Hi,

I'm planning to buy a house this year, but some of my friends actually suggested that I wait as there might be recession and property price might drop. Is this true? Cause I wonder since everything's price are going up.. how is property going to drop?

BTW, this will be my first time buying a house. I don't understand the loan like Base Lendind Rate % +/- bla bla how many percent. Anyone can guide me?

Thanks .

house prices should not increase in proportion to the building material price increase as then the price of the land is not factored in. however this seems to be the case now.

Your view really scared me. Now I under pressure to look for house. Was thinking to let the dust settles first before looking again. Everything uncertain now.

Going back to the original question asked by the Topic Starter,

(1) If a recession hits, yes, house prices will drop.  This is an unalterable, unalienable fact.  What happens (although it may seem pretty obvious), is that demand will dry up (or shrink from where it presently is).  Regardless of whatever prices developers charge, the no. of potential buyers in the market will drop.  Gosh, unsurprisingly, this has been the case in 100 out of 100 recessions globally around the world 

People will generally conserve cash.

Please also bear in mind: Property prices will drop more where there's been a lot of property financed by loans. Again, may seem obvious, but if you happen to come across a property development, situated outside the klang valley area, heavily financed by a lot of different banks, with a middle-income consumer group, I would be willing to bet that prices in that property development will drop a lot more than in a property development in the klang valley area, catering for a high-to-upper-income consumer group, where buyers opted for less financing (paying more in cash).  Seems logical, as the latter group would be under less pressure than the former group.

Secondly, this is a very interesting question! The answer lies in opportunity costs.

Ok, basically you have 3 decisions/options.  Assume you think that prices will drop by 10% in 1 years time.

Option 1: You buy the property now, knowing that it will drop by 10% in 1 year's time, perhaps stable in the future before rebounding.

Option 2: You invest your money into an asset which generates wealth, earning a return of X%, befoere investing in the property asset in 1 year's time.  Note: You can modify this option - do you need to stay in the house or rent elsewhere? In which case you deduct your rental expenses from the X% return.

Option 3: You have no productive investments you can make, thus earning a 0% return, before investing in the said property asset in 1 year's time. Note: as per above, if you need to stay in the house and would have to rent elsewhere if you don't buy it, then do deduct your rental expenses.

From above, that guides you as to your decision as to whether or not to buy the house now (even in the face of an expected 10% price drop). If you can definitely put your funds to better work elsewhere, it's better to hold off than buy an asset that will drop by 10%.

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Added on July 27, 2008, 8:58 am

Long term in the sense of what ROI.

If it takes a property raise its value 50% in 10yrs, then it is not a good property.

I usually like to look for those that I can get 15-30% ROI within 3yrs.

hi, i have a question regard re-financing house loan, here my condition:

Current Principal Balance : 90K
Current Mortgage % rate : 4% (company loan)

With current bank interest rate at ~4.25 percent should i consider refinancing, as i try the refinancing calculator at  http://www.ykconsultancy.com/refinance.htm, it say good to do it..?

Pls help to advice.

Thx

http://money.cnn.com/2008/07/28/real_estat...sion=2008072913

Home prices drop record 15.8%
The S&P/Case-Shiller Home Price Index of 20 cities fell for the 22nd consecutive month.

All,

What makes you think that it will not happen in Malaysia too.

Dreamer

we are having recession ever since the fuel price increase to RM2.70.

Historically, Malaysia always have OIL MONEY to bail out companies during recession.  This will be the first time in the last 30 years that when Malaysia enter recession, Malaysia has NO OIL MONEY to bail out 

I personally think the resiliency in the market will be the higher-end areas where the Middle East investors have come in.  Our economy has made a strong push as an Islamic centre of finance.  Some of my friends have financed and developed the properties in the KLCC area - do you know that take-up rates are phenomenally high still? The take-up is predominantly foreign.  This is quite remarkable.

Pai, since when we are facing recession ? we do will affected by usa slowdown, but, at the moment, it is very slim. malaysia economy is still in infant stage, Pai. Our property market also in early stage. we are stil growing and learning. dont compare with USA MACRO ECONOMY AND WITH HUNDRED YEARS of development history.

One thing, i agree is, USA indeed is getting worse, but, they will not take too long to recover.

You are too optimistic dude, so do you think that the KLCI will go up to 2500-3000? Or the properties eg 2 storey terrace in KL will shoot up to RM1mil?

Not far away by definition (in fact there is no exact definition for recession)
check this:

A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation.

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Added on August 2, 2008, 3:25 pm
johnsonm has the answer for you, how can you trust the govt official figures on employment, investment and corporate profit?

Anyway a lot of people are doubtful about the property price in malaysia, soon or later the properties problem in USA/UK will end up here, but i think the severity is probably not as severe as in USA

@shadowz,
AhH..... loads of cash at hand huh?

Sigh... Orang biasa - got to work hard for so little k. U all are the ones who seem to be kaya with your properties and masterplans I cannot conceive of! Hahahaha.

Agree if u ask around with people doing business locally, u will basically know how bad the situation is. 

Many more households are stretch to the margin than you think.

