In summary...
Price is unlikely to drop "much", but banks will faciliate and cushion the "higher" price by introducing "creative mortgage plans"? (e.g. Loans serviced by 2 generations)
Hopefully, I'll have enough bullets in anticipation of increase BLR and increase unemployment rate (the double dip in recession).

If BLR or unemployment rate increase, those that get affected are the lower income group. If your target is buying low cost flat, then it may help. Otherwise, capitalist still win regardless...

BLR and FD rate increase is a sure thing within one or two months times.

All countries including US and MY central has said that moving interest back to normal level is necessary. What is the normal level?

I guess should be 3.5 for FD and 7 for BLR. (gradually increase in this year)

house price wise, we should a small dip this year as people have been warned of increased BLR.

new development are all for rich people only (monthly salary >10k). no seeing any low cost projects unless you are willing to buy it at sg. buloh, puchong, semenyih, kajang, etc. these places you can get RM200k++ for double storey link house.

capitalist divides into two types: one type really rich, one type uses leveraging. IN case BLR increases, first type will win, second type will dip.

THE MONEY is the KING soon!
keep your money now, so when interest rate increase, who has the most money will win!

I think the key thing here is that you cannot be looking at RE anywhere without considering the global financial climate and KL is not by any means exempt from it.

This decade will be filled with uncertainty that will be very uncomfortable for most who have little to no investment experience but took on low interest loans and long ammortizations as it became affordable to buy more house with less for some, allowed people to once and for all purchase instead of rent.

All of this cheap money inflated property prices and yes the house always win.

Speculators purchasing in the last 3-5 years were thinking no correction so leveraged.

Even an investor with property purchased 10-20-30 years ago should be cashing in right now as the market for RE in all parts of the world inflated falsely to an unprecidented level.

Government intervention will only make matters worse and delay the inevitable. Why do you think the banks are getting bailed out and who do you think is benefitting before the REAL COLLAPSE takes place.

CASH IS KING! Liquidity is key!

The best time to purchase RE is when interest rates are at an all time high as prices will be at their absolute lows.

Tightening of loan policy will exclude many buyers thus taking prices down further which include shorter ammortizations and higher downpayments.

For those of us with large cash positions, we will not only be in the best buying opportunity moving forward, but will be the only ones who qualify for purchases. And when that is only a finite few, you can bet the loan incentives will include great discounts and free Hondas and Toyotas offered both by banks and the seller!

2010 will mark the transition of the GREAT GLOBAL RESET!

This post has been edited by Onemorething: Feb 2 2010, 01:34 PM

the current price of some properties do not reflect the actual buying power of the people.

e.g. the wangsa manju condo has been fried to 600k+ (eastkl)

all people buy it because they think the price will increase. the next people who buy it more expensive because they think it will increase more.. same to the next next..

the price has been fried. When you see the speculators are there.. avoid it. eventually it will fall..

So far, in Malaysian history, there is no precedence of property collopase. And, there is no guarantee interest rate will rise from here. Maybe 0.5 to 1% increase, if at all. Economy not that vibrant, what's the reason to increase?

Anyone who has believed in this mantra since 4 years ago must be kicking their heels now

BNM may hike OPR in March

By Standard Chartered Global Research
Tuesday, 02 February 2010 10:18

KUALA LUMPUR: In its latest monetary policy statement on Jan 26, Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 2%, as widely expected, and reiterated the “appropriateness” of the current monetary policy stance against the backdrop of re-emerging inflation, Standard Chartered Global Research said on Feb 1.

However, there was a significant change in its statement which pointed to a more hawkish stance: the central bank highlighted the need “to prevent the build up of financial imbalances that could arise from interest rates being too low for a prolonged period of time”.

Below is the report by the research house

Because BNM initiated its rate-cutting cycle later than most of its regional peers in 2008, we originally believed it would also start raising rates later, ensuring that the recovery was firmly entrenched first.

However, given the improvement in economic conditions and BNM’s hawkish tone, we now believe the central bank may hike rates much sooner than we previously expected.

We emphasise that this should not be seen as beginning of an aggressive hiking cycle, but rather as a normalisation of interest rates to guard against financial imbalances, which could arise as cheap money finds its way into asset markets such as real estate and equities.

