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

a6meister,

1)  Do you know how to discuss in a logical fashion?? Saying something is inappropriate does not make it true.  You have to state reason behind your thinking.

2) In Malaysia, almost all housing loans are variable rate based on BLR.  When we hit recession, people will be out of jobs.  Then, they will not able to pay mortgages.  The government cannot lower interest rate, if they do the RM will devalue and money will flow out.  If they raise interest rate to defend RM, BLR will go up and even people that has a job cannot pay mortgage.

3) What makes you think Malaysia WILL NOT go into recession soon?? Our economy is only driven by the two OILS: Palm Oil and OIL.  If the world hit recessions, both OIL prices go down.  Malaysia will go down with that.

Dreamer

My 2 cents on dreamer101's statement referencing a CNN article (and subsequent views).

The effective question was whether or not we'd think the same thing as what happenned in the US property market will happen here (and to the same extent).

2 parts to the answer.

1st part

The economies are different, and perhaps one would have to consider to what extent the sector is exposed.  If you research the US property sector, and the US economy in general, you will find very high levels of household debt. As an economist, I can tell you the measure we are concerned about is the amount of debt per household - and really, how it varies over time.  An economy run on credit always runs higher risks when the economy sputters.

In an economy where people are used to the notion of personal debt, this becomes dangerous when it's extended into leveraged asset purchases.

As part of my job, I sometimes handle cross-border M&A transactions. In one of these transactions, we discovered that the US entity we were proposing to advice on, was potentially engaged in house price inflation to pocket the cash (Scam involving loans extended on over-inflated house prices, and finding straw buyers).  When you have an economy that's so debt-fuelled, coupled with speculative attitudes towards property, and with lax controls, that's when severe price crashes will occur if the bottom drops out of the market.

Thus, a conditional answer would be that it's unlikely for the same thing to happen to the Malaysian property market to the same extent.

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.

p.s. Side note, as an economist though, this does not bode very well for our country in the longer run.  We generally want locals to acquire and grow assets, rather than foreigners.  We should adopt Singapore policy and convert as many of these highly skilled, highly productive foreigners into locals.  Instead we import Bangladeshis by the truckload, but that's an economics topic for another day.

You may see sharp price falls elsewhere in the market.  If you take a drive outside the city, I am sure you still come across some abandoned housing / commercial development projects.  My firm also handles some recovery exercises for these projects, and I can tell you that the Banks have been saddled with some of these for a rather long time, some since the last crisis.

2nd part

Dreamer101's statement, though, is interesting in a different aspect.  There are links between economies - just to what extent.

I remember about 1.5 to 2 years back, at end-06, I received one of those international research reports (as part of my line of work).  It was predicting the overextension of the US economy, the risks of a fall, and more importantly, the ripple effects.  At that time, I had a number of furniture-related companies in my client portfolio, and I remember an interesting statistic. 50% of our furniture exports was westwards towards the US.  Thus, this was predicted to be a sector with rather significant exposure in a US downturn.

It's interesting because now I am starting to see the effects being felt among Malaysian property companies, unlisted and listed.

Anyway, dreamer101's statement should serve as a reminder not of whether our market will fall to the same extent but that the continued slowdown in the US economy will soon lead (if it hasn't already done so) to slowing US demand for Asian products including Malaysia.  BNM holding our Overnight Policy Rate constant will keep our growth rate (artificially so) at the expense of a higher inflation rate and weakening ringgit (Ringgit has recently weakened to new lows), thus keeping exports humming for awhile more.  But exports won't hum forever.

If you want to know what our exposure risks are for the Malaysian economy, the likelihood of a downturn, do start spending time looking at which sectors are overly-exposed to US and european economies - particularly the US, the fall will be sharpest.  If those sectors are large components of our economy, you will see the effects felt on a larger scale.  When consumer demand falls off because of less earnings from exports, that's when the property prices will fall.

hi, i'm a kns technician

kns, esec or asm wirebonder? yup those spare parts cost in unbelievable price. 15cm x 6cm x 2 cm block of clamp cost rm2500...unbelievable, especially those kns'ses(weak in design for maintanaince, but effience in developing fast output).

actually, i hope the price of property will go down like 20% less. If not, salary for those average people like me will start thinking about migrating to another state  such as nilai or seremban or perak...~~~on-semiconductor company or cashem semicon hohoho.

Pai,

<<If there's no recesion, then there's no need for such bail out nor oil money(apart from taxes), rite? Ur assumption that we will get into a recession was based on nothing concrete.>>

USA is either in slow or no growth or recession now.  Do you think Malaysia will be unaffected by that??

And, the situation in USA is getting progressively worse.

Dreamer

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?

House of prices would stay stagnant for a few years and it will boom up again.

Raw material increase would force developers to abandon projects or sell with lower margin (price might be higher or same as now but cost has increased to lower down margins)

Steel, cement and etc have risen on average of 30%-40% a house you use to buy for RM 280k might now cost 380k. Developors should be able to sell between this region.

Consumers might not have buying power, so rental would be a good business. (ps: ppl still have to stay somewhere if they didn't buy a more expensive house) Rich ppl would still be able to afford those price and rents would be higher. So the rich get richer.

However price of current houses would stay stagnant, ppl won't buy and won't sell too low. there are about 5% would not be able to sustain would give some lucky buggers a cheap price. For bank to reposses a house it would take 3 years which anytime if the owner wants to restart payment could do so.