Dreamer

so rich man got 2 cars & staying in flat??

Pai,

good comment but you are really in your own world

Just read the latest news in the star today

Malacca Building Contractors' Association chairman Liw Chong Liong said the current crisis was even worse than the last recession.
“Previously, we had recession. Now it's stagflation."

Read another news about car sales in the star

"THE motor vehicle sector is bracing for tougher times as demand for cars and commercial vehicles may falter on concerns over high inflation and weak economic growth."

Motor vehicle sales trend are monitored closely as a gauge for consumer spending.

RHB Research Institute, in an update on the motor sector last week, said consumers would likely hold back big-ticket purchases, including new cars, amid increased inflationary pressure.

A car is probably the second most expensive purchase for most households in the country after home mortgage.

The consumer sentiment index tracked by Malaysian Institute of Economic Research (MIER) plunged to an all-time low in the second quarter after the Government in early June raised petrol and diesel prices by 41% and 63% respectively.

Rising grocery bills and steeper petrol prices, coupled with weak stock market and stagnant wages, had, for most people, translate into lower disposable income.

yeah some people here still wasting their time arguing about the definition of recession lah slow down lah and all kind of bullsh*t, still think that he's the most qualified person to define those economic terms & presume others are idiots in economy.

you can always 'high' or 'syiok' on your own o and you cant come out with any evidence to support your so called good prospect no recession future of the property price either

Oh, you are in real estate.  Is the list something you can share?  

If not, I understand.  Thought it wouldn't hurt to ask.  

Here's what I personally think:

We are headed for stagflation. It is a situation where high inflation occurs and economic growth is stagnant or negative.

Inflation is occuring as our paper money (which is link to the USD) depreciates over time, and more due to the decrease of interest rates in US.

Our current inflation is driven by cost, and depreciation of ringgit (Not demand driven)

As inflation creeps up, wages are unable to chase up and that tightens our spending habits and capabilities. Everyone will hold back on purchase, big ticket spending, corporations will stop expanding due to lack of demand for services, reducing budgets causing stagnant/negative economic growth - aka recession.

As cost goes up, in order to remain profitable corporation increase prices and reduce work force, which further increase inflation and unemployment. Which goes on reducing the buyers for the services/goods offered by the corporation. Inducing a spiraling effect that further worsen the situation.

High prices and no growth. That's stagflation.

This will continue until there is correct interventions in policies.

Unemployment increases, businesses losses money. Property prices free fall. Raw materials prices can increase all the want, but there will be no buyers. Demand falls, therefore prices falls, as no one can afford them.

Intervention:
As inflation and recession is contradictory to each other. The only way to go is:

First:
Tackle inflation. Increase of lending interest to twice of the inflation rate, I pressume would be around 28%. Immediately stopping speculation and reducing inflation. Growth will be stagnant.

Second:
Once inflation is solved and prices creeps down, new growth projects to be launch to encourage development, consumption, to bring back growth and effectively get out of recession.

This may take years and up to 10 years.

The main cause:
The insolvency of US banks and the bankrupt of USA will bring down the value of the USD comparable to toilet paper. So will the ringgit. Food, commodity prices soar sky high. We shall face hyperinflation. Where our fiat money can't buy anything as prices of goods - food - soar 100X !

The impact:
High unemployment. Soaring food prices. An age of Depression.

Main issue about buying a house now:
If you are unemployed, how will you service your loan especially with such high interest rates? You will be driven out from your house. Sleeping on the street and your house auctioned off.

Best suggestion: Don't purchase any big item, rent at all means. Save money and purchase food and be ready in case you got laid-off.Or buy fully cash down. Don't buy cars now.
Solution: If you have to buy a house now, go for fixed rate loan from insurance company at 6% such as AIA.

My argument:
It doesn't matter whether we export mainly to USA or not. But when USA goes into stagflation, Europe will follow suite, then China, then Asia. China can't sell their low cost labour products to anyone else. How could there be demand for growth? Oil demand reduces dramatically as no growth affecting the Middle EAst. Eventually Malaysia is also affected. Buying power and food prices will be main concern.

Greatest myth: Asia economy has decoupled from US economy.

We are living in a very perilous times.

What we can do now?:
Sell off and repay loans as much as possible. Reduce consumption and brace for recession. Stock up on food. Withdraw all your EPF money. Store your buying power in physical gold. Keep your job. Prudently run your business. Its no longer about investment, it about capital preservation right now.

The key: Use common sense to protect yourself. Be PRUDENT.

What if I got it all wrong?
You loose nothing. You purchased your house at a higher price, so does everyone else. You have too much food in your house but you can still eat them and save money avoiding the inflation and price increase. You still have your job and your teh tarik. Your EPF money will still be safely parked in gold which becomes your investment vehicle. You save more money by not buying a car.

BUT what if I got it all right?
You have everything to loose.

Think about it. In a situation where the negative consequences outweights the positive, it is better to be safe rather than risking it.

May God helps us all.

Some really good economics here in this thread. I would love to learn more from you guys. Please keep on writing.

Regards,
LokGP

i am not quite stocking up on food just yet, but i have to figure out an alternative currency to the ringgit.