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Commercial Properties Any comment on the Commercial Properties Development in Perak?

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Old 18-09-2010, 03:44 PM
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Default Are property prices too high ?


THE issue of whether an asset bubble is forming has become a hot topic in a number of countries in Asia these days.

Hong Kong, China and Singapore have sounded the alarm on skyrocketing property prices and are worried that a bubble could be building up and will lead to a market collapse if the north-bound prices are left unchecked.

When an asset bubble happens, prices for a broad spectrum of properties would have escalated beyond the affordability of many common folks. The price increases are not due to fundamental demand but are being artificially pushed up by speculators.

This is what is happening in the “hot” property markets in the region today, and their governments are scrambling to cool the market down with tightening measures such as stricter mortgage loan policies and higher deposits for purchasers.

While some parts of the world, notably the western countries, are still facing the likelihood of a double dip in their economies, Asia has made a notable recovery in the past one year.

The low interest rate environment, high liquidity and an under performing equity market are fuelling a growing appetite for property investment among Asians who are renowned for their high savings.

The danger is that when interest rates start to rise and affordability is affected, demand may start to shrink. The bubble will then burst and result in falling asset prices and a market collapse.

The same issue has been raised about the state of the local property market. Will the run-up in the prices of houses in some parts of the Klang Valley, Penang, and Johor, be a prelude for prices to jump in the other broader property sectors and other parts of the country?

Although the current price spike is still quite contained within the higher end landed residential sector in sought after areas, some concerned parties have voiced concerns that it may spell trouble for the local market if the situation persist and a contagion effect takes place.

Those who are pressing the panic button are pointing their fingers at the speculators for the huge price increases through “property flipping” activities. By buying and selling within a short time, the main aim of these speculators is to push prices up and pocket the profits.

They worry that the bubble will burst when it becomes too big and unsustainable.

The bursting of the bubble will send prices tumbling and property values will be washed down the drains, causing much unnecessary losses.

Those who say there is no immediate danger believes the price increases of housing in the country are not across the board but are contained in only the “hot” areas.

To them, some degree of speculation is actually quite healthy and will not harm the market.

Although there is no confirmed figure on the exact percentage of speculative buying in the local market, the prevailing low interest rates and easy financing schemes are indirectly churning out more speculators in the market.

Unlike genuine investors who usually keep their properties to be leased out for long-term rental income, speculators are those who flip (buy and sell) their properties within a short time for quick profits.

It is common knowledge that there is a growing number of people (with extra cash for investment) who are pooling their resources to buy up multiple housing units (both apartments and landed) for profit-making purposes. They are hoping that their “investment ventures” will yield substantial profits for them in the current market run up.

Excessive speculation is unhealthy as it will unnecessarily burden genuine property buyers who find themselves being priced out of the market.

It will be a good time for the respective state housing authorities to churn out more public housing projects to meet the needs of the lower income population.

National House Buyers Association honorary secretary-general Chang Kim Loong laments that with the steep prices, only the rich, especially foreigners, can afford to buy. He urged the Government to introduce some kind of a price-control mechanism for houses – a threshold to help curb speculation.

He also suggests a lower mortgage loan limit (below 90%) for subsequent purchasers.

It is undeniable that some first time house buyers may still need the financing assistance to make it affordable for them to own a property.

To ensure the new measures do not unnecessarily burden genuine buyers, especially first timers, some flexibility like allowing a loan limit of up to 95% should be extended to these buyers who meet the banks’ credit assessment criteria.

Buyers who already own at least one property should have to dig into their own pockets for a higher downpayment for their subsequent purchase.

The easy financing schemes offered by developers and their panel of bankers should be phased out for upper medium to high-end houses.

Those who are taking advantage of the facility to speculate in multiple properties should not be granted “the free hand” to manipulate the market for their own gains.
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Old 21-09-2010, 01:08 PM
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A property boom myth

IT IS enlightening but worrying

to read the report “Is a property bubble forming ?” (The Star, Sept 18).

Those with the credentials seem to concur that the bubble is still in the early to mid-phase of an up-cycle. It’s the same song sung by analysts in developed countries just before the real estate bubble burst in 2008. A similar phrase telling the people it’s better to buy now or you can never afford to own a house as prices will be spiraling high.

The point of contention is about speculation and high leverage

exposure of property investment and its inherent risks affecting the common people and the overall market.

In general, for the middle and lower working classes, owning a house and a car could literally take up 1/3 to 2/3 of their monthly income. In chasing the high

property prices on fear of even higher prices in future, it’s the ordinary folks who will suffer the most when the bubble bursts due to excessive speculation and


The systemic risks of high

leveraging on fixed assets like

property can be highly destructive.

Logically, any counter measure should be viewed from a distant perspective to ensure that the

benefit derived from it is


However, that does not seem to be the case, as measures taken and policies implemented by a majority of regulators worldwide are very much geared to provide instant results to satisfy the immediate expectation. It may seem beneficial to the majority but in reality, it’s just pushing forward or delaying the imminent problems.

