from https://forum.lowyat.net/topic/2918996


Moves to cap property prices could backfire
August 10, 2013- Featured, Investment.
FOOD FOR THOUGHT by 'Malaysia Condo King' Datuk Alan Tong Kok Mau | feedback@fiabci-asiapacific.com
http://www.starproperty.my/index.php/artic...could-backfire/


‘Cooling off’ measures choke supply

Imagine if a regulatory body decided to limit the number of durians purchased by each individual in order to lower the price of durians so that everyone would have the chance to taste the King of Fruits. What would happen?

If this campaign was successful to the point that prices fell to close to or below production costs, durian planters and sellers would rather walk away from their plantations and let the fruits rot on trees than to harvest the fruits, transport them to towns and sell them at a lost. Economics 101 tell us that when supply reduces, price increases.




This is what’s happening in the property industry especially in Asian countries today. As a developing and booming region, Asia has seen lots of activities in the property industry in the past 10 years.

The housing price increase in this region is also more significant due to rising input costs, strong economic conditions and growing populations.

To prevent the property prices from surging further due to growing demand and worldwide quantitative easing (money printing) government policies, several governments in this region have introduced various “cooling off” measures with the most insistent being China, Hong Kong and Singapore.


CHINA

In China, the State Council stepped up a three-year campaign to “cool off” home prices in March. Measures included raising first-time buyers’ down payments from 20% to 30%, and second-home buyers’ down payments from 50% to 60%, and ordering stricter enforcement of a 20% capital gains tax on sales. The government also limited home purchases in certain areas, tightened credit-quota limits and raised benchmark lending rates.

However, according to a recent report by the National Bureau of Statistics (NBS) China, residential and commercial property sales totalled 3.34 trillion yuan (RM1.77 trillion) in the first six months, jumping 43.2% compared to a year earlier.

The pace of China’s year-on-year home price rises in April, May and June was also the strongest this year in spite of the March initiatives. Average new home prices in 70 major Chinese cities climbed 0.8% in June from the previous month based on data released by NBS.

New home prices rose 6.8% in June compared to a year ago, the sixth consecutive rise and the fastest pace since January 2011.


HONG KONG

In Hong Kong, the government introduced a series of steps to curb prices since 2009. Its measures included a 15% property tax on foreign buyers, mortgage restrictions and taxes on quick resale.

The government also limited the maximum term of all new mortgages to 30 years, and mortgage payments for investment properties could not be more than 40% of the buyers’ monthly incomes, compared to 50% previously.

According to a Knight Frank report for the first quarter of 2013, property prices in Hong Kong were 28% higher on average, compared to one year ago despite measures to “cool off” escalating prices.


SINGAPORE

As for our neighbouring country Singapore, the government just unveiled its eighth round of “cooling off” measures in June. The new rule states that home loans should not exceed a borrower’s total debt servicing ratio of 60%. Lenders will also be required to deduct at least 30% from all variable sources of earnings, such as bonuses, and rental revenue when determining an applicant’s income streams.

Prior to this, the Singapore government made seven attempts to cool off the residential real estate market since 2009. In January 2013, the government implemented an extensive round of tightening measures by imposing higher stamp duties, lowering loan-to-valuations for mortgages, and implementing stricter rules on permanent residents (PRs) buying their first home.

Nevertheless, despite a series of “cooling off” measures, Singapore private home sales in January 2013 continue to hit a high note, with a 42.8% increase from December 2012, and a 7.5% increase year-on- year.


MALAYSIA

In our home country, the Government has also introduced a number of “cooling off” measures.

These include the 70% loan policy (LTV) for third property purchases, requiring the housing loan limits calculated based on net income instead of gross, and the loan tenure reduced from 45 years to 35 years previously, etc.

The “cooling off” measures introduced in various countries are believed to have some impact when they were first implemented, however the overall effectiveness has yet to materialise.

While we understand the good intentions behind these measures, they result in further heating up of the market because the fundamental issue of the shortage of affordable housing is not addressed.

There is fine line between “cooling off” and heating up the market, when the market is having a strong, genuine demand. “Cooling off” measures will constraint supply, and when demand is higher than supply, the prices will eventually increase.

In Malaysia, according to NAPIC, there is only a supply of about 100,000 new houses a year throughout Malaysia, while the demand in Greater KL alone is projected to be an additional one million units if Pemandu achieves its target of increasing the population from six million to 10 million by 2020.

Therefore, if our authorities are pondering further “cooling off” measures, it is beneficial to look at the real experience from other countries and not just the “short term” effects, the different environment of property development in our country should also be taken into account.

