The Malaysian Property Dilemma

Why do people buy properties?

Why do people buy and own property? Some Malaysians buy properties for investment; some for speculation and fast return. For most Malaysians it is a place to call home and raise a family.

Often, we hear of Malaysians buying properties "off-the-plan" and selling them once they are completed. Depending on personal objectives, each individual typically will have different criteria and factors when assessing the location and type of property to buy.

 

Location, Location, Location!

Why do Real Estate Agents always chant "Location Location Location"? Is this statement always true? Are there other equally important factors to consider when buying and selling property?

Property prices will not fall but will continue to increase

There is a perception among Malaysians that, be it a home, an office or a shop, property prices in Malaysia will continue to increase and rise thus putting pressure on younger Malaysians to rush to buy their dream homes now before it is too late when they cannot afford to buy.

Are these perceptions “facts” or “fantasies”?

To find out if these perceptions are facts or fantasies, we will examine the movement of property prices in Bukit Beruntung in Selangor and Taman Desa, Overseas Union Garden, Bangsar Baru and Wilayah Complex all in Kuala Lumpur from as early as 1981 until 2012 as they are listed below:-

Bukit Beruntung, Selangor

Year          Property Type       Land Area       Sale Price        Price/Sq. Ft     %

                                                     sq ft                        RM                  RM

9/1993       2 Storey Terrace    1,600               100,000           63                    100

7/2000       2 Storey Terrace    1,400                 85,900           61                      97

11/2005     2 Storey Terrace    2,100                 27,500           13                      21

12/2006     2 Storey Terrace    2,100                 72,000           34                      54

(There were no recorded transactions after December 2006)

Wilayah Complex, Jalan Dang Wangi (Jalan Campbell), Kuala Lumpur

Year          Property Type       Shop Area       Sale Price        Price/Sq. Ft     %

                                                     sq ft                        RM                  RM

2/1981       Shop-Lot               280                  163,800           585                  100

9/1989       Shop-Lot               351                  125,000           355                   61

10/2002     Shop-Lot               146                    41,000           281                    48

3/2006       Shop-Lot               387                  120,000           309                    53

10/2010     Shop-Lot               193                    70,000           361                    62

4/2011       Shop-Lot               140                    57,150           408                    70

(There were no recorded transactions after April 2011)

Bangsar Baru, Kuala Lumpur

Year          Property Type       Shop Area       Sale Price        Price/Sq. Ft     %

                                                     sq ft                        RM                  RM

5/1999       2 Storey Terrace    1,760                  456,000        259                  100

5/2002       2 Storey Terrace    1,760                  790,000        448                  172

9/2005       2 Storey Terrace    1,760                  610,000        346                  133

6/2008       2 Storey Terrace    1,760                  850,000        482                  186

1/2011       2 Storey Terrace    1,760               1,180,000        670                  258

6/2011       2 Storey Terrace    1,760               2,000,000        1,136               438

10/2011     2 Storey Terrace    1,760               1,750,000        994                  383

3/2012       2 Storey Terrace    1,760               1,300,000        738                  285

8/2012       2 Storey Terrace    1,760               1,450,000        823                  321

4/2013       2 Storey Terrace    1,760               2,100,000        1,193               460

Overseas Union Garden, Kuala Lumpur

Year          Property Type       Shop Area       Sale Price        Price/Sq. Ft     %

                                                     sq ft                        RM                  RM

5/1999       2 Storey Terrace    1,600               250,000           156                  100

9/2002       2 Storey Terrace    1,600               260,000           162                  103

11/2005     2 Storey Terrace    1,600               320,000           193                  124

9/2007       2 Storey Terrace    1,600               350,000           218                  140

9/2008       2 Storey Terrace    1,600               420,000           262                  168

9/2009       2 Storey Terrace    1,600               450,000           281                  180

12/2009     2 Storey Terrace    1,600               505,000           315                  202

7/2010       2 Storey Terrace    1,600               530,000           331                  212

11/2010     2 Storey Terrace    1,600               575,000           359                  230

