Should house buyers be wary?

Property consultants say the recent price rise in properties in select locations reflect pent-up demand after the market slump in the first half of last year.

Should house buyers be wary of rising property prices? Anecdotal evidence seem to point to significant price increases in the Klang Valley and Penang although the National Property Information Centre report for 2009, which was released on April 23, noted that residential property prices remained stable for the year.
The all-house price index, which is a gauge of national prices, saw a gain of only 1.5%.
ECM Libra Capital Sdn Bhd research head Bernard Ching says in a report dated April 26 that the gain is “the lowest annual gain since 2001.”
Several property consultants say the recent price rise in properties in select locations reflect pent-up demand after the market slump in the first half of last year.
They also say that the Malaysian residential property market sentiments are, while not immune to global economic factors and price movements, largely driven by house buyers here.
It was recently reported that the uptrend in property prices was driven by easy financing schemes offered by banks in partnership with developers and that this had led to some speculation in the market.
However, the consultants feel that any increase in property prices will still be selective and overall prices will not rise drastically but gradually.
CB Richard Ellis Sdn Bhd executive director Paul Khong says there have been some price increase but only for landed residential properties and in selected locations.
“Over the past one year, residential landed property prices have gone up 15% to 20% in good locations in and around Kuala Lumpur and Petaling Jaya,” he says.

Paul Khong says prices for the luxury condominium sub-segment of the residential property market, are still between 10% and 20% below the market’s peak.

Khong says prices for the luxury condominium sub-segment of the residential property market, are still between 10% and 20% below the market’s peak.
This sub-segment has been badly hit by the financial crisis as a considerable portion of sales are to foreigners. The number of foreign property buyers have dropped since early last year.
Khong feels that fewer launches and higher demand will affect the prices of landed residential properties.

Dr Teoh Poh Huat says the recent property price increases reflect the different economic fundamentals at play compared to a year ago.

Ching says property launches have been moderate after bottoming out in the first quarter of 2009. This trend was in line with on-the-ground observation of developers preferring to launch in smaller parcels.
“We expect moderate growth in property launches to continue in 2010. This is supported by declining building plan approval,” he says.
Ching says the last quarter of 2009 was a record quarter for both the residential and commercial segments of the property market despite the uninspiring set of numbers for the year as a whole.
He says in 2009, the residential segment recorded a marginal improvement in overall transaction value of 1.3% to RM41.8bil while the commercial segment contracted marginally by 1.4% to RM16.4bil.
Henry Butcher Malaysia (Penang) Sdn Bhd director Dr Teoh Poh Huat says the recent property price increases reflect the different economic fundamentals at play compared to a year ago.
He says the property market is driven by the sentiments of Malaysian buyers although these buyers may take into consideration factors at the macro or global levels. “But these factors are short-term whereas investing in property is long-term,” Teoh says.
He says the significant increase in transactions for the first quarter of this year is a reflection of these sentiments following an unexpected expansion of the economy in the final quarter of 2009.
“Confidence in the economy is quite strong. There is liquidity due to pump-priming measures as well as the high savings rate in the country. This is reflected in the transactions,” Teoh says.

http://starproperty.my/PropertyScene/TheStarOnlineHighlightBox/4336/0/0

Rising house prices: coping with the big tickets




ALTHOUGH there are buyers who have no qualms paying the prevailing high price for their dream house in a well sought after location, many Malaysians are really worried about the rising house prices and wonder how they are going to manage.
There is certainly cause for concern as a property is a big ticket item and paying for it takes up a big chunk of a person’s income. Depending on how much downpayment has been paid for a property, mortgage loan repayment can easily takes up to 40% of a borrower’s monthly paycheck.
National Housebuyers Association (HBA) honorary secretary-general Chang Kim Loong laments that even new graduates are finding it increasingly difficult to make ends meet these days.
He says a new law graduate who earns RM2,200 a month is also not in a position to sign up for a new house on their own (unless they have rich parents to chip in).
A decent terrace house in a relatively good location cost nothing less than RM400,000.
Owning a car is also another must-have item at least until the public transport system gets a total overhaul. Add them up with the other daily ancillary expenses including food, toll rates and petrol, among other things, we see why many people must be struggling to make ends meet.
There are some industry players who have the habit of comparing property prices in Malaysia with those in other countries like Singapore, China, Hong Kong and Bangkok, and comment that local property prices are still much cheaper.
It is not healthy to make such conclusions based on the property price alone. Other factors also should be factored in and it is important to see how much disposal income they have left after paying for all their expenses.
One of the most important considerations is the people’s income level. Malaysia is not yet a high income economy and most Malaysians are still stuck in the middle income trap. Although there is the aspiration to move the country up the income ladder, it will take a few years at least before that can be realised.
The whole economic structure needs to be revamped. Even at the service industry sector such as restaurants, employers have to be prepared to employ only Malaysians and pay them higher salaries.
Instead of relying on the cheap foreign labour, it is about time to revert back to our local staff. This is one of the necessary early changes that need to be implemented for the realisation of the Prime Minister’s New Economic Model.
As we know, things are getting more unpredictable these days and we are witnessing first hand that the only certainty is uncertainty.

