QUOTE(kw_cheah @ Aug 5 2010, 11:16 AM)
Just my 2 cent.
Your salary increase rate is forever unable to catchup with the properties price increase rate, unless you have your own business. If you are just a normal man like me, every months end waiting for the salary, and no other better investment plan, please don't wait further. Just buy now. The properties price won't wait for us. Most of the people buy properties with taking bank loan with the lowest interest rate, maximize the tenure, and minimize the monthly installment.
This unfortunately is why the RE market has imploded in the US UK and EUROzone. It was surprising to me to see how expensive RE (over 8x income) is for the average Malay. Forever didnt and doesnt exist in these mentioned markets and now others like Canada, Australia and China are on the verge of a massive correction.
Credit Expansion for the last 15 years has proven that low rates, relaxed lending practises, extended ammortizations and loose monetary policy has made RE a loosing proposition for investment in the western world and the Keynesian Model was not sustainable.
Moving here from HK just over a year ago I looked at home prices. The home we occupy is in fact sitting at 8x income but can be rented for 4x income which is deemed "moderately affordable" as 3.5x would be "reasonably affordable" and 3x "affordable".
Note that these 8x levels are comparable to those countries which have crashed and those about too, to the point where even the printing of money (stimulus) and keeping low rates running have not worked matched with new home buying programs etc etc. We have hit the wall on consumer spending, jobs and income so DEFLATION has entered and will be with those countries for years until the bottom in unemployment can be put in.
With asset deflation comes increases in public taxes, utilities, income tax and everything from fuel to food making way for inflation down the road. If you think owning a home is unaffordable now, just wait until DEFLATION hits our shores. You cannot defend that Malaysia will be saved from this. I used to think we were slightly better off given our perceived bubble was not as great as the rest of Asia, ie CHINA, HK, SING but this 8x income is true evidence we are in trouble.
NOW, if you dont believe any of the above, and this may be true for someone either highly dillusional, unable to take view outside the Malaysian shores or feels limited to alternative investment may I bring you to the unstoppable demographic who will bring all things into play as described above ---- BABY BOOMERS!
Most Boomers have all their money tied (not unlike most globally) into RE and they are counting on these funds for retirement. These Boomers in US UK EURO have already been forced to sell to both access liquid funds to cover current retirement costs or downsize substantially from McMansions into smaller dwellings. This demographic sucked all sub prime and even prime mortgage holders into negative equity which keeps going down every day they cannot get out. Countries on the verge of bubbles popping have seen the writing on the wall and now getting out on the front end to net highest profit, again to sit on the sidelines and actually retire so they dont OUTLIVE THEIR MONEY!
If the US is any blueprint for failure and what the future holds given this massive demographic in BOOMERS who's needs are unstoppable, then you have to look at options.
Now to step off the soapbox!
The avg. Malaysian always has a choice. For those who have been sitting in properties for over 5 years, you are probably okay if you view your RE strictly as HOME (somewhere you live and enjoy with your family and can absorb a drop of say 30%). Those who view their RE as an INVESTMENT should look at potentially freeing up these funds in liquid form anticipating the drop.
For those who have purchased within the last 3 years or so, you really need to understand the risk you take for you and your family at this time and for likely the next 5-7 years as the GREAT GLOBAL RESET takes place.
My advice is simple. If you dont need to own just sell. Take your gains if any, go back into a rental which is half the cost of ownership and take either the profits and/or savings monthly and get into safe yielding dividend investements via banks or utilities and sit on the sidelines waiting to enter other opportunities as RE will be deemed negative for some time to come.
If you subscribe to this strategy like I do, there is one more thing you need to be ready for that is fiat currency devaluation on a global scale. The RM is strong right now as the USD is lowering mostly on recovery "talk" and an increase in oil prices. Dont buy into it as it's a false as the previous heighs put in around 2007. The USD is still the world reserve currency and is likely the last currency to fall (best of a bad bunch). Eventually the USD will need to drop to be competitive with the others and this is when you want to revisit your asset allocation, drop your liquidity play and get back into hard assets while they are both valued at the bottom and a weak currency in place.
