All I know is that during downturn in 1998 and 2008, the sentiment is so bad that most people don't dare to make moves. Those people who are waiting for the price to go down kept on waiting for even lower price. When they finally decided to buy, the bank don't dare to loan them. Or they lost job because the economy is so bad. Although they have money in the bank saved up to buy properties, but because they lost their jobs, the bullet became their emergency funds. At the end, not many transactions during recession

Whereas those investors who buy during good times, continue to buy during bad times. They manage to pick up many good deals. These investors usually have target price and will make the move when their target price is met.

The lesson is set a target price. When the price meet your target, make your move immediately. If you wait and think the market will get lower and lower and even lower, you will never buy anything at all in the end

The general prices of property in malaysia over a long period (for eg. 10 years) has never came down. It is quite a linear upward graph. With the exception of a few individual projects

Wiredx and gspirit01,

I got the graph from JPPH publication http://www.jpph.gov.my/V2/index3service.ph...mat=3&no_item=1 But it doesn't have a online copy to link it here

Not saying that property price won't come down. In fact, it fluctuate up and down all the time. But if you look at a longer period, like over a 10 year period from 1981-1990, 1991-2000, 2001-2010, there is this upward line that cut across the ups and downs.

Suddenly gold come into discussion ?

Why not talk about forex then ?

Agree with you. Landed in KL prime area is less and less affordable. But if one is willing to travel, outskirt of KL still has some affordable DSL. Just that human nature is naturally picky

As for flipper with 4-5 properties, I wonder where they got their bank loan if they can't afford. They must be making tens of thousand per month if they want to get loans from bank right ? Are you making an assumption that the banks will provide loans to all flipper who want to buy 4-5 properties irregardless of how much they earn per month ?

If he look at the gold price for the period of 1971-1980, 1981-1990, 1991-2000, 2001-2010, then he will know gold price fluctuate a lot. It is not like malaysian property which is generally a steady straight line upward trend

Not easy in the past 1 - 1.5 years

DDD is waiting. UUU also waiting. I afraid too many people waiting for dead chicken until cannot find. We need a economic crisis let everyone lose job only then got dead chicken everywhere

Hope you are right. Then nobody will compete for the dead chicken How do you calculate the extra interest when the rate return to pre QE level ? What was the interest before QE level in malaysia ?

1% increase is RM200 pm increase ? or RM1000 pm increase ? How you calculate ? You must have a figure to conclude the flipper will suffer right ? How you calculate one ?

Home loan is not straight line. You should put the increase in 1% in homeloan calculator. Assuming 40 year loan (last time flipper always loan to the max before BNM limit to 35 years) and assume RM1m loan.

As much as I want dead chicken everywhere on the road, but you need to get the calculation accurate first to arrive at your conclusion. Based on your straight line calculation, the effect on extra interest expense is big. But in fact the home loan calculation is based on reducing balance. The effect is only 50% of straight line calculation. So, your assertion that a 3% interest rise will cause foreclosure will not stand. We may need interest rate rise of 6% to match your expectation. Again, I urge you to calculate first before you arrive at your conclusion

This post has been edited by Showtime747: Dec 23 2013, 08:01 AM

RM1m x 1% = RM10k is straight line method. Plain and simple Just go and use a scientific calculator, or go find some website with home loan calculator to verify. Then you will understand better what is reducing balance method

If you can't find the reducing balance results, let me know. I will post it here for you

Ok lah, I take it that you don't bother to verify because it is not to your expected results. I re-quote your original comment above. You are saying that for every 1% interest increment, every RM1m loan will "cost extra" RM10k per year. RM10k divided by 12 months is RM833 per month. So in effect you are saying if interest rate increase by 1%, flippers with RM1m loan will need to fork out extra RM800+ pm

As I have said a few times already, that is straight line method (ie you pay interest on a fixed principal). Your calculation is correct if it is a car loan. However, our property loan is reducing balance method (ie you pay interest on the reduced principal). If you go to a website calculator, you will find that for RM1m loan with tenure 40 years, the increase in installment is not as much as straight line method. If you take your example of RM1m with 3% interest rate increment, the extra interest based on straight line method is RM30k pa or RM2.5k pm. If you use reducing balance method, the extra installment is only RM1.3k, about 50% less.

