This is a continuation from V5:
https://forum.lowyat.net/topic/3182390

The collapse of the US housing market bubble emphasizes how important it is to figure out what property is really worth, from a fundamental perspective. Make sure you’re not over-paying!

There are 4 yardsticks of bubble markets:

•Price to Rent Ratio (or Yield)
•Relative Prices
•Affordability
•Price of new builds


VALUATION TOOL 1: THE PRICE TO RENT RATIO

The gross rental yield) is the housing parallel to the price/earnings ratio. Here is a set of rules of thumb for the housing market:

VALUATION YARDSTICKS FOR THE HOUSING MARKET

PRICE/RENT RATIO GROSS RENTAL YIELD (%)

5 20 Very undervalued
6.7 15 Very undervalued
8.3 12 Undervalued
10 10 Undervalued
12.5 8 Borderline undervalued
14.2 7 Fairly priced
16.7 6 Fairly priced
20 5 Borderline overvalued
25 4 Overvalued
33.3 3 Overvalued
40 2.5 Very overvalued
50 2 Very overvalued

But there are exceptions to this. When strong future growth in value is expected e.g in areas where transport infrastructure is being upgraded then relatively weak present earnings can be acceptable.

There are several good reasons why people should pay attention to the 'valuation parameters':

Higher rental yields push the housing market higher

If rental yield levels are high, this will tend to mean that the interest cost of buying a house is low, compared to the cost of renting a house:

•Potential buyers will pay less to borrow from the bank (in order to buy) than they pay when renting a house. Many will move from being renters to buyers.
•Entrepreneurs will find it makes sense to buy houses to make money, i.e., buy in order to rent them out.

Both these factors put upward pressure on house prices.

Lower rental yields put downward pressure house prices

If rental yield levels are low, this will tend to mean that the interest cost of buying a house is high, compared to the cost of renting a house:

•Potential buyers will find that to buy a house involves paying much more to the bank, than it costs to rent a house. Buyers, especially first-time buyers, may have difficulty financing housing. Banks will be worried about over-lending at loan-to-income ratios which mean that a slight increase in interest rates will mean financial crisis for the borrower.
•Entrepreneurs will find that buying-to-let won't pay.

The house price can be viewed as a kind of circle, with houses prices moving from yields of (say) 4% to 11%

•Yields shifting down to 4% would represent danger.
•Yields rising to 11% would signal opportunity.


VALUATION TOOL 2: RELATIVE PRICES

People tend to actively look for cheaper and better alternatives. Where houses are very highly priced, people will seek more affordable alternatives. So if you’re buying property that’s amazingly expensive on a sqaure foot basis compared to its surrounding developments – BEWARE!


VALUATION TOOL 3: AFFORDABILITY

If house prices are so high that few people can actually afford to buy them, then their value will likely fall in future. A reasonable measure of value is a country’s GDP per capita. In a country where the ratio of house prices to GDP/capita is high, it’s a fair bet that houses are overvalued.

Relative to GDP/Capita levels:
•House prices in Luxembourg, Belgium, Norway, Denmark and Austria seem cheap.
•House prices in the UK, Italy, France and the Netherlands seem comparatively expensive.


VALUATION TOOL 4: PRICE OF NEW BUILDS

If house prices are much higher than the cost of building (construction costs), developers are motivated to put up buildings. So when you see a rush by developers to build, that’s a danger sign. As new supply comes into the housing market, that tends to put pressure on prices. So when house prices are far greater than new-build costs, it's a very clear signal that prices are likely to come down.

This post has been edited by icemanfx: May 3 2014, 04:25 PM

New successor... lets countdown for prop correction

Price won't drop la

Another topic discuss till v12 or maybe v30 if mod don't close it

I only said till v10 maybe oso no bubble burst. U lagi best.

Today news on sinchew. House hold saving is dropping fast, while house hold debt continue to go up fast. Another round of measures are suggested to remedy this situations.

Just for sharing. What's the point getting a luxury home when u get such problem and treatment from the Malaysia authority

http://realtymalaysia.blogspot.com/2014/04...seless.html?m=1

According to OSC (online portal), i can count more than 80 new highrise project submission around inner klang valley coming on-stream.

Mai siao siao lah...

so whats the latest household debt. the last figure is at 86% ...
or the article is based on this figure?

