This may be true to a certain point but as we look to local & foreign investors to take MY to another level moving forward you cant make such a bold statement.  Some would observe you as a RE pumper only out to feed the herd mentality....and that is where some on this forum may need to know better hense their questions.

Last I looked, at least 50% of GDP in MY was driven by exports and if demand changes its hurts business for all of us and the sediment around RE.  For most RE is an emotional buy, to be used as a home by the avg. Malaysian.  GDP slows, jobs reduced and ability to service debt a problem.

As a RE investor, it makes no sense to post negative views on this blog for obvious reasons.  For RE Developers, Agents and Brokers the same.

Overall I agree that MY is different but to what extent, for how much longer and to what risk to the average buyer.

Touche, btw how did you know I was a Chief!

I believe that Pai subscribes to what Warren Buffett has famously advised, "You only have to do a very few things right in your life so long as you don't do too many things wrong."

This is where you and I may agree!  My 10,000 hours is in another field.

However, this is not the case for the avg. RE buyer.  To buy at top of market right now, with pending interest rates rising and a 50/50 on double dip (REAL DROP) vs. previous papered over drop, you are setting people up for failure.

Just watch the China Commercial RE market get slammed, it will also reach our Malaysian shores next and they get in line with bad RE news globally for years to come, try 5-7!

RE Pumping by all those vested in RE is natural.

GOLD Pumping the same.

Pai, no worries, this is a blog, we can always agree to disagree!

Hi Pai,

I am new in RM. Some say fixed loan rate is better at this point of time while some say loan base on BLR is better,(current fixed rate is about 1% higher that discounted BLR rate). What would you say?

Generally if you are looking at long term charts, the VRM (Variable Rate Mortgage) or as refered to here as the BLR - xx will always be the better savings in the long run.  Further to this, the VRM in the Western World has been responsible for making property so affordable that it had most first time home buyers get in over their heads along with ZERO down deposits in which caused the RE bubble now deflated.  Fixed 30 year's at 5% cannot even bring these buyers back.  In the USA you can just walk away!

I found this which is a few years old.

Below info shows the Malaysia Base Lending Rate (BLR) for January of each year from year 1989 to year 2009.

BLR

2009 - 6.50
2008 - 6.75
2007 - 6.75
2006 - 6.00
2005 - 6.00
2004 - 6.00
2003 - 6.50
2002 - 6.50
2001 - 6.75
2000 - 6.75
1999 - 8.00
1998 - 10.50 - 12.27%
1997 - 9.25
1996 - 8.50
1995 - 6.60
1994 - 8.25
1993 - 9.50
1992 - 9.00
1991 - 7.50
1990 - 7.00
1989 - 7.00

From the record, it shows that the highest BLR Malaysia ever has is 12.27% in year 1998 and the lowest BLR is 6%. The average is 8.1%. Probably you can use this to justify whether it is better to take the fixed rate loan or the BLR - x% housing loan.
At this moment 2008, the BLR is 6.5%, next year 2009 should have a lower BLR but whether it will dive into a new lowest BLR rate that Malaysia ever has. We will wait and see.

With 2010 came 5.55 now 5.85% so unless we have a significant change in rates do to inflation, then variable is the way to go.  I still believe rates will stay low for a period of time 12-18 months and with Larry Summers hinting that a new stimulous program may be in the works for the US, you may see rates come back down in Malaysia.

On the flipside, if you find things getting quite inflationary, you may opt for a fixed mortgage when the time comes.

There are hidden costs in the fixed rate as well!

Hey didnt you read the memo...It's Different In Malaysia!

In the Western world 3.5x income is affordable and that would mean RM12k/m for 500K, RM6K for 250K. 

If what you say is true, it would take 14x income to purchase a RM500K property!

In the top 10 least affordable cities to live, banks were happy still supplying loans at 9-10x income.  These cities either fall in Canada or Australia which are facing massive bubbles ready to pop.

Affordability is still measured (orginally by the banks for what you could qualify for in a mortgage) at 3.5x.  In the 70's/80's in NA is was 2.5x.  In the 50's it was 1.7-1.8x.

For example, if you had a family income (husband and/or spouse) of $60k USD, then you could qualify for a mortgage of $210K USD.  If the home you were looking to purchase exceeded this amount the difference had to make up with a downpayment.

Seems pretty simple but worked for many years but usually guaranteed (under reasonable interest rates) that the family had ample funds (with max of 33%) of before tax income going to the mortgage.

Now for instance, in Vancouver which is the highest in the world.  The factor is approaching 10x income.  A family making $100K US per year needs to spend $1M USD to get a nice home.