I am sorry to say very few will be able to follow through with this strategy so I am certain that the above will occur to some level. I am safe to forcast the future in the developed world to a fairly reliable level but for Malaysia I still have some more work to do but getting close. I am happy to live here and feel it might be one destination which could be much better off than others given it's cost of living and domestic assets but it doesnt change my investement strategy one bit on the Global scale.
This has been my 10 cents! Good Luck to All!
Added on August 5, 2010, 1:31 pmWednesday, August 4, 2010
Andy Xie on China’s Empty Apartments
I recall a presentation on China at the Asia Society on the eve of the financial crisis, in which an economist commented on China’s extremely low interest rate on deposits (less than 1%) versus its markedly higher inflation rate, and commented that that was a recipe for hyperinflation. Well, that hasn’t been and is unlikely to be the result. Instead, we are seeing an even more extreme version of what negative real interest rates in the US produced: leveraged asset speculation, particularly in the biggest asset class, residential real estate.
Recent articles in media have illustrated how out of line prices are with incomes and rental yields. Reader Glenn Stehle highlighted a key factoid in a recent New York Times article on China’s real estate bubble boom:
And as the prices of new apartments soar — in Shanghai, for instance, they often exceed $200,000, while the average disposable income is about $4,000 a year — the trend also threatens to undermine the central government’s goal of affordable housing for the rising middle class.
We noted that the Chinese officialdom is worried about the social implications of overpriced housing. Richard Smith, who provided a series of posts on China’s real estate markets (here and here), tried making sense of the investment math:
The residential RE stuff is completely baffling: the valuation differences between cities are large; but none of them look cheap. Shanghai may be extreme – but even at the more modest (!) house price = 8x salary in other cities, a 30-year mortgage @ 6% or so takes 60% of gross average income (unless my calcs are completely shot) . So I can’t understand who is buying housing at all or how or what they are living on – even if the parents and grandparents are helping out their 1 child, it is quite a stretch. Rental yields 2-4% depending on location so that’s no good if there’s much gearing.Another piece of the puzzle comes from Andy Xie (Caixin via MarketWatch), that the number of vacant apartments in China, the result of speculative warehousing (purchased as an investment but kept vacant) plus new construction languishing unsold is much greater than commonly realized:
How many flats in China are sitting empty? The media recently floated a story — denied by power companies — that 64.5 million urban electricity meters registered zero consumption over a recent, six-month period. That led to a theory that China has enough empty apartments to house 200 million people….
What especially distinguishes China’s property bubble…is an unprecedented amount of living space. This huge stock of empty flats equals the nation’s quantity bubble.
Quantity bubbles are less common than price bubbles, and they don’t last as long…A quantity bubble is sometimes a construction bubble, and it fizzles out when a building cycle turns over, crashing prices as soon as new supply becomes available….
Quantity and price bubbles may grow together. Southeast Asia, for example, experienced a quantity-cum-price bubble that lasted several years in the 1990s. As regional currencies were pegged to the dollar, loose monetary conditions were imported from the United States, fueling a property bubble. Due to few restrictions on urban development, rising prices led to massive increases in supply. Liquidity inflow fueled speculative demand. But when U.S. monetary policy tightened, the market crashed and triggered the Asian Financial Crisis…
One useful figure for analysts is China’s living space per capita….Based on this limited data, however, we can confidently conclude that China does not have a housing shortage. Moreover, its per-capita living space is higher than in Europe and Japan. Indeed, if we adopt Japan’s standard, China already has sufficient urban housing space for every man, woman and child in the country.
Far more important than general data, however, are the housing figures pointing to a huge quantity of empty flats apparently being held only for speculation.
In a normal market, the vacancy rate should be equal to the number of households relocating, times the average transition period, plus newly formed households times the average purchase period. For example, a vacancy rate of 1.5% could accommodate a market in which 6% of households relocate every year, and the transit time is three months. If new household formation is 3%, and the average period for a property purchase is six months, this factor requires a vacancy rate of another 1.5%. The total normal vacancy rate should be 3%. This figure includes the new properties ready for sale.