When a manufacturing company starts to construct houses, it is a clear bubble sign
Now everywhere we see "Ah Too" "Ah Cow" and "Ah Ngiau" become developer, it is dangerous
One of my college mate whom in FMCG marketing line becomes property guru, I almost fainted

This post has been edited by UFO-ET: May 3 2014, 06:55 PM

Some say I also become property guru liao.

Anyway besides chui sui, my employer will continue to roll out Homes that are Affordable. We have 2 coming soon.

Chief, I think you are much more knowledgeable than my fren, kudos to you for sharing so much informations, very useful indeed

Hmm i was thinking today. Malaysia is only 57 years old. Technically we've only had like what, 2-3 generations of urban house buyers? Ie those buying from developers in towns and through financing. We are relatively 'young' and already household debt is threatening to choke the current generation. How much further can the market go i wonder?

Yeah, the 86% is the old news. But the household saving is the first time I read. It actually shows decreasing holding power.

Brother if add those shadow banking the rate could be as high as 120%

Sei muo

Do we have shadow banking here ?

Sorry, do you mean ah long ?

http://hornbillunleashed.wordpress.com/2013/07/12/48103/

Thanks for sharing!

What actually is this household debt of 86% ? Does it mean total debt (housing loan, car, credit card, personal loan, etc) divide by gross annual household income ?
If yes, then I see no issue if the percentage rise to 100% or even 200%. Say a household with RM120,000 gross annual income (RM10K per mth)...will have close to 0% if they do not have house or car loan, but the moment the buy a RM400,000 house and took up a housing loan of say RM360,000, the percentage will shot up to 300%. But this is no issue as they can easily pay the mthly housing loan instalment with thier RM10,000 income.

ouch!

The problem high household debts when suddenlly increase in interest rate. More money need to feed bank and less money spend on eating out. Buy bananas etc etc

economy with less money to spend will cause recession.

but if interest rate drop. More money to spend which is good for economy but some family/Household will borrow more loan n futher increase household debts.

This post has been edited by tikaram: May 3 2014, 09:50 PM

Not calculated like that.

Household debt % = total household debt / GDP x 100%

few things I learn today.
1) Major bank in china is owned by gov. Only major and big corp can access to this banking, majority of sme and individual (including prop buyers) need to borrow from shadow banking ( also known as Ah Loong in M'sia). China gov will make sure the core banking system will not collapse.
2) Indonesia central bank has increased interest rate by 1.75% since last year, however, Thailand drop 0.5% (this % if not wrong) in the same period.
3) Although the unemployment rate in US has improved, but the jobs created are temporary or contract jobs. More quality jobs ie permanent jobs are required for long term substantiality. As a result, Feb need to postpone its plan to increase the interest rate. However, QE is ending soon, time to increase rate by then?
4) Market has adapted to the QE tapering. Share market no longer react negatively compare to its first announcement in May 2013.
5) Detroit may be bankrupt, but its residents actually have the lowest levels of debt in the country.

Juz to share ~

1st) household debt is very basic ~ I'm an IT/tech savvy guy, even i know that ~

2nd) household debt 86% meaning every household only has 14% disposable income

3rd) low disposable income -> less spending -> no business -> no companies -> no jobs -> no $$$ pay installment

u get the picture?

Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a year, or other given period of time. GDP per capita is often considered an indicator of a country's standard of living.

by taking household debts to GDP, what does it mean? 100% mean very bad?
If I apply the equation to my own household, will it be my total household debt over total household income per year?

with the definition of GDP, your 2nd point on 14% disposable income don't think is right.

The major problem is the high debts in society mean more money pay to bank monthly rather spend like buy banana which generate higher GDP when i grow more banana

high GDP good or low GDP good?

This post has been edited by tikaram: May 3 2014, 10:58 PM

Correct GDP is not equal personal income

GDP = market value

meaning all the products and services we produced ~ tats y we goto work to produce those ~


lets say market value 100% but actually 86% ~ u pinjam only ~ u belum pay ~


so u left oni 14% tat actually turn into income ~ where u can spend on GSC, LV, Samsung and Apple.


simple example ~

u make 100 cars ~

86 cars ppl said pay u by installment ~

oni 14 cars ppl pay u cash ~


so u oni have 14 cars cash ~ another 86 cars ~ u need to wait ~


i'm not expert in economy ~ this is juz my understanding ~



This post has been edited by zenjet: May 3 2014, 10:59 PM

but developer built the house (final goods) and sold to residents. Isn't it increase the GDP? GDP increase no good? GDP increase faster with debts or without debts?

the debts take years to pay back, 14% only correct if the debts need to pay back within 1 year and GDP refer to household income.
the car manufacturer get paid 100 cars when they produced and delivered.

