Property Bubble: Fact or Fantasy?
Is Malaysia
Part 2: Property prices reach unsustainable levels
What is a Property Bubble?
A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic
bubble that occurs periodically in local or
global real estate markets.
Characteristics of a Property Bubble
There are 3 characteristics that
preceded the bursting of a Property Bubble:-
i) Rapid increases in property prices
ii) Property prices reach unsustainable levels
iii) Property prices decline
In Part 1 of my 3 Articles I examined
the 1st Characteristic of a Property Bubble namely “Rapid
increases in property prices”.
In Part 2 of my 3 Articles I will
examine the 2nd Characteristic of a Property Bubble namely “Property
prices reach unsustainable levels”.
Examination of 2nd Characteristic -
Property prices reach unsustainable levels
Did Malaysia ’s property prices rise
rapidly? Did they reach unsustainable levels?
In Part 1 of my 3 Articles I
found that terrace houses and condominium in 6 suburbs in Kuala Lumpur
increased rapidly from 276% to 1,006% over a period of 10 years as follows:-
Location Property
Lowest Highest %
Type
Price (RM) Price
(RM) Increase
OUG Terrace
250,000 (1999) 830,000 (2012) 332
Happy Garden Terrace 120,000 (1990) 948,000 (2012) 1,006
Bangsar Terrace 456,000 (1999) 1,580,000 (2013) 346
Who can afford to buy?
We shall now examine the family incomes required to pay
these prices as follows:-
Location Property
Property Loan Amount 360 Monthly
Monthly
Type Price
(RM) (RM) (90%) Instalments Income
OUG Terrace 830,000 747,000 4,522 13,000
Happy
Garden Terrace 1,100,000 990,000 5,993 18,000
Bangsar Terrace 1,580,000 1,422,000 8,608 24,000
From reading the above analysis, it appears that to
afford to buy a condominium in Faber Heights at a price of RM530,000, the cheapest of the 6
properties, a Malaysian Household in Kuala
Lumpur
To be able to buy a terrace house in Bangsar at a
price of RM1,580,000, the most expensive, a Malaysian Household in Kuala
Lumpur
Findings by The Star Newspaper on 18-02-2014
The Star on Tuesday, 18-02-2014 reported that based on a Survey they conducted
“Household Incomes Needed to Own Houses
in 13 Suburbs in the Klang
Valley
Location State Monthly Household
Income
RM
Melawati, Selangor
9,360
Nilai Selangor
9,430
Bukit Subang Selangor 9,670
Putra Height Selangor 12,190
Kajang Selangor 12,300
USJ Selangor
13,320
Denai Alam Selangor
15,160
Ara Damansara Selangor
15,660
Subang Jaya Selangor
15,660
Bukit Jelutong Selangor 17,310
What can Malaysian families afford to
buy?
To find answers to the question “What
can Malaysian families afford to buy” we shall follow the fortunes of 3
Malaysian families namely:
i) High Income family earning RM14,000 per month
ii) Middle Income family earning RM8,000 per month
iii) Low Income family earning RM3,000 per month.
A very simplistic study of their
respective family finances is per the following scenarios:
Scenario
No 1: High Income Family
RM RM
Monthly Family Income (2012) 14,000
Monthly Expenditure (2012)
EPF 1,540
Income Tax 2,200
Grocery
800
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
Surplus available to pay
Housing Loan 2,960
=====
Scenario
No 2 - Middle Income Family
RM RM
Monthly Family Income (2012) 8,000
Monthly Expenditure (2012)
EPF 880
Income Tax 700
Grocery
500
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
Surplus available to pay
Housing Loan 1,720
====
Scenario
No 3 - Low Income Family
RM RM
Monthly Family Income (2012) 3,000
Monthly Expenditure (2012)
EPF 180
Income Tax 0
Grocery
300
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
Surplus available to pay Housing
Loan 520
=====
Available Surplus to pay Housing
Loans
Malaysian families
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 shall now consider the
properties these 3 families can afford to buy with the above listed available
surpluses
Affordability Test
I conclude that the High Income Family (RM14,000 monthly income), Middle
Income Family (RM8,000 monthly
income) and Low Income Family (RM3,000
monthly income) can only afford to buy the following property types with the
respective affordable Housing Loans as follows:-
Income Monthly
Monthly Eligible
Loan Affordable Affordable Location
Level Income
Income Amount Property Property
Surplus
(30
Years) Price
RM (RM) RM
RM
High
Income 14,000 2,960 488,932 550,000 Apartment
Taman
Desa
Overseas Union Garden
Middle
Income 8,000 1,720 284,109 320,000 Medium Overseas
Cost Flat Union Garden
Kajang
in
Selangor
Low
Income 3,000
520 85,000
95,000 Low Kajang
Cost Flat Rawang Selayang
Semenyih
all in
Selangor
Are Malaysian Property Prices still
affordable?