6/2011       2 Storey Terrace    1,600               675,000           421                  270

5/2012       2 Storey Terrace    1,600               830,000           518                  332

(Record of transactions from January 2013 onwards not yet available)

Taman Desa, Kuala Lumpur

Year          Property Type       Shop Area       Sale Price        Price/Sq. Ft     %

                                                     sq ft                        RM                  RM

12/1991     2 Storey Terrace    1,872               185,000             98                  100

9/2004       2 Storey Terrace    5,424               650,000           119                  121

2/2006       2 Storey Terrace    1,646               328,000           199                  203

7/2007       2 Storey Terrace    2,646               365,000           137                  140

3/2008       2 Storey Terrace    1,649               520,000           315                  321

12/2009     2 Storey Terrace    2,044               660,000           322                  328

6/2010       2 Storey Terrace    1,869               620,000           331                  338

7/2011       2 Storey Terrace    2,259               580,000           256                  261

9/2011       2 Storey Terrace    1,869               830,000           444                  453

10/2012     2 Storey Terrace    2,126               1,100,000        517                  527

(Record of transactions from January 2013 onwards not yet available)

Fluctuations in property prices

The above price analysis shows that prices of terrace houses in Bukit Beruntung in Selangor from 1993 to 2006 (13 years period) fell by 79% from RM100,000 in 1993 to RM27,500 in 2005.

In Wilayah Complex in Kuala Lumpur, prices of shoplots from 1981 to 2011 (30 years period) fell by 52% from RM585 per sq ft in 1981 to RM281 per sq ft in 2002.

However in Bangsar Baru, Taman Desa and Overseas Union Garden all in Kuala Lumpur prices of terrace houses increased by 360% from 1999 to 2013 (Bangsar Baru), 232% from 1999 to 2012 (Overseas Union Garden) and 427% from 1991 to 2012 (Taman Desa).

It is FANTASY that property prices will continue to increase and will never fall. Like stocks and shares, gold and other commodities, property prices CAN RISE and CAN FALL and actually DO RISE and DO FALL.

Can Malaysians afford to buy their Dream Homes?

Malaysian families are broadly categorized into 3 Income Groups: High Income with RM14,000 monthly income, Middle Income with RM8,000 monthly income and Low Income with RM3,000 monthly income.

Families with RM3,000 to RM8,000 monthly income are considered Lower Middle Income families and those with RM8,000 to RM14,000 monthly income are considered Upper Middle Income families.

For this Study, we will only focus on the High, Middle and Low Income Malaysian families.

Affordability Tests

We shall now follow the fortunes of the High Income family earning RM14,000 monthly, Middle Income family earning RM8,000 monthly and Low Income family earning RM3,000 monthly as follows:-

High Income Family

                                                                                    RM                 RM

Monthly Family Income (2013)                                                         14,000

                              

Monthly Expenditure

EPF                                                                             1,540

Income Tax                                                                  2,200

Grocery                                                                           800

House Rent (Live in own house)                                           0

Car Loan                                                                      2,500

Car Maintenance & Petrol                                               800

Food (Dine-out)                                                              600

Children’s Education & Related Expenses                        800

Children Pocket Money                                                   800

Others                                                                             500

 Emergencies                                                                   500               11,040

                                                                                                            ---------

Income Surplus available to pay Housing Loan                                2,960

                                                                                                             =====

Middle Income Family

                                                                                    RM                 RM

Monthly Family Income (2013)                                                         8,000

Monthly Expenditure

EPF                                                                             880

Income Tax                                                                  700

Grocery                                                                        500

House Rent (Live in own house)                                        0

Car Loan                                                                   1,500

Car Maintenance & Petrol                                            700

Food (Dine-out)                                                           400

Children’s Education & Related Expenses                     500

Children Pocket Money                                                500

Others                                                                          300

 Emergencies                                                                300                    6,280

                                                                                                            ---------

Income Surplus available to pay Housing Loan                                1,720

                                                                                                             =====

Low Income Family

                                                                                    RM                 RM

Monthly Family Income (2013)                                             3,000

Monthly Expenditure

EPF                                                                             180

Income Tax                                                                      0

Grocery                                                                        300

House Rent (Live in own house)                                        0

Motorcycle Loan                                                         400

Motorcycle Maintenance & Petrol                              300

Food (Dine-out)                                                           100

Children’s Education & Related Expenses                     300

Children Pocket Money                                                300

Others                                                                          300

 Emergencies                                                                300                    2,480

                                                                                                            ---------

Income Surplus available to pay Housing Loan                                   520

                                                                                                             =====

What can Malaysian families afford to buy?