The contagion effect of the global financial crisis is still raging in some parts of Europe and may spill over to other parts of the world.
Like pendulums, economies and industries are being subjected to the vagaries of the ever changing external environment. The most susceptible will be industries that depend on external demand, including commodities and manufacturers of products for export.
While the landed property market is still quite well cushioned from the external factors, there is still some degree of influence as far as foreign demand is concerned.
Being quite a “domesticated” market has its advantages as developers can depend on local buyers to drive demand.
The country’s relatively young population provides a ready catchment market and consistent demand for houses, especially mass housing products.
But the high-rise condominium market, especially in the KLCC area, is still languishing.
It will take a while for the new supply of condominiums to be absorbed and for prices to get back to their previous high.
For landed housing, demand has been kept robust by the prevailing low interest rates and easy availability of bank financing.
Given the intense competition among banks and ample liquidity in the system, mortgage rates will likely remain accommodative.
Nevertheless, it is important for all stakeholders to keep a close watch on the market and make the necessary changes whenever necessary to ensure the market remains stable.
Deputy news editor Angie Ng hopes buyers and industry players will exercise prudence for a sustainable and healthy property market.

http://starproperty.my/PropertyScene/TheStarOnlineHighlightBox/4494/0/0

Economic data are usually released by Bank Negara. Prime Minister Datuk Seri Najib Tun Razak rushed all the way from Sibu to Putrajaya Thursday (14 May) to announce that the Malaysia economy has recorded a robust growth of 10.1% in the first quarter of 2010. He was trying to tell the people that under his governance, the country has walked out from the impact brought by the financial tsunami, ended the negative growth and started to recover.

Similar to other Asian countries, the main factor for the strong economic rebound is because of the country's fund injection and huge stimulus plans. But when the market confidence is restored, hot money will flood into Asia, giving birth to assets bubbles.

There are also bubbles in Malaysia, particularly because of high-priced housing.

From newspaper advertisements, we can find that housing prices around Klang Valley have been rapidly surging. A terrace house was sold at about RM400,000 two years ago but today, it costs over RM700,000 per unit. And it is common to find semi-detached and detached houses to be sold at more than RM2 million.

When being asked to comment on the soaring prices, those in the industry will always say: It is still cheap compared to foreign countries, the prices are reasonable.

But please do not forget that only 20% of the people in this country are high income earners, while 40% are middle income earners and the remaining 40% are earning less than RM1500 per household. Some of them even earn only a few hundred ringgit per month. They can never afford a million-ringgit-house even if they starve themselves.

I believe those who buy expensive houses are rich people, permanent residents and foreign citizens. Would these people be able to accept and digest all the houses that have been continuously introduced to the market? Many developers are competing to build high-priced houses as they bring high profit margin. But once the market collapses, who is going to clear up the mess?

High-priced housing speculation will also bring up the prices of other houses and eventually lead to inflation. Middle and low income earners will be the victims of the plight.

It is worrying that the government's economic development strategy is actually stimulating the bubble. For example, the government and the Employee Provident Fund (EPF) will form a joint venture to develop a 3,000-acre tract of land in Sungai Buloh into a new hub for the Klang Valley.

In addition, the government has been partnering Naza TTDI KL Metropolis Bhd to build a RM628 million premier convention centre, the country's largest exhibition and convention centre, in Jalan Duta, Kuala Lumpur.

The Prime Minister's New Economic Model (NEM) should be heading towards a knowledge-based, high value-added and high-tech development. It is not the government's responsibility to take part in the real estate industry. And real estate is also a non-productive economic activity.

China, Hong Kong and Singapore are in the implementation of control measures to cool down the housing market frenzy. After the outburst of the European sovereign debt crisis, the world economy may face another decline. If we do not address the issue of assets inflation now, once there is another financial crisis and the bubble bursts, the consequences will be more severe.

Starting from end of last year, China has raised minimum down payment for second homes while Hong Kong has increased stamp duty for luxury houses, cancelled internal pre-sale and provided that first released units can only be sold to individual buyers.

The government should uphold the principle of "people first" and control housing prices as the people will be the one who suffers when housing prices keep soaring.

Too much of international spare and hot money will create a crisis while the real estate bubble will bring the biggest calamity. (By LIM SUE GOAN/Translated by SOONG PHUI JEE/Sin Chew Daily)

Ok, with these few articles to start the ball rolling.

