Homes becoming too costly for the average Malaysian
MAKING A POING
By JAGDEV SINGH SIDHU

AS I was getting ready for some exercise early yesterday morning, I saw a man walking up the street dropping a leaflet into the mailboxes of homes. I took one off him as he approached the front of my house and it was an advertisement for properties.

The houses on offer in the secondary market were not your typical medium cost house or apartment that many Malaysians live in these days, but were million dollar dream homes that many aspire to own.

This got me thinking. Why are many new property launches and existing homes exorbitantly priced? Why are there few to none of the bread-and-butter houses being built?

If developers keep developing and selling higher priced properties, this will lead to an imbalance in supply and demand in the housing market.

Some of the last major townships launched in the Klang Valley include Setia Alam, Kota Damansara, Mutiara Damansara, Ara Damansara and areas surrounding Kepong and Puchong.

Initially catering for affordable homes, the price and types of properties being sold in those areas have moved up in scale.

The surge in home prices these days has been faster than the rise in wages and it would not be long, if it is not already happening, before such properties in the Klang Valley become too expensive for the average Malaysian.

Cheap financing has enabled Malaysians to own more expensive houses. Home buyers often require a small downpayment before purchasing homes.

The low interest rate environment, banks flushed with cash and innovative schemes have also allowed loan repayments to be kept within check – for now.

Furthermore, banks wanting to grab a larger slice of the home loan market are said to have engaged with external sales teams and other agents whose sole motivation might be to secure more loans.

While the absence of large land banks would be the prime reason for developers opting for smaller and higher priced properties, the process of pricing, while still a function of supply and demand, is also subjective. This subjective approach is also the norm in the secondary market.

Those who own homes would have heard about how much properties in their neighbourhood were recently sold for. People would then take that as the market price and would likely want the same price or higher when selling their home.

A gauge of what a house is worth would be the rental it can fetch. As prices of homes rise and the rental market, which is more linked to the disposable income of people, remains static and rigid, the inflated prices of property becomes more apparent.

Yes, price inflation of properties – if it remains strong – would offset the loss in returns from rent if people buy properties as an investment.

But then people should also consider whether they are better off renting and investing their money in higher yielding assets.

Escalating property prices also pushes homes out of the reach of the current generation.

Younger people who are just starting out in life may have to live at the fringes of Klang Valley, which then increases their cost of commuting to their workplace.

Those wanting to stay in the Klang Valley have then no choice but to opt for cheaper apartments or low cost dwelling.

It’s almost like the pickings are getting slimmer. My parents’ generation could afford a bungalow, mine a terrace house and what about my children’s generation if prices keep going up as they have?

The escalation in home prices, which would add to the leverage of home buyers, is also a warning sign. All it takes is one bad recession – recessions are becoming more frequent than in the past – and that would be trouble.

We only have to look at the implosion of the sub-prime market in the US to see what a housing collapse can bring.

Deputy news editor Jagdev Singh Sidhu dreams of a juicy burger as he is on his second attempt of a weight loss programme.

http://biz.thestar.com.my/news/story.asp?f...80&sec=business

Diffuse the property bubble before it is too late
Making a Point - By Jagdev Singh Sidhu

THE subject of property prices and financing has gathered momentum ever since news broke that Bank Negara is assessing the situation to determine if new measures should be instituted to cool down fast escalating property prices.

Lobby groups for the industry have been busy making their case heard, saying that any move to impose higher downpayments for houses would hurt the property market.

Their concerns come at a time as a growing number of people have complained that prices of houses, especially in the hotspots in the country such as the Klang Valley and Penang, are spiralling beyond affordability.

The last thing everybody needs is such speculation spreading to other areas where for the moment, speculative activity appears to be contained for the moment in the hotspots as 94% of houses sold in the country are priced below half a million ringgit and 85% of houses launched in the past nine months cost below RM500,000.

Dealing with speculation is tough and the last thing anyone should do is to make genuine buyers suffer, especially first time buyers.

Suggestions that houses costing below RM500,000 should not be subject to the new higher downpayment requirement makes sense.

Also first-time house buyers or owner occupied houses should be given the most ease of financing to allow them to fulfil the dream of owning a home.

It’s also hard to clamp down on speculative activity as the wealth creation process is an allure that developers, banks and policy makers might find hard to turn away.

After all, the money generated from flipping houses adds to the bottomlines of companies and the money in the hands of people could well filter down to other consumption activity that would go a long way to help spur economic activity.

But the profit from speculating activity, this time driven largely by cheap and ready financing, is unsustainable and history is full of examples of the dire consequences of a property bubble gone burst.

It’s then not surprising that the authorities in other countries in the region, where a property bubble has formed, are working hard to manage and diffuse the situation. Rules introduced in China, Hong Kong and Singapore are far more drastic that what the authorities here are reported to be contemplating.

In fact the new rules that are talked about are tame compared with what has been done in the past. In 1995, reports said that Bank Negara imposed a maximum 60% loan for residential properties priced above RM150,000 to put the brakes on the then fast rising house prices.

Furthermore, a real property gains tax of 30% was imposed on foreigners selling their properties irrespective of the holding period of the property.

Those measures were met with a huge hue and cry from the lobby groups, and developers who claimed that such draconian measures would maim the market. A couple of years later Malaysia entered its worst-ever recession, and as they say the rest is history.

The point is, just as the saying goes, those that fail to learn from history are doomed to repeat it, and for Malaysia, failing to deal with any property speculative bubble would spell trouble for the banks that have grown to rely more and more on households to drive their lending activity.

In the interest of financial stability and common sense, the move to act should be made soon.

http://biz.thestar.com.my/news/story.asp?f...88&sec=business

It’s getting way too costly to own a home

AS I will be getting married next year, I have been looking forward to owning my first home. However, it is really painful to witness the ever-increasing prices of houses which is outpacing my income growth.

Recently, I walked into the sales office of a new condominium project and the sales person told me the developer is giving a special eight per cent discount for units on the lower floors. The person told me that I only had to put down two per cent to secure a mortgage, as they will report to the banks the full price of the condominium, and give me the eight per cent discount without the bank’s knowledge.

Coupled with ever higher loan-to-value ratio, it sure is a sign that the market is now beyond the reach of most genuine home buyers. Otherwise, why resort to such tactics to entice buyers to sign on the dotted line?

This reminds me of the hey-day before the 2008 crash in Britain. Just before the crash, British banks were lending up to 110% of the value of a property. Any form of affordability test was circumvented by mortgage advisors who encouraged buyers to “self-certify” their income levels to declare an inflated income.

The whole of the UK was in a euphoria, and everyone was piling into the “sure-win” property market. Mortgage repossession in Britain has increased drastically in the past couple of years, probably causing ruin to the lives of those caught out.

After looking at the property market in the Klang Valley, I am now more inclined to rent my first home.

I can rent a nice house in a good area for RM2,000, whereas I would have to pay RM4,000 or more to the banks if I were to buy a similar property in the same area. Many people say renting is a waste of money. I don’t see how paying double the rent amount to a bank to service the interest is not a waste of money.

http://thestar.com.my/news/story.asp?file=...40931&sec=focus