Although the government doesn’t publish vacancy data, I think the vacancy rate for the nation’s private, commercial housing stock is between 25% and 30%. That’s at least double what’s required in a normal market. The gap between what’s needed and what’s available can be viewed as speculative inventory. The value of this inventory held by speculators is probably around 15% of GDP. It’s being kept on ice, just as copper and other commodities are hoarded in anticipation of rising prices…
Right now, tight credit is holding back the market, and supply is piling up on the developer side as inventory. The government’s tightening squeezed buyers of second and third homes, and transaction volumes across the country collapsed. What I’ve learned from intermediaries is that most property demand now falls into restricted categories, i.e., speculative.
It’s reasonable to assume, therefore, that the supply would be close to 15% of GDP in value this year and in 2011. That’s because when the policy is relaxed — as most expect — speculation will probably revive and lead to a doubling in the total value of speculative inventory.
Chances are good that policy makers will indeed relax policy. In some cities, banks are already loosening a bit. A key reason is that local governments have a lot of debt — commonly five times more debt than revenue — and could get into financial trouble without a decent level of property transactions.
Local governments in China depend on real-estate deals for revenue and could default if the market falls too far. Thus, the central government may loosen policy to help the locals without making a formal announcement. Such a change of heart would ease short-term government difficulties but double the trouble down the road when the property bubble bursts.
So even if China’s stock of empty flats is only half that recent estimate of 64.5 million, it would still be equivalent to 20% of all urban households. That’s higher than Taiwan’s vacancy rate at the peak of its bubble. Moreover, as credit rules are loosened, the stock could rise to more than 30%.
China’s housing oversupply isn’t surprising. Excess supply reflects the under-pricing of capital, and China’s system is structured to increase supply quickly. But rising prices alongside rising vacancy rates are surprising. Normally, speculators are spooked by high vacancy rates. But China’s phenomenon is unique for at least four reasons:
1) A sustained negative real interest rate has led to a falling demand for money and rising appetite for speculation. Greed and inflation fears are working together to form unprecedented speculative demand for property.
2) A massive amount of gray income is seeking safe haven. China’s gray income of various sorts could be around 10% of GDP. In an environment of rising inflation with a depreciating dollar — the traditional safe haven — China’s rising property market is becoming a preferred place to park this money.
3) Few people in China have experienced a property bubble. The property crash in the 1990s touched a small segment of society, such as foreigners and state-owned enterprises. Geographically, it was restricted to the country’s freewheeling zones in Hainan, Guangdong and Shanghai. Most people didn’t even know there was a property crash. This ignorance has led to a lack of fear that’s now turbo-charging greed.
4) Speculators think the government won’t let property prices fall. They correctly surmise that local governments rely on property deals for money and do all they can to prop up prices. But their faith in government omnipotence is misplaced. At the end of the day, the market is bigger than the government. The government can delay, but not abolish, market forces. Nevertheless, faith in government is replacing fears of a downside, and speculative demand will continue to grow as long as credit is available….keeping interest rates low will only worsen the nation’s bubble problem. Periodic credit tightening and crackdowns on speculation won’t work because they are not taken seriously and never last….
One only needs to glance at modern-day price and quantity property bubbles around the world to understand the stark consequences. What’s happening to the U.S. economy now is a prime example, and it should be lesson for us. Otherwise, China’s economy will look like America’s.
Notice the bind China is in. It has to keep the bubble going to preserve local government finances. They’ve become a classic Minsky Ponzi unit. And efforts to move away from the dollar as reserve currency, something which China desires from a practical and prestige perspective, only makes the domestic bubble worse.
We’ve pointed out repeatedly that creditor nations typically fare the worst in severe financial crises. China appears to be defying that pattern, but the implosion of its real estate bubble may prove it to be no exception.
This post has been edited by Onemorething: Aug 5 2010, 01:31 PM 
May 11 2010, 03:05 PM
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