This post has been edited by bcpbeancounter: May 3 2014, 11:01 PM

They use GDP to compare country to country. Malaysia household debt as a % of GDP is very high compare to our neighbours. So the financial risk is also higher compare to those countries. But usually the number is compare to savings as a % of GDP too. Malaysia gross savings as a % of GDP is quite high

Provided we all pay in cash n still have money to buy more banana

do you mean if pay via loan, the GDP lower? but developers get paid 100% (ignore the retention sum) when they provide VP.

no ~ the percentage is in real time, current household debt/current market value * 100%

it doesn't matter how long is ur loan tenure

But he dun conduct property speech

that's why we cannot just rely on 1 ratio and conclude that the debts is too low or too high. I think this ratio is just an indication, nothing much. if we are to take total debts over GDP, it will be few hundred % I guess as I think commercial debts are even higher compare to household debts.

yup ~ GDP is not personal income but is a "products & services" from everyone ~

which you need to sell them to get cash but if 86% of them is on loan ~ u oni get 14%

I understand this. but my point is 86% household debts to GDP does not mean 14% disposable income.

Developer collect money buy land. Buy bond. Shift to uk built battersea ma.

or money pay to bank by u n me not lend out in full to local ppl or company but to buy other bond in japan( lend to japan) ma.

NO. once you delivered your goods or provided services, you get 100% paid.

But if the country household debts very high ho.
Bank scare to lend more.
This will also cause credit cranch.
Mean u n me no money to buy banana n i will not grow more banana.

i see ~ so you always buy properties by cash ~ no wonder

If interested, can read the following to understand the high debt effect:

Academic one (Just read the abstract)
http://www.bis.org/publ/othp16.pdf

Newspaper and articles:
http://www.thestar.com.my/Business/Busines...o-GDP-hits-100/

http://jaybanks.ca/vancouverrealestatenews...household-debt/

this one you are right. But when credit crunch will come? You have the crystal ball? or maybe hantu pisang can tell you.

So what is the household debt to GDP hits and exceeds 100% of the GDP? This will only mean that the average Malaysian household is carrying debts as much as its income.

I think this part made it clear right?

This post has been edited by zenjet: May 3 2014, 11:32 PM

No...my total debts is few times higher than my annual income. Can I suggest that the writer also not too sure of how GDP is calculated? Haha...

maybe the products u produced 90% goes to ur boss ~ you only take 10% as paycheck ler ~

well ~ it happens to everyone except bosses ~

of the 100% service I provide to my company, I get paid 74%. 26% go to the sucker.

Maybe your ouput just 10% only leah.

The rest 90% you rob from your subodinate.

this is called team work!

Rob wo.

teamwork is share.

Wah! High income individual spotted.

Is this multi level marketing? Or senior? I dun tink so MLM.. MLM dun offer till 74% profit.. ur company make how much? 26%?

Thought you said bank dun borrow to you liao? Dat y cant buy more?

This post has been edited by bearbearwong: May 3 2014, 11:55 PM

MLM !!! pretty sure!!!

only MLM need team work?

I don rob my teammates ~

74% percent profit.. very high sales target.. wah looks relax.. means not amway.. forever living once reach certain time position secured..

those product sold to public 100.. in actual fact cost mb 10 to 20 ringgit only..

factoring commissions into product..

hey if really MLM.. he sure swipe credit card kao lat.. advance own money sin.. buy product @ 100% price.. later company return your entilement back to you.. mb 10%.. 20%.. 50%.. 60%.. must be a large company

Hami product? I forever living manyak use.. one shot salary plus commision can get 20k .. 30k.. hmm...yum yum

I am ordinary working class sit in office everyday. Bear bear refer this at 70%. haha...
in Malaysia very easy to hit the highest tax bracket of 26% personal income tax. I don't think my income is high, of course I don't say I am poor la. haha...

I am not MLM. this is not my cup of tea.

wa lao...every project also need team work right? unless you are captain America.

