthly investment = RM 2262 for 30 years.
Assuming capital gains of 5% per annum for 30 years (unless you have reason to believe equities will underperform property in the long term), and without counting your dividend yield, you will have equities worth RM 1.8 mil at the end of 30 years.

In property the calculation should be
Initial investment = RM 60,000
Monthly investment = RM 2262 for 30 years.
Monthly rental yield = RM1.5k for example
Assuming property price appreciation of average 5% per annum for 30 years, your RM 400,000 property will be worth RM 1.7 mil at the end of 30 years.
With an additional of RM540k from rental collection - that's only without inflation taken into account. What if the rental yield increases as well? And as you see taking RM1.5k is pretty much unrealistic usually those place which cost rm400k would most likely rentable at RM1.8k approx. I'm taking the lowest for this example.

Agree.. Both Anon and agentdiary has been posting some gud stuff... Facts, graph n proper analysis...

Rather than up/down team never ending debate..

I actually did take that into account. That's why I referred to the balance between entire net rental yield for the same property over the entire period of 30 yrs vs the dividend yield of a growing equity portfolio that starts at RM 60,000 and ends at RM 1.8 mil. During that period, rental yields may increase, but so may dividend yields.

What most people tend to forget is that a condo and the necessary furniture and finishings may tend to look dated and shitty after 10 yrs or so, and therefore many costs need to be incurred periodically to maintain rental yields. As Robert Shiller said leading up to the US crisis, until the US property boom, few in the US found residential property as a viable investment because residential housing was viewed as a depreciating but durable consumer product that wears out and falls apart as time goes on, just like a car, but substantially slower. (Land on the other hand, does not wear out and is a viable investment. The problem with condos though is that you own too small a share of the land for the price you pay). You then have maintenance costs, legal costs, agents costs, your own time and energy, vacancy risk, troublesome tenants etc to deal with also throughout that entire period. Note also that all these costs will rise in tandem with inflation.

On the other hand, balanced and diversified equity portfolios start small, but require almost zero costs and energy to maintain. If you really want to do the math, it's hard to say which is better than the other because so much can change over 30 years. For instance, property would be a better deal if interest stays at 4.2% for 30 years, but I won't know that today. Property may appreciate faster than equities, or vice versa, but I also couldn't possibly know that today. I prefer to look at long term price/rent and price/income ratios as an indication of when property becomes a better investment than equities.

Do note that I'm not advocating equities over property in general. I'm just saying that many people are overexposed to the property market at the moment, as it's their one and only mode of investment in a time when rental yields are appallingly low relative to long term fundamentals. Slumlords who deal in low cost housing are probably an exception as their rental yields are still high.

Both property and equities have their pros and cons. However, the fact is that the average Malaysian investor has no idea how to invest in equities. P/E? D/Y? EPS? These are all gibberish to them. Most people would have no clue how to construct a balanced portfolio.

Property on the other hand, is much easier to understand for the average Malaysian. Today I buy condo, tomorrow it goes up! Then I sell and make money!

Unfortunately, the ease of obtaining credit has lead to a disconnect between intrinsic and perceived value when it comes to property. Looking around Penang, I see many properties with a rental yield of 1% or even less, while there are plenty of bluechip REITS yielding 5 to 6% dividends per year.

Great points!

BS kena kantoi... Hehe

thanks for correcting me. not aware that it would not have the deposit amount.

Very good write out.

If I get a choice between properties investment and blue chip share (assume both return are equal), I will choose property.
The reason is simple. For property investment, you tend to control yourself. You can choose your tenant.

For share investment, the companies are control by big shareholders. They may fool you around. If the companies perform well, they tend to privatize and offer low buy price.
If the companies perform badly, they may perform some tricsk on it. Nevertheless, they are a few companies that are very trustworthy, at least until now.
Let get back to a very original question, why a company wants to list in KLSE? For the sake of minority?

This post has been edited by Nepo: Aug 1 2013, 08:25 AM

before going into property renting....may I ask...how was the renting rates now? Easy to rent out? Lets said...Penang, KL and Johor.

Other thing to consider about investing stocks is stocks are very volatile compared to property. If you invest in stocks, you will not sleep as well.

Agree.
My only concern is the exchange rates :

What will be the exchange rate RM against Sing dollar in 30
years time? Better or worse? Need not to answer, 3 year old boy also know
Holding cash in RM has no future

Unlikely to hit 7% in next 2-3 years as US rates will still be low. Beyond that I can't say, as I have no crystal ball. But 7% averaged out over 30 years is a conservative estimate, and is based on historical data. You would expect 2 to 3 recessions during that period anyway. Entry cost is low for new launch, but you get a grand total of zero yields while the property is under construction, so it evens out.

Well if expect 2 or 3recession during those times, it will affect more on stock than properties. Kind of scary. Your porfolio can just be wiped out. But property, has it ever been that bad? Ok maybe in the US but then their interest goes to 0.25%.

Now will the same be happening in Malaysia? My prediction in 30 yrs, Pakatan would already be in power and our economy will be in a much better shape than now. Because in 30 yrs, the senior people who support current government will be dead. The young generation will mostly vote for Pakatan.

If im not mistaken i think anon was only referring to blue chip stocks. Has any been wiped out in the last 30 years? Anyway i think the key message was dont get overexposed in property (and not this is better than that etc)

Well AIG was almost wiped out before the bailout. Look at MAS once was 8 ringgit. During 1998 crisis Maybank from the near 10rm went to almost 2 i believe?. I dunt remember.

This post has been edited by AmayaBumibuyer: Aug 1 2013, 05:27 PM