The original intention of controlling the price of durians in my earlier story is to allow more people the chance to taste this unique fruit at an affordable price.

However, such good intentions often backfire and worsen the current conditions. “Cooling off” could eventually lead to heating up!


Property developer and group chairman of Bukit Kiara Properties Datuk Alan Tong is also FIABCI Asia-Pacific regional secretariat chairman.

You should understand that people are buying cars to evade tax in business, but you can't do that in property. In business tax, car is a depreciating asset and accounts for business cost spread across 3-5 years. Property is a fixed asset in your balance sheet which does not depreciate, so , not deductible for taxes. In other words, if this year your business makes a lot of money, let's say 1 mil profit, you tax should be around 250K. instead, you might decide to buy a 500K car, spread the cost across 5 years, (100K each year), and you save 25% off the car you purchased. That's a lot of money and perceived value. People will think you own a 500K car but in fact, it just cost 375K and it is out of company expenses. You can't do that with property and the worse part is LHDN might come after you after some time if you property appreciates and you have to record that in account as paper gain which is taxable profit.

A weak ringgit also helped support palm oil by making it cheaper for overseas buyers. Phillip Futures analyst Sim Han Qiang said the weakening ringgit could be due to the country's foreign outflows which were the highest among Asian currencies after the Indonesian rupiah and Indian rupee
http://dawn.com/news/1033025/palm-oil-post...ise-in-7-months

FYI

This post has been edited by ManutdGiggs: Aug 12 2013, 12:32 PM

My two cents: It's all about consumer psychology.

Both luxury houses and luxury cars are designed to be "consumed" by the "consumer" in order to improve his/her welfare. Taking out the "land" aspect, if the consumer desires a luxury car more than a luxury home, then buying a luxury car improves his/her welfare more than a luxury home. Nobody "needs" a brand new luxury home. They just desire it. The desire for brand-new luxury homes over older ones is just as rational (or irrational) as the desire for a brand new BMW. Or as rational as the desire for Apple over Acer, or drinking at bars and clubs over buying drinks at 7-11. A person who prefers a 200k luxury car over a 800k luxury property, could rationally choose to buy the car, and then use the balance of 600k to buy an older, less luxurious house in the same vicinity.

Currently, I see the Malaysian consumer trending towards desiring luxury homes. Price differentials between new luxury properties and older, more run down properties in the same area are huge. Luxury properties have nicer fittings, nicer landscaping, nicer gyms, nicer pool, nicer design, branding etc, and that's what you pay extra for. People are willing to forgo consuming many other desirable goods (like nicer food, cars, electronics, clothes etc) in order to purchase luxury homes because they desire the features and prestige of luxury housing. This desire is exactly the same as our established desire for expensive cars. I'm not yet convinced that our recent consumer love affair with luxury housing at the expense of other goods will last forever, and I'm saying this as myself a lover of luxury fittings, facilities and landscaping. Only time will tell.

One last observation. I note that the prestige of driving a 3 series in Malaysia is more akin to the prestige of driving, say a 7 series or a Rolls in the West. The intangible value of the BMW brand is also a lot stronger in a country like Malaysia where such cars are comparatively rare. Heck, even an "affordable" Japanese or Korean sports car is looked upon like a Ferrari or Porsche in terms of prestige. There is therefore a lot more intangible value in purchasing a luxury car in Malaysia than in the West. Although this does not even come close to justifying the price for new cars, it certainly does so for grey market imports, and that's why these importers are seeing great sales.

great writing.

You have your point not can't agree fully with you that it's all about desire. You might be still in your 20s' where just about to start a family.

I shifted because of my kids, need for better school, nearer workplace so that you can spend more time at home than on road. I believed there are many people out there that "desires" a well located property for the reason above, and not just because they wanted to look good only.

I do agree that desire and admiration comes first when you are in your 20s. When i was in my 20s, driving a 3 series used to be my dream but not anymore once you can afford it. Today, buying and doing something you like at ease (not burdening yourself financially) is my personal goal. As you grow older and prioritize different things in life, you tend to shift focus. No doubt there are still a lot of people above 30s who desire for dream cars, dream houses etc but i believed that there are also a lot who put family needs as priority.

I would say, buying property is more of an "investment trend" since 2009 after the property starts to rebound. It's something people afraid losing out and when price got higher and higher, and they were bought into developer's marketing strategy of having more luxurious fittings to justify for the higher price they pay. (i designed high-end security systems for luxury properties and high end developers and i can tell you people will justify themselves to pay tens of thousands more just when it is about tight security and technology).