To
answer the question “Are Malaysian Property Prices still affordable” we shall examine
properties in 6 suburbs in Kuala Lumpur and the family incomes required to pay
these properties as follows:-
Location Property
Property Loan Amount 360 Monthly
Monthly
Type Price
(RM) (RM) (90%) Instalments Income
OUG Terrace 830,000 747,000 4,522 13,000
Happy
Garden Terrace 1,100,000 990,000 5,993 18,000
Bangsar Terrace 1,580,000 1,422,000 8,608 24,000
Premised on the above information and analysis,
it is clear that even Malaysian families with monthly incomes of RM14,000 can
only afford to buy Apartments in Faber
Heights in Taman Desa, Kuala Lumpur
According to a recent study Malaysia Households have monthly
incomes as follows:-
RM3,000 and below 40%
RM3,000 to RM5,000 20%
RM5,000 to RM8,000 15%
RM8,000 to RM14,000 10%
Above RM14,000 15%
It is clear from the above up to
85% of Malaysia Households in the Klang
Valley
Even Low Cost Flats and Medium
Cost Flats in Kuala Lumpur may be too expensive for 40% Malaysia Households
that earn RM3,000 and below monthly income, based on the following statistics:-
Prices of Low
Cost Flats in Kuala Lumpur
Year Location Unit
Sale
Area
Sq. Ft RM RM
3/2013 Taman
Desa Tasek 729 113,000 155
3/2013 Taman Sri Sentosa 581 99,000 170
4/2013 Flat Desa Pandan 715 127,000 177
4/2013 Taman Sri Cendekia 570
99,000 174
4/2013 Taman Bukit Angkasa 688 120,000 174
5/2013 Flat
Taman Melati 591 118,000 200
5/2013 Segar
Ria 650 113,000 155
6/2013 Taman
Salak Selatan 785 65,000 82
6/2013 Cheras
Ria Apartment 570 127,000 177
6/2013 Kampung Kerinchi 860
95,000 110
Prices of
Medium Cost Flats in Kuala Lumpur
Year Location Unit
Sale
Area
Sq. Ft RM RM
3/2013 Pinang Apartment 925
3/2013 Mandarina Court 774
270,000 348
3/2013 Happy Garden Flat 817
220,000 269
3/2013 Wisma Balphak 968
350,000 361
4/2013 Nyaman Court 1,108 340,000 306
4/2013 Happy Garden Flat 807
216,000 267
4/2013 Pantai Indah 763 200,000 262
4/2013 Jalan Khoo Teik Ee 1,312 285,000 217
5/2013 Jalan Horley 1,635 300,000 183
6/2013 Taman Segar 1,000
223,000 223
Conclusion on 2nd Characteristic
- Rapid increases in property prices
When up to 85% of Malaysia
Households in the Klang Valley only able to afford to buy Apartments, Medium
Cost Flats and Low Cost Flats at prices below RM550,000 and with Low Cost Flats
and Medium Cost Flats in Kuala Lumpur getting too expensive for 40% Malaysia
Households that earn monthly income of RM3,000 and below, the 2nd
Characteristic of a Property Bubble namely “Property prices reach
unsustainable levels” is definitely a reality.
The 2nd Characteristic of a
“Property Bubble” is fulfilled.
In Part 3 of my 3 Articles I will
examine the 3rd Characteristic of a Property Bubble namely “Property
prices decline”.
Contact
Dr.
Ernest Cheong
You may want to contact Dr. Ernest Cheong at ecptlco@gmail.com or gandhiproperty@gmail.com if you need
personal advice.
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