A year ago, many lamented that the prices of DSL were RM300k-RM400k. Now, new developers are pricing it RM500-RM600k eg. Puchong area, Kajang, Shah Alam AND MANY MORE.

Now, if someone where to offer you a DSL for RM400k, do you think it is still relatively cheap? Assuming the DSL being offered is in a very nice environment and you like it very much.

Do you think it is cheap?? That is the question.

The price of houses (whether double storey link i.e. DSL or otherwise) very much depends on 2 main factors : location, and probably more importantly, the price the developer paid for the land. There will be other factors involved also, such as price of building materials (cement, steel, bricks, tiles, etc etc etc)

The question isn't about whether a house is "cheap".

The real question is whether you can afford to pay the price of a house that a developer is asking for in any specific location. This is what a developer is always going for, a game as well as a risk.

i bought 2 apart in front Sunway Piramid area, Bandar Sunway.
purposely bought them for rental out purpose. my finding that this area hv a lot of private international college ie Taylor College, Monash, Metropolitan, INTI , Sunway College etc. also got a lot of working area, shops, banks & Subang Medical Centre. its a very high demand for apart because safety reason (guarded 24hrs) compare to DSL.
now i rental it out RM2200/mth. loan repayment to bank only around 1000/mth.
what i want to share here is, good investment due to factor location & demand.

Here are some updates..

Emerald: bandar kinrara

Double storey link house going for 728,888 to 1,725,888 Only 63 units. No doubts ppl will be lining up overnight to buy this. Last time Kinrara nobody wants wan lah. The prices there tak move wan. Semi-dee big big only under RM700k.

History.
Bandar kinrara is rubber estate land. taman kinrara is mining land. IOI mall is also on mining land.

What reverend say is correct, developers are taking a risk by pricing their property at secondary market value, not like last time, at developer value. The problem with this is if I take the example above, the DSL going for RM728,888 will be offered to the market @ RM1,000,000 the very next day its sold. Thereby compounding the problem of excessive capital appreciation. Good news for the owners though.

There are many properties right now unsold by developers being advertised; yet at the same time the secondary market is also selling the same property at developer price + 40%. Example : You could buy a RM1mil home now, and offer it to the market at RM1.4million. There are tonnes of examples of these in iproperty.com or thinkproperty.com or other media.

Is there going to be a subprime crisis in M'sia? My bankers (both IB and Consumers) are telling me to put off all property purchases for now, until EU and China corrects itself. Economy is not out of the woods yet. US is still very fragile. Bankers are bracing themselves for an eventual correction! However, they still continue to provide cheap loans, so as to maximise profits!!!!

What will happen if you purchase a property say RM1mil and one day it drops to RM500k and never recover? Who will bear the cost?

Its been quite some time since I was involved in the construction industry. In those days, it was virtually laughing all the way to the bank!! 50% profit is a norm (even after all the bribes etc ). Most of the construction cost were in land acquisition, land conversion, clearing and piling works which make up the bulk. I dont think material costs that much, the norm is still 7% of total construction costs.

If I were to take the example of Kinara above, the RM728,000 DSL.

Cost of construction (overall) RM250,000.
Profit = RM478,000. (65.7% GP). 5 years ago, developers would price this DSL equivalent @ RM357,000 (this is what I term as developer's pricing with 50% profit). Now they price it at RM728,000 which is the market value/secondary market value.

If you were the buyer from the developer, would you buy it knowing that the developer is making RM478,000?

If you were a secondary market buyer, would you pay RM1,000,000 for it knowing that the developer had made RM478,000 and the 1st owner had made RM250,000? Would you be so willing to part with that RM728,000?

Think about it. Anyway, we'll wait and see.

Donny, not so simple wan la when developing a piece of land.

Costs involved include (percentages are more or less thereabouts la) :

Land acquisition cost + stamp duty + lawyer fees + misc
Infrastructure on land (avg. about RM3-4 psf)
Construction cost (say RM50psf x gross built-up area per unit x # of units)
Professional fees (6%)
Contributions to authorities (5%)
Project management fees (2%)
Sales & marketing fees (2% of gross dev value)
Contingencies allocation (3%)
Finance charges (about 30% of total construction cost x financing agreement)
If land needs to be converted, conversion premium (% depends on land value and conversion)

Most PLCs will want a ROI of not less than 21% at the minimum. So if they do a feasibility and they find that to reach 21% ROI they need to price the units at the highest possible, then they may just be gung ho and go and buy the land, develop it and launch at highest possible price.

In any case, personally speaking, I think there is never a bad time to buy a property for own use (forget about any potential downturn in property prices... still got roof over your head ma). But ATM I'd advise to be careful when buying for investment, esp if buying to rent out coz rental market (depending on type of property as well as location) is kinda uncertain in my opinion.