This is a continuation from V6:
https://forum.lowyat.net/topic/3212945

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.

Vince Cable, the business secretary, proposed on Thursday that the Bank set a cap on mortgages at a ratio of no more than 3.5 times of salary, as opposed to five times income being offered now.
http://www.theguardian.com/politics/2014/j...on-house-bubble

Those we think bnm and locals are prudent and conservative in lending may need to reconsider.

In any bull run, be it stock, gold, etc, the longer it take to crash, the harder the crash. The seriousness of the crash could be indicated by this thread version number.

We shall wait till the crash and buy. Cash buyers will not have anything to worry about. 3.5 is nonsense. Make it 1. Let see who can run faster.

I see that it will not crash currently. Instead, I see genuine buyer (own stay, hong haul) still buying for kids, with parents. I see flippers stopping, and/or busy selling off as fast as they could the props they bought once VP. Still it will not be crash, maybe they take less profit due to government policy. Current pricing of new launches are future price, thus leave very little room for substantial appreciation unless previous launch price point.

I see SoHo/Small-studios, turned into MINI HOTELS, perhaps whole floor renovated. A new type of short/long stay, with good service and high-speed WiFi and even privatised room-service (if that property do not have such service already) Effectively turning it into some kind of TIME-SHARE kind of stay. But this is in reverse order of TIME-SHARE. This is due to so many of them swarming the market. Good enough for short-stay (1 - 5 years) but not for a family of 4. SOHO will become a sort of 'PIT STOP' prior to a bigger (approx 1025 - 1500 sq ft) living space.

Just thinking out loud here.

If you talk about SoHo/Studio, I think they called it Homestay.

SOHO is not pitstop. Its not really suitable for family with kids. Only for newly weds yes. But I think most wife will kill you if you buy studio as wedding house. Hahaha...

Currently the price is not crash because no transaction or no buyer in the subsale market. I don't know what the buyer waiting for. Crazy la.

This post has been edited by gogo2: Jun 16 2014, 10:44 AM

So.. v7 already.. bubble bubble.. picture is getting clearer

Parents assist their kids with downpayment is common. Those rich parents that could buy for their kids are likely to have multiple properties, would have bought earlier. Realistically, number of parents buying for kids currently is very low.

Converting surplus soho to hotels is only possible if the whole floor is owned or leased to a operator.

Not really clear though.

I see from thread https://forum.lowyat.net/topic/2967053/+260

still got a lot of people buying new property.

Just that subsale got not much transaction. LOL...

How sure are u???
Because your parent didnt buy for u then u think parents buying for kids very low??
Vice versa, I think parents buying for kids these days are very high......

Not only that. Non-parents also buying for their non-existing kids too.

From Original, V1 till V7. Bo clear oso can not lar.
Till V10 lagi clear. 😄😄

More people spending time here is a good indication of bubble.

I see that other threads are not so active now, while this thread becomes more active. Really bubble is going to burst.

Parents buying for their children is increasing cos Property is ever increasing making it very difficult for our future generation to buy properties, esp Landed.

Anything but no bubble. My own family members and few colleagues just bought million and multi million dollars worth of property each. Another colleague is viewing units thinking to buy for son graduating soon.

It is a different ball game now, people are buying for own stay and hedging against inflation. Less hit and run flippers.

Now you see the real deep pockets in action.

Statistically, 90% of parents couldn't afford to buy for their kids.

That's why you don't see much house in auction.

Reach which version bubble only will burst ??😄😄

Many around me stil planning for kids future by buying props. Some decided to migrate one no need to Tok la.

But for me I dun buy houses. I cont buying shops factories and lands. By time kids grown up, I sell one by one to get new resi for them

Can say liddat boh???

if you are using Dept of Statistics, 80% of MY earn less than RM3K per mth

but majority of these folks are not in KV, Penang, JB, etc

You must focus on whet segment you are referring to

There re are Lies, Damn Lies and Statistics

For all intend and purpose, we are referring to Hot / Popular Spots and in these places, more and mope Parents are buying for their children.

Many are forgoing their own luxuries such as Cars, holidays by investing in Properties.

Maybe won't burst.

But the objective of this thread is achieved. We now have a bubble market. Congrats to me and other UUU forumer. Also thanks for suiyi for snapping up all our VP'ed house.