Aiyo, this is an article from before US bubble burst. At that time there are a lot of bubble deniers, as to be expected (otherwise there would not have been a bubble in the first place!).

The author he criticized in the article, Robert Shiller - "Irrational Exuberance", turned out to be correct about the US property market. The second edition of the book in 2005 basically said the US bubble will burst soon (by looking at things such as ratio of median house price to median income). In 2006 bubble in the US did burst as we all know. By the way, Robert Shiller won the Nobel Prize for Economics this year.

This post has been edited by Balrog: Dec 17 2013, 12:22 PM

NY also dropped during the US bubble burst - http://research.stlouisfed.org/fred2/series/NYSTHPI, but nowhere near as severe as others, perhaps only 20%.

But yes, agreed that it will strongly depend on locale. Surely most at risk in Malaysia at the moment is Klang Valley, Penang, Iskandar

This post has been edited by Balrog: Dec 17 2013, 12:42 PM

I have seen many variations of these arguments.

The thing to consider is the average income of urban households in Malaysia (public info, available for example in http://www.statistics.gov.my/portal/downlo...PIR_KA_2012.pdf - TABLE 1.3).

URBAN HOUSEHOLD INCOME
Top 20% 13,654
Middle 40% 5,294
Bottom 40% 2,263

You can translate these to house prices, by making some reasonable assumptions. Say for example, downpayment 10%, effective interest rate of 4.5%, and one third of household income goes towards loan repayment.

ESTIMATED URBAN AFFORDABLE HOUSE PRICE
Top 20% 1,000,000
Middle 40% 290,000
Bottom 40% 165,000

Now, I think we can all agree that there is no way developers are building urban properties of those prices in those percentages for the past several years. Even if you change the parameters to extreme numbers, like for example 50% of household income goes towards home loan repayment, the numbers are still very far from lining up. What we have is an extremely distorted "top heavy" house prices. So while certainly there is significant urban migration, marriage, people joining workforce etc, the upwards pressure on house prices is not coming from there.

The only explanation is speculative buying, multiple properties bought by the top income earners, foreigners, parents paying down-payment to support young workers to "invest" in properties etc driving up the prices. Some amount of this is normal and can be supported, but my opinion is that this have reach crazy levels. Developers will cater for this, because this is highest margin for them (as opposed to building properties to cater to the real demand from urban migration/marriage). This is not sustainable, and is bound to correct. The degree and timing of correction of course is open to debate.

The below was my personal guess from a post some time back (I had already acted on it). Let's see how accurate



This post has been edited by Balrog: Dec 17 2013, 01:39 PM

Interest rate for house loan will definitely go up.

One way to tell is to compare with 10 year government bond yield (which is the interest rate at which the Malaysian government is borrowing money, for 10 year loans). 10 year is suitable for comparison because on average housing loans are settled in roughly 10 years (the loan tenure may be 30 years or whatever, but on average it will be settled earlier as the house is sold etc).

Malaysian government 10 year bond yield is 4.2%, a big jump from just six months ago. So certainly the current interest rate for housing loan does not make sense, because as a lender, there is no reason to loan to house buyers at the same rate as loaning to Malaysia government (house buyers should pay a higher interest). I am not sure what is the difference in yield in Malaysia historically, but in the US, the gap is 1.0% to 1.5%.

By the way, one big factor driving up the interest is of course the plan to reduce and eventually eliminate the QE in the US.

Malaysia gov 10 year bond yield
http://www.tradingeconomics.com/charts/mal...101&d2=20141231

US gov 10 year bond yield
http://www.marketwatch.com/investing/bond/10_year/charts

This post has been edited by Balrog: Jan 10 2014, 12:32 PM

Data for Q1 and Q2 2013 available. Preliminary data for Q3 2013 also here:
http://napic.jpph.gov.my/portal/content/Pu...HRM_Q3_2013.pdf

Q1 and Q2 still shows strong growth. Q3 preliminary data shows weakening.

For the NAPIC data, the annual index is just the Q1 index for each year.

EDIT - sorry I saw wrong. Hmmm, still looking how they derive.

EDIT 2 - I think they are likely calculating the annual index based on the annual average house price. This means you cannot derive the annual index from the quarterly without knowing the volume of transaction for each quarter.

This post has been edited by Balrog: Jan 13 2014, 02:42 PM

There is actually one prediction you can make because of this factor - "government is keen to do HOUSE CLEANING".

That prediction is - NO UPSIDE, for at least a few years.

Say the current range of measures does not at minimum cause house price to stagnate, then next year will have more measures (stricter LTV, seller stamp duty, increased stamp duty etc). We have already seen this behaviour from the governments of Sg and HK. And for Malaysia, this is actually the second round of cooling already.

See for example, Singapore cooling measures, the latest is the 8th round already - http://www.ezproperty.sg/singapore-property-cooling-measures.

This post has been edited by Balrog: Jan 13 2014, 02:54 PM