Property Bubble: Fact or Fantasy?
Is Malaysia
Part 3: Property prices decline
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, I examined the 2nd Characteristic of a Property Bubble
namely “Property prices reach unsustainable levels”.
In Part 3 of my 3 Articles I will
examine the 3rd Characteristic of a Property Bubble namely “Property
prices decline”.
Examination of 3rd
Characteristic - Property prices decline
Did Malaysia ’s property prices start to
decline? For the answers, I will examine
recent movements of the prices of 3 condominiums in Kuala Lumpur . I list below my findings:-
Suria Stonor Service Apartment, Kuala
Lumpur
Year Property Type Floor Area Sale
(Sq. Ft) RM RM Increase
7/2006
Condominium 5,433 3,600,000 662 100
11/2007 Condominium 8,252 5,000,000 605
91
3/2008 Condominium 5,433 5,000,000 1099 166
3/2008 Condominium 3,281
3,900,000 1207 182
11/2008 Condominium 3,292 3,000,000 911 137
1/2009 Condominium 9,328
12,000,000 1286 180
11/2009 Condominium 3,303 2,800,000 865 194
4/2012 Condominium 3,281
2,300,000
725 109
4/2013 Condominium 8,640
5,500,000 636
96
7/2013
Condominium 2,937 1,900,000 646
97
Regalia Service Apartment, Kuala
Lumpur
Year Property Type Floor Area Sale
(Sq. Ft) RM RM Increase
1/2012
Condominium 1,160 742,000 639 100
11/2012 Condominium 500 375,000 750 117
12/2012 Condominium 560 430,000 768 120
1/2013
Condominium 560 440,000 786 123
2/2013 Condominium
500 385,000 770 120
3/2013
Condominium 560 510,000 911 142
4/2013 Condominium
500 405,000
810 126
6/2013
Condominium 500 412,000 816 127
7/2013
Condominium 1,239 920,000
742 116
8/2013
Condominium 1,160 770,000
663 103
Vista Kiara Condominium, Kuala
Lumpur
Year Property Type Floor Area Sale
(Sq. Ft) RM RM Increase
12/2010 Condominium 1,237 370,000 299 100
2/2011 Condominium 1,334
445,000 333 111
4/2011 Condominium 1,237 420,000 339 113
9/2011
Condominium 1,398 495,000 354 118
10/2011 Condominium 1,280 480,000 375 125
12/2011 Condominium 1,237 505,000 408 136
3/2012
Condominium 1,237 525,000 424 141
8/2012 Condominium 1,237 530,000 428 143
10/2012 Condominium 1,334 600,000 449 150
11/2012 Condominium 1,237 685,000 553 184
1/2013 Condominium 1,237 535,000 432 144
5/2013 Condominium 1,334 570,000 427 142
5/2013 Condominium 2,980
1,025,000 343 114
Analysis of Price Movements
An analysis of price movements involving the 3 Condominiums revealed the
following:-
1. Suria Stonor Service Apartment, Kuala Lumpur
Prices of condominium units in Suria Stonor
Service Apartment started at RM662 per sq ft in July 2006 and rose until they reached their highest price
of RM1,286 per sq ft in January
2009.
From January 2009, prices started to decline
(drop) from RM1,286
per sq ft until they dropped to RM646 per sq ft in July 2013 less than the RM662 per sq ft
price in July 2006.
2. Regalia Service Apartment, Kuala Lumpur
Prices of condominium units in Regalia Service
Apartment started at RM639
per sq ft in January 2012 and rose until they reached their highest price of RM911 per sq
ft in March 2013.
From March 2013, prices started to decline
(drop) from RM911 per sq ft until they dropped to RM663 per sq ft in August
2013 just slightly higher than
the RM639 per sq ft price in January 2012.
3. Vista
Kiara Condominium, Kuala Lumpur
Prices of condominium units in Vista Kiara
Condominium started at RM299 per sq ft in December 2010 and rose until they
reached their highest price
of RM553 per sq ft in November 2012.
From November 2012, prices started to decline
(drop) from RM553 per sq ft until they dropped to RM343 per sq ft in May 2013
just slightly higher than
the RM299 per sq ft price in December 2010.
Conclusion on 3rd
Characteristic - Property prices decline
From analyzing price movements involving the 3 Condominiums, namely Suria
Stonor Service Apartment, Regalia Service Apartment and Vista Kiara Condominium
all in Kuala Lumpur, we are witnessing the beginning of decline (drop) in
property prices in Kuala Lumpur.