BNM’s more hawkish position also reflects its upbeat view of Malaysia’s economic conditions; the central bank brushed aside the possible moderation in global growth in H2-2010. Thus, based on domestic financial conditions, it can afford to focus on normalising monetary policy.

We expect BNM to start raising rates as soon as its next policy meeting on 4 March.

We expect three 25bps hikes this year, taking the OPR to 2.75% by mid-2010.

We expect another 75bps of hikes in 2011, taking the rate back to its previous high of 3.5%.

Since the passing of the Central Bank of Malaysia Act 2009, BNM now convenes the Monetary Policy Committee to set the OPR six times a year, instead of eight times as in previous years.

Visible improvement in economic conditions
Looking back at the depths of the recession in Q4-2008 and Q1-2009, the central bank acted appropriately, in our view, cutting the OPR aggressively by 150bps to the current record low of 2%. Note that when the OPR was first used as BNM’s chief policy instrument in 2004, it was at 2.7%.

We believe an OPR of 2% was appropriate for 2009 given the weak domestic and external environment at the time.

But the worst has passed, and while we still expect the recovery to be gradual and bumpy, 2010 will clearly be different from 2009. The improvement in economic conditions is the most important factor to consider in reviewing the appropriateness of the current monetary policy stance. However, this is not the only consideration.

Pre-empting financial imbalances with little impact on lending
The central bank is wary that if interest rates remain too low for too long in an environment of flush liquidity, low-cost funds will eventually find their way into asset markets like equity and property to seek higher returns, leading to the formation of asset bubbles.

Following the aggressive OPR cuts of late 2008 and early 2009, the base lending rate (BLR) of commercial banks fell from 6.72% to 5.51% and has stayed at that level since March 2009.

However, the average lending rate (ALR) on loans outstanding has continued to fall since March 2009, even as the BLR has remained stable. The ALR fell to a new record low of 4.85% in November 2009 (the latest data available), reflecting BNM concerns that cheap credit may start to find its way into asset markets.

Going forward, Malaysia’s domestic economy is set to benefit from the impact of government stimulus packages and the recovery of global demand.

So even if lending rates were to move up from their current historic low, the impact on lending activity should be minimal. The more important point is that credit remains available to businesses and households.

BNM is normalising interest rates, not tightening
Monetary policy centred on interest rates works with a lag (typically of two to three quarters), so pre-empting financial imbalances would require acting soon.

We also believe that BNM wants to normalise interest rates to suit current economic conditions.

This is unlikely to bring the OPR back to the pre-crisis level of 3.5% this year, in our view.

We now expect the first hike on 4 March 2010, followed by another two 25bps hikes at the 13 May and 8 July policy meetings.

We expect BNM to hold the rate at 2.75% for the rest of 2010 (quite close to the 2.7% level at which the OPR was initially set in 2004). We expect the OPR to remain at this ‘normalised’ level for the remainder of 2010, barring unexpected external shocks.

BNM may not hike too

May I ask if the OPR increases from 2% to 2.75%, what might be the increase of the BLR?

BNM will have to hike the interest rate following others countries like australia. No doubt the RE price will be affected by the whole economy and US economy. This had been proven in the last recession last year and there no argument on this. Us economy had been rising on the stock market and economy growth. However, the 10% unemployment that will affect the retail sales and productivity is a major concern. The intervention by FED seem to create artificial economic upturn and no doubt this will be very fragile. In coming month, we will see Dow Jones coming up and down vigorously as a effect of the artificial rebound and FED intervention. I forecast there will be a slow growth in ecomomy for all countries.
Looking at this, with BLR on the rise and PGT, this will push the property price up as cost have been more. However, due to the higher selling prices and unencouraging higher BLR and PGT, buyer will turn away soon. It will take some time for buyer to feels that the price are stablise before starting to rushing into a deal again.

Conclusion : Prices of property will stay providing US economy stay. I forecast this year end will be another double dip for whole economy and this time it goin hit hard. So guys, don't be too highly gear.

Pai, liquidity is good, cash is king, but both is less inflationary hedging. So guys, balance out the wealth management and always get ready for another round of opportunity when the economy collapse. Those who done so in the last recession is laughing his way to the bank now!!!