Premised on the above analysis Malaysian families likely may have income surpluses to pay for their Housing Loans as listed below:-

                                                            RM

High Income Family                           2,960

Middle Income Family                       1,720

Low Income Family                               520

We assume the 3 Income Group families will need Housing Loans from Banks to help them buy their Dream Homes. With the above listed income surpluses available to pay for their Housing Loans, how much can they borrow from the Banks?

The figures below show what these Malaysian families can afford to buy:-

High Income Family with RM14,000 monthly income

Monthly Income Surplus                                   RM2,960

Eligible 30-years Housing Loan                         RM488,932

Affordable Property Price                             RM550,000

Affordable Property Type                              2-Storey Terrace House

Location of Property                                         Taman Desa/Overseas Union Garden in Kuala Lumpur

Middle Income Family with RM8,000 monthly income

Monthly Income Surplus                                   RM1,720

Eligible 30-years Housing Loan                         RM284,109

Affordable Property Price                             RM320,000

Affordable Property Type                              Apartment

Location of Property                                         Taman Desa/Overseas Union Garden in Kuala Lumpur

Low Income Family with RM3,000 monthly income

Monthly Income Surplus                                   RM520

Eligible 30-years Housing Loan                         RM85,000

Affordable Property Price                             RM95,000

Affordable Property Type                              Low/Medium Cost Flat

Location of Property                                         Taman Sri Sentosa in Kuala Lumpur

The Malaysian Property Dilemma

Malaysians are now suffering.

Today Malaysian families living in Kuala Lumpur and Petaling Jaya have much lower living standards than that of their parents and grand parents in the 1970s, 1980s and 1990s.

To appreciate how much living standards in Kuala Lumpur and Petaling Jaya have fallen since the 1970s, we shall examine the comparative charts below:-

High Income Family with RM14,000 monthly income

Year                Affordable  Type         Location                      City

1970s                2-Storey Detached        Damansara Heights       Kuala Lumpur

1980s                2-Storey Detached        Bangsar                        Kuala Lumpur

1990s                2-Storey Detached        Taman Seputeh                         Kuala Lumpur

2013                 2-Storey Terrace           Taman Desa                 Kuala Lumpur

Middle Income Family with RM8,000 monthly income

Year                Affordable Type          Location                      City

1970s                2-Storey Detached        Taman Seputeh                         Kuala Lumpur

1980s                2-Storey Detached        Taman Desa                 Kuala Lumpur

1990s                2-Storey Terrace           Taman OUG                 Kuala Lumpur  

2013                 Apartment                    Taman OUG                 Kuala Lumpur

Low Income Family with RM3,000 monthly income

Year                Affordable Type          Location                      City

                                         

1970s                2-Storey Terrace           Taman OUG                 Kuala Lumpur

1980s                Apartment                    Taman Desa                 Kuala Lumpur

1990s                Apartment                    Taman OUG                 Kuala Lumpur

2013                 Low/

Medium Cost Flat          Taman Sri Sentosa        Kuala Lumpur

How did we fall into this “Malaysian Property Dilemma”? How did Malaysians get into this endless cycle of fear and anxiety that translates to their unending chase of the proverbial rainbow of “ever rising property prices”.

What can we do?

The newly elected Federal Government can and should lead Malaysians into finding possible solutions and give hope to future generations of young Malaysians.

On-Line Property Price Search Websites in Malaysia

Before you purchase your next property, you may want visit http://www.ipropertydata.com and check out for yourself latest prices of the types of properties you intend to purchase.