I can add another one. Commercial shoplot at NZX and Taipan, Ara Damansara. Rental cannot even cover the bank loan. A lot empty units as well.

Interesting article. I agree with that article.

http://www.forbes.com/sites/jessecolombo/2...waiting-to-pop/

http://www.forbes.com/sites/jessecolombo/2...bubble-economy/

1. I knew of a banker told me that this can be done. Once loan approve, you can do reconversion to another property subjected to the new property valuation is ok.

2. I knew of bankers did help investors/flippers do the above.

3. A lot banker/mortgage sales people will do their best even to "clean & spruce" up their customer documentations to get the loan approval.

4. I knew few investors/flippers who use fake income documentation to get the loan approve.

Based on what I knew above, I knew it's a matter of time before things will get ugly. It shall be sooner than much later. We just have to wait a see lar. No point arguing who is right or who is wrong. Everyone shall just know the consequences if things move either way. If prices continues to go up, then congratulation to the flippers. If price came comes down, I would love to congratulate all the bankrupt flippers as well. That's my take.

Anyway no one will foresee the future so any decision is very personal. Also what I know is, if buyers cannot afford to buy from developer, then they are worst off buying in secondary market. Bank valuation is not on par with the asking price, the transfer duty which is expensive, legal fees as well and others.



Based on my own analysis, I assume the following scenario:-

A person regardless of age, which is still single and working in the city and have a monthly income of RM 5000. Below is my assumptions:-

Calculation of gross income:-
Average Gross Income: RM 5000/month
Nett Income: 5000 - 550 (EPF) - 191.70 (PCB Tax) - 14.75 (SOCSO) = 4243.55

Calculation of car installment:-
Car is essential for city living, so I assume any working person will own a car. For simplicity let's assume Myvi Standard Auto which cost retail price of RM 44,924.30.

Loan Tenure: 9 years
Downpayment: 10%
Interest: 2.8%
Monthly Installment: RM 469

Calculation of Available Margin for Home Loan:-
Debt Service Ratio of 70% of Nett Income: 4243.55 x 70% = 2970.485
Balance Available for House Loan: 2970.485 - 469 (Car Installment) = RM 2501.485

Therefore assuming the following for home loan:-
Loan Tenure: 35 years
Interest: 4.6% (BLR-2%)
Downpayment: 10%
Monthly Installment: RM 2500 (Round to full figure from 2501.485)

Based on the monthly installment of RM 2500, the maximum loan amount is RM 521,411; therefore this individual can only afford to buy a property that cost a maximum of RM 579,345.56

So to conclude:-
Monthly Nett Salary: 4243.55
Car Installment: 469
House Installment: 2500
Balance of Salary after commitment: RM 1274.55 for everything else (Car insurance, medical insurance, petrol, toll, food, contigencies, and etc)


Another problem is Property Valuation is not on par on what is the asking price of properties. I personally knew of a property that has an asking price of RM 450,000 but the bank only valuated that particular property at RM 380,000. So for buyer to buy that property:

90% Loan of the Valuation price: 380,000 x 90% = RM 342,000
Therefore the buyer has to fork up 450000-342000(Loan Amount) = RM 108,000 (Downpayment amount)
Other fees (Based on 450,000 S&P price):-
S&P Legal Fees: 3600
S&P Stamp Duty: 8000
Loan Agreement Stamp Duty: 2250
Loan Agreement Legal Fees: 3600

So total cash upfront to buy that property would be RM 125,450. For just RM 450k property, the buyer has to fork out 125k cash; if this person can pay 125k, he/she will be able to buy RM 646,861 (521,411 Loan Amount + 125,450 Cash) from developer directly. If he can't buy from developer at this price, then he definately won't be able to buy a 450k subsale property.

So with all new property above 750,000 now, the person has to have atleast a minimum of RM 8000/month which I doubt many average Malaysian can earn that amount.

This post has been edited by KChan: Jan 26 2014, 03:27 PM

Wow really? Can you PM me which company you are working? I know a lot of people in the mid twenties and a degree holder looking for jobs paying atleast above 5k. I shall refer them to your company.