Boss how do u know I'm in tis line???

Haha tats true. I do kok toking nia.

Soli boon gor. Just for fun tis time. Wkend ma.

Abstract from BIS conclusion;

Meanwhile for household debt, our best guess is that there is a threshold at something like 85% of GDP, but the estimate of the impact is
extremely imprecise.

As with government debt, we have known for some time that when the private sector
becomes highly indebted, the real economy can suffer. But, what should we do about it?
Current efforts focus on raising the cost of credit and making funding less readily available to
would-be borrowers. Maybe we should go further, reducing both direct government subsidies
and the preferential treatment debt receives. In the end, the only way out is to increase
saving.

Increase out put too. Productivity Increase GDP

This post has been edited by tikaram: May 4 2014, 01:40 AM

Argument 2)
Real Estate is relatively stable than stock / money market in long run, putting money (cash or leveraging) is safer (less risk) than other options (except FD).
- Mr.A spend $500K (90% loan) to buy a property and spend $500K to invest in stock market, let say recession hit :-
1) 500K property drop to 400K, buy Mr.A still able to serve installments
2) 500K shares holdings in hand drop to 250K (intrinsic value), still holding.

sinchew said majority ppl invest in share.

http://biz.sinchew.com.my/node/94056

Many people forgot real estate investment is highly geared.

More likely Mr A;
1) Bought 500k property with 50k downpayment. If property dropped to 400k, Mr A is underwater by 50k.
2) With 50k cash could only buy 50k shares, if dropped to 25K, still left with 25k.

If interest rate raised by 3%;
1) Mr A may not able to service 450k loan repayment, visited by repoman, loss all and more.
2) 50k share may become 45k but could place downpayment to buy previously 500k property for 400k or less.

In loan agreement, bank has the rights to recall the loan or ask borrower to increase collateral anytime without giving any reason. In 1997, banks did recalled loan (from those in npl) and told borrowers to increase collateral (from those in doubtful), and any reason why it won't happen again?

This post has been edited by icemanfx: May 4 2014, 05:10 AM

Oh isit.

Another thing i learn yesterday is gov learn from mistake. Things happen in 1997 should not repeat because foreign reserve have increase significantly for asian country compare to pre 1997. Expert say one ha...i dont even know what is foreig reserve.

Recall generally unlikely for good debt.

The reason, bank is looking for trouble itself, if they did.

Imagine bank sudden recall the car loan, housing loan, how many borrower out there can repay or increase collateral at anytime?
If they have the money to repay at anytime, they don't need to borrow in the first place.

So by doing so (recall and margin call), bank is looking for trouble for NPL, which hurt itself by doing so.
No win party.

If borrower willing to pay on time for any underwater loan, bank is happy to see the prompt monthly repayment instead for forcing borrow to repay or increase collateral.

Eg.
A borrow make a car loan 100K, repayment a few K each month, who is in the right mind to recall the loan?
Forcing borrower to repay anytime?
Increase collateral?

Highly bank need to tow tons of car out there. Banks want money, or make money with interest from loan, they do not interested on cars.

Same with property
if the property bought 500K, now valuation plunge to 300K
Forcing borrower to repay? Borrower mostly has no instant money to repay or any collateral, so if doing so, bank needs to foreclose it.
Wait, foreclose it, bank will be hit by 200K loss.
While borrower has prompt payment that for 500k, that bank doesn't need to hit by 200K loss and stuck with a property.
Same with car, banks do not interested in property at all, they want money, interest money, not property, be it worth or not worth.

As a banker, which one you choose?

Mostly term loan, car loan, property loan, that every month you need to make payment one, banks generally willing to see prompt repayment instead forcing suddenly repayment or sudden forcing borrower to increase collateral.

One is loss-loss situation (forcing repayment, forcing increase collateral in a prompt repayment loan)
One is win-win situation.