A lot of my rich friends who owns multiple luxurious properties are still staying in their current home despite owning many new properties. They only consider to shift mainly due to location and built up size of the property to accommodate more family members. Of course, there are also friends who moved to Mont Kiara high end condo but they bought it cheap last year at around RM750K for 2000 sqft built up which is within the affordability.

Unauthorised development on government land

http://www.themalaysianinsider.com/malaysi...government-land

Whoops... better be careful and check properly before following the herd... might be heading for a cliff!!! Whats even scarier is the number of potential unauthorised projects... 80!!!! wth!!!

More good news...



Wow!!!! newest gimmck...

"Some of the developers have been giving cash to potential buyers for 36 months before the keys are handed to them. "... the property market must be really really good.... developers pay consumers to buy... LOL!!!!!



Anyone got paid recently???

This post has been edited by Rooney1985: Aug 12 2013, 02:18 PM

Yes consumer psychology. I took marketing course last time in uni, one of the term is call postpurchase behaviour. And just on top of my head, it is the feeling of purchasing goods and then feel regret after purchasing it hence postpurchase. Guys watch the series Madmen, teaches you how they advertise stuff. Actually is a good show, but most people in Malaysia dont like it. Kind of too slow. I only just follow it for season 6.

True if you are buying vehicles, cars, lorries, motorbikes etc for busines purpose and factories as property but not true if you buying cars for everyday life and buying a house to live in. I mean anybody hear depreciates your car and put it in the tax form? Because we are all makan gaji kind of fellas and not owning any business.

And interest rates for properties that you use for renting out are tax deductible. Right?

Car and properties are different. You cannot flip (Dibs) a car for profit and normally you do not buy a car with the intention of doing car rental business.

Bro, I wish you were right. But for cars above RM150k, the depreciation you can claim is capped at RM50k only

On the other hand, For property which is industrial building to derive your business income, then you can claim Industrial Building Allowance (full amount over 30 years if not wrong)

Income tax people no stupid.....

Hi doremon,

You sure are living in doremon land. First of all, as mentioned, cars above 150k cap allowance capped at 50k.

A typical China man thinking " buy car to escape tax" ...penny wise pound foolish. Just like during cheap sale...buy 1 piece discount 20%...buy 2 pcs discount 30%....buy more discount more...buy buy buy...in the end you must understand what u are paying to save the miserable tax......

And, your last part is the best..."paper gain of property appreciation is taxable profit"

No reason or rationale could stop a charging bull. Likewise, no one could stop a bull turned to a bear.

Fact 1: I want to change job!!!

Fact 2:yalo....so long still no news from our government or LGE.

Fact 3: I drive motorcycle oh...and take rapid to work(free ride, provided by LGE)

Noooooooooooooooooooooooooo.....I don't want to be Kodokushi!!!

There are many of new development which does that! which questions me.. are we paving the overprice property because of dibs?? and on top of the market? Aurora condo in puchong - rm20k rebate.. sign SNP 10k.. get key another rm10k pay out. Mirage by the lake? i hope i spelled correctly.. in cyberjaya.. giving out approx rm96k cash...

if there is a any major downfall in the property sector most likely these places would go first.. Again it's really up to each individual to choose which part you would like to buy.. RM400k is abit not too affordable and those above rm500k i think they are really pushing the limits..

Hello all passionate property & real estate enthusiast & investors. I have something that might be of interests to some of you

Since there is a discussion about how much higher (UP) can the prices go, why not take a look at historical prices and make an informed decision about the future price of your property?

Perhaps your neighbour's house is also a good indicator of your house price ?

I've started a thread on my own in the Classifieds Section of Lowyat.net. Currently I'm covering Puchong, but if there's demand, I can cover other areas too. If you would like me to be more specific, you can also PM me

My other lowyat.net thread:
Latest Property Prices in Puchong



This post has been edited by kmf123: Aug 12 2013, 10:51 PM

Buy 5 units now, subsale 4 unit later, can collect rental on 5th unit for free. If repeat on 3 or 4 different development, can retire liao. apa awak mau lagi?

$$$

If there are tons of unit to be rent out, but only got a few tenant that want to rent... Would rental market goes down?
Meaning previously can rent out at RM 2k and suddenly force to rent out at RM 200

Not so easy bro, 5 units if really can buy then the next questions is buy at the same time? Means how much interest have to bear? If i also got the capital and i can wait but have to ensure all is good properties ie. can be rented or sold higherthan the buying price after deducted all the capital and expenses. And keep one for ownself ..... Keep repeat the flows? I doubt that everyone can do that..... If yes, just few only can succeed...... U know how long the one full cycles? If concurrently ! Can earn rental but cannot retire yet......... Not in the numbers was ur family with kids....... We are talking about average ppl, not loaded family background ......... Right?