What's the definition of middle class? And what is the income level? Assuming middle class is define from 5000-7000/month, would they rent a 750,000 property at RM 3500? The 3500 is the mortgage repayment just for the 90% loan + maintenance. And that price is probably bare unfurnished unit. If furnish then shall be slightly higher at RM 4000? That's more than half of the gross salary goes toward rental?

Yes a lot of things in BAFIA is illegal. For example it's illegal to for bankers to take our details and sell to property agent, but this goes on so rampantly. The chances for them to be caught is very slim, as there is no mechanism to check and penalise. How many person ever being charge in Court for BAFIA anyway?

All sales person just want to close sales as in Malaysian style. Apa pun boleh. Asalkan got big big commission. And for the bank, they know this is happening and just closing one eye for the sake of profit. I even heard of an insider story that certain banks personnel cheat customer money. But in the end there is no case. As the bank resolve it internally and just ask that particular staff to leave. You think any bank will admit they are part of the fraud and tarnished their own reputation unless of course its a very very large figure transaction?

P/S. I knew a few bankers around.

We need to know what's the income of mid class to be able to do an analysis. For me, I would think mid class is about 5-7k a month gross income. At 7k gross that would only be about 5.7k nett after tax and statutory deduction. They wouldn't go and rent a 2500/month housing. That rental is 43% of their nett salary.

And the 2500/month rental is based on zero cashflow for the owner if he/she bought the property at 500,000k over 35 years of loan.

So if earning 7k can't rent a 500,000 property, then who will rent property that is newly launch at above 700k in Klang Valley? Let's ponder that deeply. I'm still wondering as well cause I for one will not spend so much $$$ on rental. Rather stay at low rental place and spend my money somewhere else.

Alright, if double then sure can. Then the questions is, if double income, they could definitely buy a house instead of renting right? And since they can afford to buy for own stay and perhaps have also bought it already. Then who is gonna rent the rest of it from the market?

Well, I did made some comparison. BU 12 landed freehold based on iproperty is about 1-1.3 million for 2000-2300 sq feet. And yesterday I went for the preview launch of PJ MidTown (Section 13) by Sime Darby & IOI. The price for 1200 sq feet with 2 car park lease hold service suite start from 1M and above. To me is crazy pricing. Developer is riding the uptrend craze.

If there is property price correction (Don't want to use the word bubble or crash as its sensitive), which one will hangus first? And be honest to ourself, as buyer scouting around to buy property which one will you buy as a buyer?

Assuming BU12 unit as mentioned did go down by 5%, I wonder how much will the service suite will go down?

What I see is that many secondary market price is trending instead of booming upwards like all the new property launch. Secondary market price goes up because it's catching up with the price of new properties that is launch within the same area. If there is new property launch in BU at new record, then every other secondary unit there will trend accordingly but never will beat the price of those new properties. In the end, prices of all properties goes up because of more new properties being launch at higher price than the previous project. I dare not think how long this will last. Definitely won't go on forever.

Base on historical trend, economy is a cycle. It has its high, and it has its low. But problem is that no one will know where is the high or low is coming. Malaysia KLSE index is at:-
Feb 1997 - 1278
Aug 1998 - 403

Dec 2007 - 1452
Nov 2008 - 926

Seems like every 10 years we have economy cycle. Now only is 2014, so maybe we still have another 3 years to go. But then again, with all the sudden price hike and GST coming in 2015, maybe will that come much earlier? It's just anyone guess.

This is strictly my own point of view. Not looking to argue right or wrong. Just trying to contribute my own analysis.

Yup. I agree.

Yeah, rental rates never really goes up but prices of property goes all the way up. I foresee that many people will not buy property in the future and just go on renting. Why buy and pay instalment at RM 2500 for the mortgage. If for me, I would rather rent at 1500-1800. Let the owner worry about the instalment and maintenance and miscellaneous. If owner wanna increase rental, cabut to another cheaper rental location. Living nomad live. Atleast can stay in many new house and make the house dirty and move to new place again.

I definitely know some people is doing that already. LOL

Well, if really can't afford or perhaps its too expensive then there isn't much choice.