While we know that derivatives are speculative because typically it’s highly leveraged, some as high as 20 to 40 times of their capital. In the same dimension, let’s examine the magnitude of leveraging on the property market in Malaysia.

With the availability of 5%-95% loan package, a house valued at RM500,000 requires only RM25,000 as deposit to make the purchase until its completion. From the owner occupiers’ perspective, it’s a positive move as it provides them an opportunity to own a house.

However, from the investor’s point of view, the ratio of leverage is 20 times the house value. The gains and losses are equally magnified by the same magnitude.

As greed equates the high

potential gain, speculation seeps in, pushing the house value to RM650,000 (30% gain) within a year. When the next buyer purchases the same house at RM650,000 he/she has to pay a deposit of RM32,500 and service the loan of RM617,500 instead of RM475,000 when the house was valued at RM500,000.

For the bank to justify the

borrower’s financial ability to repay the loan, the borrower either has to increase/decrease the monthly repayment or shorten/lengthen the tenure in relation to the

borrower’s age. This is where the cycle of destruction begins.

Speculation and high leverage exposure is not a bubble, it’s a

visible inflated balloon passing from one hand to another, easily burst with any external force, the last to hold the balloon bites the dust.

In this respect any investment with leverage ratio of more than four times of initial capital, the potential risk of bursting increases proportionately.

Therefore, to ensure a house for every family, speculation and high leveraging should be curtailed. Possibly a loan package of 10%-90% for first-time home owners, followed by 25%-75%; 30%-70%; 35%-65%; 40%-60%; 50%-50% on each subsequent purchase. The same may apply for other factors like stamp duty.


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Old 21-09-2010, 05:34 PM
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What goes up too high must surely come down - remember 1985-86 and 1997-98. 2008-09 not much effect on property though.
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Old 23-09-2010, 12:52 PM
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Pay through the nose — Tay Tian Yan
September 23, 2010

SEPT 23 — Even with property prices almost hitting the sky, housing developers and “pundits” still keep telling us that property bubble is non-existent in Malaysia, and the housing market is in perfect health.

They seem to hint that housing prices will keep rising, and those who want to buy a house are urged to rush into the scene, while those not intending to get one now should reconsider their decision, or they will be “left behind.”

Before the global financial crisis, pundits from across America and Europe assured the world that no bubbles had been formed in their markets, and potential buyers were urged to rush into action.

Like a mesmerised lot, people dashed blindly into the property market, many taking out their pensions and unemployment benefits, while some emptied their bank accounts to grab a piece of the action.

Subsequently the housing market crashed, and the properties they had just bought became their insurmountable liabilities. Many had to hold on to the houses they now could not afford to for or get willing buyers to absorb their agony. With their houses now auctioned off by banks, many ended up sleeping in public parks.

Two years have lapsed, many of the houses remain vacant and unoccupied today, even with drastically slashed prices.

A recent issue of Time magazine highlighted the plight of Cleveland, Ohio, where the erstwhile posh residential neighbourhoods have now been reduced to hangouts of drug addicts and homeless beggars.

No, I do not hint at a bubble fast taking shape in the Malaysian housing market nor an imminent collapse.

No, I am not an expert, and am in no position to make any such prediction. Neither am I a potential house buyer or having any interest in the real estate industry.

What is happening now cannot stop me from getting furious, that kind of wrath that any people in the street will feel.

Property developers are only interested in building multi-million mansions while speculators help fan the flame by pushing the prices sky-high. The government, on the other hand, tries to stay out of the whole thing, having least idea what to do to cope with the dilemma.

So a condominium that cost RM150,000 a couple of years ago now fetches RM300,000, and a RM300,000 terraced house now goes for RM600,000.

Any newly launched condominium can retail for a million ringgit, and I am not talking about the luxurious condominiums in expatriate enclaves around KLCC.

This is not what we call an economic take-off, and is not spurred by real economic growth. This is called economic distortion, a consequence of unrestrained greed.

The country’s economic indicators have been paltry over the past few years, from negative growth to a mere five or six per cent expansion which is even more pathetic if the inflation rate is factored in. I can foresee that we will remain very much a medium to low income country in 2020.

That said, it wouldn’t take too many years for our property prices to double. Such illogical rise has not been built upon a solid economic foundation.

Developers and pundits will keep telling people to hurry up to snatch their offers before it’s too late.

The problem is: Can we afford them? Or are they worth the money we are going to put in?

Malaysia is not as crammed, as land-scarce Hong Kong or Japan. Neither is our economy as prosperous and thriving as China or Singapore. And our real estate market is also not half as established as those in the US or Europe.

Do ordinary people like us have the ability to grab the exorbitantly priced houses? On what grounds should the housing developers and market speculators push the prices over the ceiling? What makes the government think it should stand aloof and remain helpless?

In the past Malaysians used to take pride in the fact that they could easily afford a house, but now even a middle income household will find it tough to get a roof over their heads. — mysinchew.com

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.
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