So the reason is obvious, although margin call, increase collateral, cut back credit limit etc issue may happen again,
generally they may enforce it on the loan they already see as dubious aka borrower has showed sign unable to repay, even as mentioned from above post as term NPL.

it is not GDP high or low is good.

is what the GDP numbers are used for.

example is lets say the GDP numbers are from foreign investor opening factories or high end industries providing high income jobs.

well our country is flooding our market with low level workers like bangala a lot.

and if the GDP is fueled by massive credit expansion, it wont last for long.
you are lending to expand, and have to repay back + interest

Nowadays, most countries have learn to borrow internally, instead foreign.
Reduce the risk of foreign exchange, as well as both borrower and lender have the common interest.

in the US case, actually the shiat is still happening , it's a corruption at the highest level actually

read this article below
http://www.reuters.com/article/2014/04/30/...EA3T0N020140430


US has a state owned housing mortgage company called Fannie Mae and Freddie Mac.
During the subprime thing, all of the bad debts from other banks were sold to the state owned company at the old face value (mortgage loan price, not the current housing market price).

so those big banks look clean from the outside because all the bad loans were forced down the throat of the state owned companies.

when the banks win, they win all. When they lose, they transfer the losses into government's pocket.



This post has been edited by AllnGap: May 4 2014, 07:42 AM

•Price to Rent Ratio (or Yield)
•Relative Prices
•Affordability
•Price of new builds


All these above are only accurate of how bubbles are formed, but not accurate in the sense of how it can maintain.

most important factor is

1. INTEREST RATE
2. EASY LOAN REQUIREMENTS

GOOD TIMES = LOW INTEREST RATE x EASY LOAN REQUIREMENTS
= very big amount of loans released ( Malaysia is RM 100 bil per year )

amount of loans China increased since 2008 is about USD 13,000 Billion.

that is how growth is generated.

GDP growth + credit expansion always come hand in hand.

The key is those credit expansion is used for improved productivity and not excessive.

Whether GDP number due to foreign investors opening factories that low value added using to low level worker or not, will be seen through the GDP.

GDP is output made.
Scenario 1
Foreign factories opened a factory with low value added product, employ cheap labour.
So factories import raw material RM1, low value added sell at RM1.20. Your output is Rm0.20

Scenario 2
While another country with factory import the same raw material Rm1, but high value added, sell at RM2.00, output is RM1.00

GDP is how much output, value added that your economy can induce.
So high GDP number will roughly tell us some story of state of economy.

While how much output you generate, how much potential the income can be generated by your population.

Japan is a classic one

Just to share with u all what I found last night.

Public debt/gdp 55%
Corporate debt 95%
Household debt 86%

Total debt = 236%
Latest gdp = 1000b

If interest rate = 6%
Total debt installment per yr = 142b

If gdp = gross profit = 1000b
14.2% goes to interest installment.

household income = rm5000/month x12 x 6 mil household = 360b
Household interest installation = 1000b x 5% x 86% = 43b = 11.9% of total household income

Wow.

bank fat cat lo

142b/20bank each 7b

Whack whack whack bank share.

11.9% on interest. If add principal should less than 30%. So disposable income more than 70%. Still good right?

Good point! Bank will earn like a fat cat if economic recession doesnt happen!

If add principal average should be 40%right. Bcs some loan hp. personal .cc loan higher interest rate.there is this study post here before.

After tax n epf. So disposable income 20%

Next year 5% go gst

balance only 35% for Bkt. Petrol. Toto. Bir. Kid pocket money. Angpow. Donation. Iphone. Movie. Karaoka. Ouch

if blr go up. Worst lo. Need to borrow from relative lio.

This post has been edited by tikaram: May 4 2014, 10:13 AM

banks also has sales target especially collection department... non prompt payments will reduce their collection target..

remember the property is being speculated... cars are not...

by foreclosing the property inflated ones... banks are actually pulling the property market down .ie correcting if defaulters many...

now, banks want money, once auction you will see many takers around be it runner, agents, buyers and etc.. the price auction price is affordable..

remember property price today is because ppl cant afford not because they cant buy..

with new buyers from foreclosed property... price are lower and most time reflective of the property at that point of time.. and banks loans are more often that not hit 90%..

good point to note government can force banks to do so if they are serious in correction..

Personal loan is the one increased the most


Attached thumbnail(s)

If no money should eat roti + kaya. Buy samsung sign up 2 yr contract come with free phone. Cut down all unnessary entertainment. Worst case, eat banana for breakfast till dinner. Jimat dan sihat...

Want to ask. Why banks' reserve price for auction properties can sometimes be same or higher than the advertised price in property classified ads? So how can bargain hunters can good value for money at auctions.

Ur coconut balls told u these? so many speculations in the discussion...Car is not being speculated...therefore u shud buy more in future!