Yes. As as an owner and landlord of course I'm not stupid as well. But I do feel that during VP there are tons of unit out for rental and everyone is competing and undercutting the rental rate. In my experience, currently it seems like it's tenant that has an upper-hand in negotiating rental rates.


Yes, auction would be very good deal and it's always way cheaper than buying in the market. I have a friend who always participate in auction to sapu cheap properties as well. I'm now also looking at auction instead of looking at mainsteam market for investment. Hoping to find good buy in auction. Maybe there will be more coming into auction soon.

Yup. If everyone is tied up to repaying debts, then no one will be spending. Once everyone stop spending, the next thing will happen is the retail sector will be hit. So on and so forth, everything will crumble just like lego blocks. Everything is highly dependant on every thing.

I don't hope a bubble or crash. I expect market correction shall be more accurate. Since BNM has announce a proposal that BLR is to be change to new framework. Let's wait this year to see if the interest rate is going up. Every 0.5% increase of the interest, on average that would be 6% differences in instalment payment.

If 3% higher as you said, then anyone paying a 500k loan over 35 years will have to pay 3406.99 monthly instead of 2397.34. That's a difference of RM 1009.65 or 42% additional every month for instalment. Ouch, that must be painful.

This post has been edited by KChan: Jan 26 2014, 10:25 PM

Really? From my calculation, the max bank will be able to maintain the same payment and extend the tenure if interest only rises a maximum of 1%. Any figure higher than 1%, the same amount of instalment cannot even cover the interest portion. Basically that means the loan is ever increasing without an ending.

Perhaps their situation is different that they are taking a loan of less than 35 years. Maybe their loan tenure is 15-20 years. Perhaps you shall check on that.

If you like to do the calculation, you can go to:-
http://dailycalculators.com/mortgage-payoff-calculator

Put those in to get the monthly instalment amount.
Present Value: 500,000
Rate of Return: 4.6
Desired Months To Payoff: 420 (Which is 35 years)

You will get RM 2,397.34 for monthly instalment

After that, do this:
Present Value: 500,000 (Remain Same)
Rate of Return: 7.6 (Up by 3%)
Desired Monthly Payment: 2,397.34 (Maintain your instalment)

Now tell me if the calculator show you how long to pay off in months? This loan will never be able to pay off. Cause the interest is higher than the instalment.

If you don't believe the figure, then look at this amortization chart and see how much is the interest portion http://www.amortization-calc.com/#loan-500...35-7.6-1-2014-2

Yup its about 1.15 to 1.2% from the parameters. Even if the bank allows servicing of just interest alone of additional of 769.33 p/m. That's a whopping 32% increase of instalment with just about 1% changes in BLR rates.

If I'm the bank, I would definitely allow that. Just pay me interest every month at 3166.67. And he/she still owe me 500k without any reduction. If can't pay, I foreclose the property and he/she still owe me that full sum minus what I sell the property and other miscellaneous charges. Win-Win to the bank only lar.

Sounds very like loan shark already. Every month service interest only without reducing balance. That's is even more expensive than renting I think.

Well business is different. If your business is small amount, they sure sue till you hangus. But if you owe them hell lots of money!!! They have to ensure your continue success so they can recover the money lar.

But make sure to have debts in the region of few hundred millions lar. Then the bank won't dare to sue you till you bankrupt. Cause writing off few hundred million is painful.

Also, property go lelong easier to sell cause got ready buyer. But business lelong no body want.

By the way, I'm not sure how property lelong price works yet. But I got a friend who is in car lelong business. Heard from him that the bank will put the car on auction at the outstanding loan amount. If this auction no body buys, they will lower a few thousand or % as I don't remember the details.

This go on until the car successfully auctioned off. To the bank they just want to recover their money or part of it. If the auctioned off price is lower than the outstanding loan, then the owner is still liable to the bank on the balance. As for car lelong, they held it every week. So if week after week nobody buy, it gets cheaper and cheaper till someone buy.

I'm just wondering if that's the same with property? Seriously looking to participate in property auction already.

Even in UK they do the same as well.

By the way, BNM will be having it's Monetary Policy Meeting on 29 January 2014. So let's see at 6pm if there is any news regarding the OPR changes.