So, you are saying there is going to be a double dip? How then can interest rate go up? Stop saying interest rate will go up because you have just read a bunch of recycled articles saying that it must go up. Nobody knows. It might go up and it might go down. Just because we are at historic low int rate level does not mean we can't go down more. We are still much higher in terms of rates compared to sg, hong kong, us and Japan! Japan has been having zero int rates for years. Talk about low rates. Dun believe all u read.

fully in support of what constant quoted. a hike in the rates would not deter property growth. at least not yet. usually a substantial hike only would deter it enough. if small hike eg. 0.5%, it's still manageable. usually when that happens, sales will drop but rest assure property price will not drop...yet. sometimes you might actually see an increase in value whereby people are aware the financing cost to own a property is increasing as well!
when i bought my 1st property, i was paying BLR+2.25% working to approximately 7.8% or something like that. my latest property purchase was BLR-2.25%.
also not forgetting the flexible rates offer by banks. if BLR goes up, they are able to provide higher (-ve rates). if BLR goes down, they provide less flexible rates.
eg. BLR 6.5%, BLR - 1.5% = effective 5%; BUT if BLR goes to say 8%, package by bank may be BLR - 3% = effective 5%.
let's put it this way, whatever loan you are in, you are bound by it for only approximately 5 years. if the differential between new package and existing package is too huge, pay the lock-in penalty, no big deal. ultimately, you will still benefit from current BLR pricing versus future BLR pricing.
all this talk about cash is king is semi true. true only if you really have a LOT of cash. and definition of a LOT is really a LOT!
anything less than a million bucks, is nothing to really shout about.
anybody wish to support my hypothesis?!
cheers!

I think u over-looked one crucial factor that could super-seed your whole argument here.............which is the ASIA factor.

Btw, during the last recession...............our property prices barely dipped, so not sure who's laughing all the way to the bank as u claimed........

---

Added on February 3, 2010, 3:33 pmkochin, well said and I'll add my thoughts :

1. BLR - 3 will be quite impossible as that would mean banks will not be making any profit.

2. Minor rate hikes in various countries that I've seen is like adding oil to fire and only further fuel asset bubble

3. Totally agree as even if we do face a recession like we have not seen b4, you need at least 1 mil in cash to make any meaningfull gains. Whats the point of investing in properties when one has to put 30% to 40% down? Honestly in a recession where financing will be a pain , I'd rather buy some battered bluechip stocks....




This post has been edited by Pai: Feb 3 2010, 03:33 PM

Dear all,

Thank you for the constructive argument. I learned more from you guys.

Anyway, it is not always that when you have a economic crisis, the govt. will lower BLR. It may be uptrend also, dependable it is a recession crisis or others. So, please do not estimate that BLR will be low everytime there a economic crisis.

Pai, i think we all there to see there 5-10% price correction in prominent place like bu, ttdi and md. Compared to mon't kiara and klcc where prices had dropped 20-30%. There not much to pick from the property, however, just piok any share market and unit trust, you be laughing your way to bank. It happen in 1987, 1997 and 2009. Just look at the data, the rich will get richer.

but anyway, for those who are not eagerly want to buy house, you can wait until 4th March, and see the effect.

BNM has strongly hinted that the interest has to come back.. so any effect will be seen in March. After that, if nothing happens, you can rest assured.....

but I guess there will be minor correction..

The problem with the current economy (personal view) is that NONE of the current economies are reforming. Most, like the world's number 1 market called US and Europe, are pursuing proposals to STIMULATE an already inflated market.

In the coming weeks, more noise about how none of these "recovery/ rescue" packages aren't enough. Point A - Foreclosures in the US are still a major concern. Major countries in Europe are still depressed! Did UK celebrate after a 0.1% economic growth, and announced an end to recession? Yes! Huge worry as at 0.1% can easily be a statistical error, or a way to increase the "feel good factor".

Higher Interest Rates, Devaluing Currency, Cripled Markets, Troubled Exports, Tougher Lending, False Inflation to hold off Deflation and Greater Unemployment. All elements which will turn the RE market sour.

Malaysia fortunately will not suffer the downturn to the same extent in which the ROW will including SING-HKG-CHINA.

However, you might as well take your time as once the correction does occur the market will be sideways for years.

There are still many ways to paper over the worlds financial problems however these efforts always end badly.

look like the dip is beginning now in Q1, get the cash ready boys!!

dip is beginning? what makes you say so?