So to have dead chicken everywhere on the street, your expected 3% interest rate rise will need to double to 6%

Flippers are concern with cashflow only. So, with 1% interest increase, their extra installment is RM68135 - RM60802 = RM7333 pa. They only care about how much they pay per month so they don't need to throw their dead chicken on the street for us to pick up.

BTW, you are using 30 years instead of 40 years tenure. Can you calculate the installment for RM1m, 40 years tenure, 3% interest rate increase and compare to interest expense ?

No dispute that interest increase is bad for investor. In fact even a fool knows interest rate increase is bad But the discussion here is actually on flippers and their dead chicken. Let me recap

Someone here was talking about everyone is waiting to pick up dead chicken in the near future. I was saying that we need an economic crisis to be able to see that. But icemanfx was saying that a 3% interest rate increase will be enough to allow us to pick up dead chicken. That is because there are a lot of flippers who cannot service installment with 3% increase in interest rates and hence they have to do fire sale. I was asking him how much is the effect in monetary terms that we have a lot of dead chicken to pick up. And he was calculating using RM1m x 1% = RM10k. That is RM800+ per month extra for every 1% increase. However, as you calculated above, housing loan is not based on straight line. And it turns out to be only RM600+ per month extra using reducing balance method.

As you have calculated, the interest portion for Year 1 is similar for both straight line method and reducing balance method. Because the principal is not much different in the initial years. However, the effect of interest will be a lot different in the future years because the principal is reduced. In fact the total difference will be the difference of the monthly installment x number of months, which is substantial (The rule of thumb of the difference between straight line and reducing balance is about 1.9 times, or about half of straight line method)

As I have said, flippers (not long term investors) are looking only on cashflows and all they are concern is whether they can service their monthly installments. If they can still service the installment despite the increase in interest rates, then there will not be dead chicken on the street. If they can't service, then they have to sell and we are waiting to pick up those dead chicken. How much interest rate increase is enough to force the flippers to sell their dead chicken ? icemanfx's expectation is 3%. However, as 3% increase in interest expense based on straight line does not equal to the increase installment payment based on reducing balance method, hence we may need to increase icemanfx's expectation to >3% interest rates increase in order to allow us to find a lot of good deals.

Actually everyone here is waiting for the dead chicken. I hope 2% interest increase will be enough to force the flippers to let go at 20% discount price

You are good in calculation

If you look at COCR, the return will be a lot more.

10% deposit (RM100,000)
Total installment paid (RM269,738)
Other fees (RM64,000)
Rental income RM150,000
Total outlay (RM283,738)

Total inflow RM1,600,000 - RM949,934 = RM650,066

Profit % with rent = 229%
Profit # w/o rent = 150%

COCR ? If COCR how come I got 290% ?

Cash on cash return. That means I calculate how much total cash I fork out during the period, and how much cash I receive at the end of the investment. And I divide the cash inflow over the cash outflow, that is my COCR. In other words, how many time/% I can made over my capital

In your example, your initial investment is RM100k only. Then you pay the installment every month totaled RM243k + RM64k for cost. But you collect RM150k rental. So the net total you paid out is RM257k.

When you sell, you receive RM1.6m less outstanding bank loans RM855k = RM745k cash inflow

So, all in all in cash term, you invested RM257k and at the end of the day you have RM745k cash in hand. You have made RM745k / RM257k = 290% over your capital.

It is another way of viewing how you grow your money. Disregarding the amount borrowed and value of the property. In other words, it will also show the power of leveraging (ie use other people's money to make more money) which we cannot use with other investment like FDs, share market, bonds, UT etc

That's the beauty of property investment

This post has been edited by Showtime747: Dec 23 2013, 11:16 PM

Although we don't like it, but the flippers could make much more in % wise. With DIBS and zero entry cost, flippers could buy a studio for RM300k. Their cost is maybe RM8k (stamp duty for S&P and loan). Upon VP, they flip it for RM400k. Their profit is RM100k. Their capital is RM8k. Their margin is hence 1250%. In effect, they use RM8k to turn it into RM100k

But as always, everything good or bad, will come to an end. Flippers can't do that anymore nowadays