The only way they qualify is new bank programs and lowest ever rates.  However if the rates go up, say on a varialbe rate which is the cheapest, the cost of that monthly payment could rise substantially.  Right now the variable is 1.8% in Canada, the fixed 5 year is 3.6%.  The banks have been providing mortgages with no room for change, either if property drops OR if interest rates start to go up the owner typically locks into a 5 year fixed.

In Malaysia, IF the avg. buyer does make Net RM3K/m the calc. is RM3,000 x 12 months x (factor) = RM 250K-500K

If a senior person makes RM50K/m then affordable at 3.5x is RM2.1M. 

The western world has gone on a 12-15 year period of credit expansion.  It has made for a very unbalanced, overextended, non regulated environement.  As you can see, many of these countries have major soveriegn debt and bankrupt.  Something has to give and that is why the markets crashed in late 2008 early 2009.  Stimulus only propped up a dying economy and now we are about to revisit what happens when governments throw good money after bad.

The first sign was the high tech bubble and it should have been stopped there however governments and big banks went all in again and formed the RE bubble.  This is the last straw and why you will see major asset deflation througout the western world.  Things are very uncertain about China as well as with their current RE bubble and exports going nowhere, it has no place to hide either.

The way this will play out is home prices will continue to slide  for many years.  Many say it will take another 5-7 years to find a bottom in USA in which the avg. price of a home will have dropped by close to 50%, now at 33% down. 

Cities in the USA which ran 7.5x-8x factors are now around 4x, and if the slide is true, 2.5x is not far away.

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Added on July 2, 2010, 8:15 amThursday, July 01, 2010

How Long Does it take for the Average Chinese Worker to Buy a Home?

For those who claim there is not property bubble in China because of strong demand, let's take a look a home prices to wages starting with a simple question: How long does it take you to buy this home?

    In the traffic congested city streets, an advertiser was busy handing out flyers for the newly constructed condos. “Beautiful homes, starting at 29,800 yuan per square meters”, one flyer ended up in the hands of a cab driver who was waiting in traffic. He looked at the flyer and thought “It takes 125 years in order to buy this home”.

    A young man got into the cab and picked up the flyer on his way to work. Up in the elevator, punched his time card at exactly 9 am, he rushed into his cubical to start his day of work. Then he read the flyer and thought “It takes 87 years to buy this home.” Foaming at the mouth, he threw the ad into the trashcan.

    A cleaning worker lady at this company picked up the trashcan and also saw the ad. “It takes 255 years to buy this home”, she broke into tears.

    While the homes are still being constructed, a construction migrant worker of the homes picked up the ad. Looking at it, he thought,“It takes 514 years to buy this home”, blood dripped down under his helmet. Buried in this thought while working on the high rise, he slipped and felt from the building…

    A home that costs 29,800 yuan per square meters triggered different reactions with people of different social classes in China. What (or how long) does it take to buy a home? Cab driver needs 125 years, white collar worker needs 87 years, cleaning worker needs 225 years and the construction migrant worker who actually builds the homes needs 541 years. But the big boss only needs 5 days, and the mistress he keeps only needs “a nudge”.

The idea that strong demand proves there is no property bubble is nonsensical.

There is always demand at the peak expansion of a bubble. There was strong demand for Florida condos in 2005. Indeed demand was so strong people were entering lotteries and standing in line overnight for the right to buy one. Demand was so strong prices were going up every day.

Instead, look at price vs. wages and price vs. the cost to rent. Certainly price vs. wages is astronomically out of line.

Here are a few more links to recap the situation:

June 25, 2010: Gold-Diggers in China say "Show me the House" - No House? No Car? ... No Marriage

June 15, 2010: Stephen Roach says China's Housing Boom is Not a Bubble; I say "Nonsense"

April 3, 2010: Email from a Chinese on China's Real Estate Bubble

The bubble in property values in China is immense by any rational measure.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bold assumption that makes people 
But I do hope you are not entirely right.

Bold assumption that makes people 
But I do hope you are not entirely right.

I've seen this happening more and more.., my office colleagues who are not wanting to be left behind - go and buy a great big house , near our areas.

At 1st - waaaah!! I salute you man! really..! have a gut and manage to buy this type of property! really big house.., I think it's a terrace house costing 500k. with 5 room.  But deep in my heart , I wonder - how can he afford this ? he's just a tele-call assistant earning nearly 3k salary..