Yeah, the demand is there for all first time owners and younger generation. Problem is that non of them can afford the high prices now.

I agree that subprime will not happen in Malaysia and we will not be like US as well as our parameters is not the same as US. Malaysian banks are more stringent in loan approval compared to the banks in US. So we shall not use the word subprime for Malaysia.

What I believe is that the current property price is not sustainable based on my previous post and calculation as well.

Another issue is that there are investors out there whom I know that have very very high leverage. They use tenancy agreement to show to bank to have higher loan amount or additional loan. (I do not want to speculate if the tenancy agreement is real or not; or even if the figure stated inside is real or not) So with those documents, some banks (not sure if most bank accept tenancy agreement as source of income) loan based on that as well.

So now I'm curious if these group of people can be classify as subprime?

There's a lot of factor will determine what will happen. Of course not all place will DDD and definitely not many place will UUU as well.

By the way, everyone has their own point of view and their own analysis. So best is just understand the whole thing and share point of view. I don't see arguing anything here will change anyone's mindset

Based on my guesstimation, I would think the following criteria would bust first:-
High end condo (Limited buyers that can afford), probably wont bust if those holding high end condo has enough cash buffer to hold without worry
Condo far away from central location which has high sale or rental price
Properties above 600-700k? (Not many people, individual or household can tahan high instalment if the economy is not doing well and if prices of things continues to go up. Daily survival, bread and butter is more important than owning a property)

For Petaling Jaya, most probably only limited to high end condos. Or more specifically newly launch high end properties within the last 2 years. Most of the landed prop in PJ does not go up that much compared to the newly launch property.

Just my thoughts. Might not come true. If come true, I think above would be the main one to bust first lar. For properties below 500k, I dont feel there is any problem lor. 500k might still be affordable to mid class although they have to eat maggi and kangkung goreng lar.


For me, affordable is based on your nett income. Also for me, my affordable is about 40% of my nett income lar. If my nett income is RM 10k p/m. Then my affordability would be:-

10000-1100(EPF)-1,262.50(TAX)-14.75(SOCSO)=7622.75

7622.75 x 40% = 3049.10 for instalment which comes to about 635,933.17 loan amount. Damn, if I earn 10k, I can only buy a value of RM 706,592 property.

I'm so poor compared to a lot of people buying 800k to > 1++ million property.

Why 40%? Cause I don't want give up my lifestyle of enjoying finer things in life. Very depressing to pay instalment every month for the next 35 years lar...

Price will not fall. Properties price never fall. Only thing is that all seller is greedy, their asking price is sky high right now cause thinking to make big bucks easy way.

If you buy a property for 500k and upon completion in 3 years, then you asking for 750k. Then no buyers, so have to reduce price to 700k, and also no buyer. Now if you reduce it to 650k, then there is buyer.

So if you buy at 500k and sell at 650k, then still gross profit 150k. Therefore property prices didnt drop. What drop is only the asking price, as the asking price right now is not realistic.

But for newly launch property last two years, I don't think is applicable lar. Developer is pricing their property higher than the highest asking price in the market. Perhaps this group of properties will be hardest hit.

Again, just my opinion.

Yup. That's why when market turn to negative, most of the affluent/prime/mature residential locations won't be affected much. Another thing is that those mature locations usually is owner occupied therefore they will defend their preferred location. Those affected badly shall be far away place where there is not much commercial/office activities. Many years ago as I remember, my aunty bought a property in Rawang, the so call promoted upcoming location. But it never materialised and the property price drop below original purchase price. That's the danger and it is still very possible. I even came across some developer launching high end properties in Nilai with high price. That's crazy. Gonna rent it to students a high end property? LOL


Yup, now a days asking price is just asking price. A lot people is happy with their property asking price, but if you ask them to pay that amount to own a same road or same development parcel. How many would buy at the latest asking price? Hmmmm. Anyone can tell me if they buy a second property on the expected asking price?

Sure lar. Riding the trend lar. Most human has herd mentality. If show the development got 30% people buy, the rest will go buy without proper analysis. So developer is laughing all the way to the bank lar. LOL