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.

In Bolehland...

To control the property industry is very simple.

An astonishing % majority of property transactions in Malaysia is occuring amongst the Chinese despite being the minority group in terms of population.

An increase in Bumi quota would kill off the speculation and rising property prices and at the same time kill off most of our developer's customer base. THe limited supply would mean that these units will be expensive and only for some high income Chinese.

This post has been edited by accetera: Aug 11 2013, 06:35 PM

The "real" rich are not really gorenging yet actually... even if they do speculate, their numbers are just so small to create an impact.

Most speculator or flipper wannabes today are just me and you in this forum. The only problem is they are "over-leveraged", they treated property as a mean to earn income, and surprisingly the mass of these people are ethnic-Chinese despite they not getting discounts, etc.

Back to Alan Tong' comments, yes Malaysia is in dire need of affordable housing especially in Klang Valley where it faces a huge shortage. But the shortage is mainly amongst the Malay community in Malay areas. Example: in Shah Alam, where home ownership is not an "in-thing" yet or rather most new homes in Shah Alam are actually beyond the affordability levels.

This post has been edited by accetera: Aug 11 2013, 06:51 PM

u sure or not 25 years old can borrow millions???? even if it does, this is a rare case leh....

I'm 25 and the max all of my friends can borrow is 400k leh...

Alan Tong's comments are very fruitful that any short term measures to control the rising property prices will result in "not as expected".

The game changer is Govt must step in to participate in property development by focusing on PR1MA.

What are your thoughts whether PR1MA is best to solve the affordability issue?

But maybe act like HDB of Singapore but with a twist since our govt do not owned most land?

Or maybe basically just a rebranding for PPR or similar like PKNS flats?

Fact 1 >>> Salaries are not rising in tandem with cost of living + appreciation of new property launches. For example, my accouting industry only gives minimum token increment every year and nowadays MNCs under shared services will CAP all annual bonus to 2 or 3 months only maximum. And promotion is super intense as almost everyone especially ladies are studying accounting/finance.

Fact 2 >>> Affordable housing are not sufficiently provided, especially the middle market (PR1MA market) that will not opt for PPR/SPNB/PKNS.

Fact 3 >>> Malaysians have to make Car Purchases as priority because the need to commute to work when public transportation system is not feasible, non-existence or poor service and poor coverage and for security reasons.


We can't be talking about one or two people out of hundreds of people.

This post has been edited by accetera: Aug 11 2013, 11:37 PM

Cannot compare with HK and SG.

These 2 markets are very open market and alot alot of Foreign Tycoons That Become Residents, Working High Income Expats as well as Skilled Blue Collar Resident Expats.

Though Malaysia's future looks bright simply on demographics, and yes, our median population age and birth rate are amongst the youngest and best in ASEAN, we do not know whether how affordable could properties become for the mass of our population. Looking at our salary levels, I doubt most of the 4mil freshies who migrate to Klang Valley to work could even afford a 500 sf apartment in coming years.

At the same time, those who are working as Managers and those seeking for Promotions in coming years will become those people who are able to afford the New Projects. But how many are there who able to afford?

This post has been edited by accetera: Aug 12 2013, 12:11 PM

I think he meant private properties as these are measured by Knight Frank. The supply dropped and prices still increase... but could drop moving forward.

What Datuk Alam is implying simply:

- affordable housing issue not addressed yet

- shorterm measures will force developer to reduce supply creating a price shock for well demand areas, i.e. PJ (in PJ Damansara, people can buy at whaever prices. My neighborhood everyone chasing RM1m terrace home and people can buy in CASH. And in PJ, most kids work or study overseas so loan just use their name. Lagi best if use UK payslip. Forget the bank)

This post has been edited by accetera: Aug 17 2013, 12:11 AM

Fuel price rise and crackdown on illegals affecting construction sector
By MARTIN CARVALHO | Updated: Thursday September 5, 2013 MYT 7:09:21 AM
http://www.thestar.com.my/News/Nation/2013...ion-sector.aspx

PETALING JAYA: People looking to own a house any time soon will have to pay at least 10% more for their dream home, according to developers.

They said the increase was due to the double whammy that has hit the construction industry – higher costs of building materials resulting from the 20 sen rise in the price of RON95 petrol and diesel and absenteeism among foreign workers because of the nationwide crackdown on illegal immigrants.

Real Estate and Housing Developers Association of Malaysia president Datuk Seri Michael Yam Kong Choy said the failure of foreigners to turn up for work was causing delays, thus adding to costs which contractors were certain to push to consumers.

He added: “The raids on construction sites have frightened even legitimate migrant workers who are staying away.

“This also happened in past raids, Legitimate migrant workers simply did not turn up for work or delayed their return from their country until the storm blew over.

“Because of the shrinking supply of workers, developers have to pay more for labour to meet contractual deadlines, failing which they will be penalised.”

Developers are bound by the Sales and Purchase Agreement and will have to pay compensation to buyers for late delivery, Yam said, adding that contracts in the private sector were awarded with no provisions for price adjustments.

While acknowledging the need to flush out illegal immigrants, he said any reduction in the number of workers would hurt developers.

On the fuel price hike, Yam said it affected the supply chain of the construction industry, involving more than 100 types of business.

Master Builders Association of Malaysia president Matthew Tee said members were complaining that their legal workers whose documents were being processed were staying away for fear of being arrested.

“Our understanding is that all foreign workers will be detained unless they can prove that they have proper documentation,” he said.

“This can be difficult as their documents may still be with their employer or immigration pending the affixing visa of stickers by the authorities.”

He added that there had been cases in the past of legal workers being detained for up to 14 days.

Tee hoped that there would be no recurrence of such instances, and warned against a repeat of the situation in 2002 when the construction industry was brought to a standstill due to a shortage of workers.

In George Town, the Penang Master Builders and Building Materials Dealers Association says it expected construction costs to rise by 3% to 5%.

Association president Datuk Lim Kai Seng said the cost of transportation was likely to rise 10% to 20%, and the prices of sand and cement by between 5% and 10%.

He said that cement now cost RM17.50 per 50kg while sand sold for RM70 per cubic metre.

Sounds quite frank and direct to the truth.

It hurts Gen Y people especially those influenced by pessimissm and DDD campers.

Just buy MyVi

Just buy a simple 3-bedder in PJ... find subsale. Flora Damansara aso ok! (or stay with parents)

Hey, please find a good job with a reputable company not more than 30km away from home. (advice by career thread)

For the next 3 years...

After that, I beg u can buy any RM400-500k apartment in PJ.

Most important live happily. To some people, BBB can make them happier.