Afteir not more than 1 year of serving the loan.. I can see the strain in his finance - car broke down.. (didn't service - until all the belting snaps during balik kampung trip), car stranded at workshop.., he goes to office using EX5.. ) and.. more thing.. until he stop going out for lunch, with the excuse - had a heavy breakfast..

end -of the year - he ask me if I want to buy his house!  cannot take it anymore.. ! sell at loss..

see? i've seen this with my own eyes.. few of my colleagues go down.. trying to follow the trend and didn't really reflect on their financial ability to own a house according to the level of affordability.

in the end.. if you purchase anything beyond your capabilities..  you are going to suffer.. 

Whereas new development main speculators rushing in with less than 10% down payment. Not prime area but asking for prime price, yes, bubble will burst when developer asking for full payment during completion and you cannot get the expected rental return. But completion time of each development is different so you will hear mini popping sound over couple of months, not a sudden BIG POP which will affect entire market sentiment ... that considering worst case scenario when economy downturn in the coming future as many expected.

Well established area? Nope, wouldn't be as bad as you are hoping for. 

On my rental if I went to purchase today would cost 7.5x income but I'm renting it at 50% the repayment price.  Only 27% of NET income (after taxes) goes to rent while 57% of my NET income would be used each month to service ownership.  I have not accounted for property taxes, maintainence and additional costs associated with ownership as well.  With this included it is over 60% to own.

is there a survey in malaysia similar to this one on the melbourne house affordability?

Depends on location & demand. Choose a unit you like as own stay purpose (investment for old days) Why new launches people intend to grab? coz many still haven't own a property yet.

Those invest into property have a better chance making it in life  compare modify car & spending on those unwanted luxury stuff. 
 
My friend bought a condo in 2001, I was laughing at him (i was low iQ)
He sold it after five years & bought 2 new condo one shot.
Both rented out, income pulak got a landed in Shah Alam.
(i envy him & at same time happy for him, come to office shake leg & always show me the 1mill smile) 

People who wait for property to drop are those waiting gold falling from the sky.

This is not to convince you into buying, It's your choice.
if you prefer to waut by all means, it's your money.
Remember now days time fly real fast. 
By the time you woke up, it's Kelang, Gombak, Rawang, Selayang etc.

My suggestion to anyone who cannot afford to put down 30% right now is to stay out, rent, take the extra cash flow and save until this time occurs. 

for those who cant wait to buy cheaper property. do you have the cash??
IMO it only benefits the cash rich buyer when the bubble burst.

You haven't mentioned about Penang? And how do you benchmark against 13 times income? using what salary? which property? What about an apartment unit rather other landed?

I would say the market for property is still considered not worst yet. Although there are speculation around, but hey what you earn is what you get.

3k earner - get a 200k apartment
combined 2 x 3k earner - now you are eligible for 300-400k landed

Isn't that bad right? Of cz 300-400k you can't stay in prime area, we are talking about sub-sales in suburban.

That is the magic question!

RE is not liquid so just say no!

Preferred shares - Banking - Utilities yielding 5-7% is fine!

5% Gold 10% Silver

Cash - USD YEN SWISSY in that order!

Agriculture & Aquaculture feeding asia

Volatility is the play and if you dont day trade stay clear of it. 

Remember at this stage a 5-7% return is excellent!

A 10% loss will be manageable!

Stay Liquid always to move with the volatility and maintain a flush position and you will be a star!

Agreed, but very few know how to invest in the first place!  Ask the Americans how they feel now about being highly invested in RE (some only in RE) and then using it like an ATM.  Fannie and Freddie are back to zero down offers on mortgages but there are few takers.  Two reasons, most wont qualify and others see RE moving forward as not a smart investment.

You dont do you own dental work, or diagnose yourself when you are sick, you trust a professional to do it, however most investment firms over the last 20+ years found it easy to make money again based on credit expansion.  They bought and sold anything which paid them the highest commissions.  They graduated in the Arts, Science and Engineering and became stock brokers and financial advisors.

Mr. Buffet is the exception.  Had a great run with all that was unfolding and he knew it.  Those invested with him WERE diversified with every share of Berkshire.  He himself is finding it hard to navigate todays volatility.

Given those who come to this blog are not Mr. Buffet, may or may not knouw anything about investing, and may not be as savy as yourself, what kind of advice can you offer them? 

back to the question. how many people are very convince that the bubble will burst soon?

there is just too many condo waiting for vp in 2012 and 2014. there will be some sort of over supply, unless the property is in good location. else. price will most prob stagnant.

burst? i doubt so. unless there is some issue with the developer or very poor location

RE is not liquid is an old belief.

In the old days when you need cash, you sell your property and it takes months for the whole transaction clear before you see cash.