Unfortunately, I hate to tell you that there is no bubble at this point in time.

This is a normal market cycle which goes up and down. The long term trend is always up. If you can hold on, hold longer.

A lot of people feel that a bubble has formed because of the rapid growth of property prices from 2009 - 2013. But property prices have more than doubled since the financial crisis in 98.

What if let's say this theoretical "bubble" pops. How much of correction are we looking at? 10%? 20%? Will this be overnight?

Realistically, this will not happen. Since 2014 - 2019 there has been a drop in prices of about 20% but that is a slow gradual landing. (Mostly in the secondary market).

Because anything more than 30% drop will cause a recession in Malaysia that will take many years to get out of. BNM and the government in charge will intervene and drop interest rates to keep the economy growing and get it out of the rut (so to speak).

If you really observe, developers are selling at more affordable prices now (We are seeing 3xxk, 4xxk launches, the norm in 2014 was about 5xxk and above) but that comes with a cost of higher density and smaller sizes.

There is a softer demand for sub-sale properties because of the HOC. There is, of course, plenty of deals now in the secondary market because of this.

If you are selling, I recommend you hold your horses and wait it out. My 2 cents.

Not likely, over the middle, long term input costs will go up. My guesstimate would be that it would be hard for the next 5 years or so. But the next boom will likely come after that.

The world has gone crazy with the outlook that growth will be slower in the next few years. Central banks in the region and the United States (US talking about dropping interest rates by a quarter or half a point. ) have dropped their interest rates. This will stimulate a short term growth in spending by offering cheaper credit.

Don't be surprised if we end up with another rate cut. Although that is only a bandaid and not the long term solution. In a healthy economic cycle, a recession must come every few years to sustain long term growth. Debt paydown occurs during recessions.

What should be happening is that governments should encourage a recession to prevent a harder landing when it will hits.

However, since central banks are lowering interest rates. They are essentially selling their "insurance policy" for when a recession hits. In these scenarios, don't be surprised if QE happens during the next recession (which might be a depression at the rate things are going).

In simple terms, if banks print more money. Values will go up. Whether it will happen or not is anyone's guess. If you're not getting the desired price and not in a rush for money. Hold and collect rental income.

Alternatively, you may wish to refinance for cash instead. Example, if you are collecting a rental of 1500, you can refinance about 330k).

If anyone has got a more comprehensive view on the current situation feel free to chime in. I may be wrong as learning is a lifelong process.

Cheers.

This post has been edited by vckc: Jul 20 2019, 02:56 PM

You have to look at things from a bigger picture and from an economic point of view.

They have every interest to protect the property market as it affects the Malaysian economy as a whole. The property market can cause a huge ripple effect throughout the economy.

Just look at USA in 2008. Understand it, then you tell me that the government has no interest or obligation to protect the property market.

Edit: You may wish to read The Big Short by Michael Lewis for an in-depth account of the crisis.

A lot can be learned from the US subprime mortgage crisis.

Why do you think there are efforts to clear property overhang? Why bother with HOC?

An interesting thing to note is that in Malaysia, there no easy access to credit, and no shadow banking system. Say what you will about the previous government but they did a good job picking lessons from the crisis to prevent an economic fallout/disaster.

Funny you compare properties and cars.. I think the layperson can understand why they are not the same.

This post has been edited by vckc: Jul 20 2019, 04:15 PM

It is because of slowing and a negative economic outlook as a whole that the rate cut occurs.

A rate cut decreases the barrier to entry for a lot of buyers. It enables businesses to borrow more for less. And puts money in the hands of millions of Malaysians who are servicing loans. A 0.25% drop frees up on average of RM 60 for a mortgage loan of 400k.

Multiply this and you can see exactly how powerful a rate cut is, the extra money will either be spent or reinvested breathing new life in the economy.

The median age in Malaysia is 29 years old. This is an extremely healthy level.

I used to think that Malaysia properties are doomed. But by the time I understand and learn more about the economy. The more I think otherwise.

For a comprehensive education on the economic system, boom and busts and its intricacies. Read "Big Debt Crises" by Ray Dalio.

Increasing foreigner purchase from 500k to 1 million

Tightening of bank lending making it harder to get a loan.

LTV 70% for the 3rd property

DSR calculation switch from gross to nett income for the mortgage application.

Removal of DIBS

Strata title to be issued upon Vacant Possession

There are just some of the things I can recall at this moment.

EDIT:
These changes are still maintained by the current government.

Naturally, they are very concerned about the current property overhang issue and have even revised the plot ratio.

Developers can no longer get approval to build high-density condos.

This post has been edited by vckc: Jul 20 2019, 04:13 PM

The economy is more interlinked than you describe it to be. A fall in the secondary market will affect the primary market.

It's a well-known fact that developers price their inventory in future price.

Supply and demand, in general properties in the secondary market, are 10-20% lower than the primary market. Then buyers will prefer to purchase from the secondary market instead. Don't forget, purchasers can withdraw from their EPF account 2 to make a purchase if they want to.

There are plenty of people sitting on the fence for the past few years because of the negative sentiment. Trust me these people are waiting till times are good before jumping in. I reiterate, the median age in Malaysia is 29 years old. This is an extremely healthy level. The median age in the US is 38 years old. A growing population means that there will be more demand over the medium - long term.

A discount of RM 60 a month multiplied by the number of mortgages lead to an adrenaline shot in the Malaysian economic system.

More money flowing equates to higher growth. People have more to spend, and when people spend more. The economy churns more.

The government and the central bank's interest lies in the wellbeing of the citizens. If they don't manage it properly, good luck getting re-elected.

Loan compression cases are lower than you think they are. You are making it sound like a huge percentage of the loan cases are compression loans, however, the reality is different. This loophole is also getting closed. I would be concerned about this closure if we are at the peak of the property cycle as it would lead to a hard crash. But since we are not. I don't think an important factor, as compression cases constitute a low % of mortgage applications.

A household debt of 83% is still alright. The US household debt was at 128% in 2007 before the crash and normalised to 77% in 2012. The data shows that our household debt is on a decline.

There are many factors contributing to the occurrence of the subprime crisis. Extremely easy access to credit, (any Tom, Dick and Harry can get a mortgage loan) they are then sold and repacked to mortgage-backed securities which investors then purchase.

I won't go into it further because I will have to write a thesis. Just read the books that I have recommended to get a clearer picture.

You are entitled to your opinion, I am entitled to mine. There is no right or wrong, only facts and figures. No one can foretell the future.

Sit back, relax, enjoy the ride. The only difference is whether you are in it or not. Because I'm in it for the long haul and things have get worse before they get a lot better.

Hey Gary! How's the land down under? I hope you're looking forward to your retirement.

I have followed your posts in FIRE and find them very insightful. Thank you so much for sharing your experience!

Mark up saja.. Extra RPGT you bear.

Don’t let the banks know.

Don’t know about others.

But I have gotten out of the property industry since 2014 right before the decline. I had to change fast.

The good times of achieving 5 sales a month were over and only the top win.

Edit: the general consensus, and market sentiment is that it’s stagnant and will go down. Lagged demand so to speak will pour in. If that doesn’t happen it’ll happen after the next recession.

This post has been edited by vckc: Jul 20 2019, 06:52 PM

4-5% for residential still possible. Just need to find.

Correct, so do prudent projection and own due diligence.

Can can... plenty out there.. just need to know where to look