Such decline (drop) in property prices in Kuala
Lumpur will over time happen in other parts of Malaysia .
The 3rd Characteristic of a
“Property Bubble” is fulfilled.
Is Malaysia
To answer that question we shall revisit the 3 characteristics
of a “Property
Bubble” and discover if they did actually happen as follows:-
i) 1st
Characteristic: Rapid increase in
property prices
(It
has already happened)
ii) 2nd
Characteristic: Property prices
are unsustainable
(It has already happened and continues
to happen)
iii)
3rd Characteristic: Property
prices decline
(It has started to
happen and continues to happen)
Yes, Malaysia
What
are the signs that Malaysia
The Signs are everywhere!
•
At the
Malls (Fewer Shoppers)!
•
In the
Newspapers (Increase Foreclosures advertisements)
•
In the
Newspapers (Increase Bankruptcies advertisements)
•
In the
Courts (Increase Foreclosures Cases)
•
In the
Courts (Increase Bankruptcies Cases)
•
Talk to
Real Estate Agents.
•
Get Real
Estate Agents’ candid response and they will tell you the Property Market is
flat with minimum transactions
•
Malaysian Families squeezed between huge debts and
rising costs of living
What
can I do to survive?
If you already have
an unsustainable Housing Loan and your future is uncertain get, out as quickly
as possible. Try to repay or to negotiate with the Bank for a new payment
schedule for your Housing Loan.
If you do not think you have the resources to repay the Bank your Housing
Loan sell your house at the best possible price,
pay the Bank what you still owe. If the sale proceeds is not enough to pay the
Bank in full, negotiate to convert the balance into a Personal Loan repayable
over say 10 years.
If you are NOT
already in debt and you HAVE NOT bought a house at SKY
HIGH price, STOP! DO NOT
jump in NOW.
When the BUBBLE BURST is in FULL
BLOWN, the house that you purchase now WILL DROP in value by a big
margin and if what happened in 1997/1998 is to be repeated, you WILL SUFFER up to 40% loss in
the value of your house.
To answer this question let me
show you what happened to property prices during and after the 1997/1998 Asian
Financial Crisis. Based on information extracted from the Ministry of Finance
Property Market Report for the 5 years from 1994 - 1998, we have the following
transactional and price movements:-
Residential
Year 1997 1998 Drop
(Decline)
Transactions 100% 70% 30% drop over 1997
Property Values 100% 64% 36% drop over 1997
Commercial
Year 1997 1998 Drop
(Decline)
Transactions 100% 55.9% 44.1% drop over 1997
Property Values 100% 56.1% 43.9% drop over 1997
Industrial
Year 1997 1998 Drop
(Decline)
Transactions 100% 51.9% 48.1% drop over 1997
Property Values 100% 44.5% 55.5% drop over 1997
Agriculture
Year 1997 1998 Drop
(Decline)
Transactions 100% 77.9% 22.1% drop over 1997
Property Values 100% 52.3% 47.7% drop over 1997
Year 1997 1998 Drop
(Decline)
Transactions 100% 52.6% 47.4% drop over 1997
Property Values 100% 27.2% 72.8% drop over 1997
Overall
Property Market Condition from 1994 to 1997
Year 1994 1995 1996 1997
Transactions 100% 115.79% 124.36% 126.59%
Property Values 100% 134.06% 164.75% 178.59%
Overall
Property Market Condition in 1998
1.
In 1998, one year after outbreak of the 1997/1998 Asian
Financial Crisis, total number of
property transactions was the lowest it has been in the last 7 years exceeding
only the totals before 1992
2.
In 1998 property transactions decreased by 32.3% over
1997 figures
3. In 1998 property transactions were only
113.5% of total property transactions in 1991, a 13.5% increase
4. In 1998 property values dropped
(decreased) by 47.8% over property values in 1997 (if in 1997 a property was worth
RM1 Million, it will only be worth RM522,000 in 1998)
Will
1998 be repeated?
We are already beginning to see
what happened in 1997/1998 starting to happen now. How severe it will be in
2014 is difficult to predict at the moment. If the levels of prices properties
transacted from 2012 to 2014 is a guide when compared to levels of transacted prices
in 1997/1998, the pain suffered in 2014 will likely be more severe and the pain
and agony of the victims greater than in 1997/1998.
What
should I do?
Do
not listen to rumours. Listen to your own still small voice, your
own intuition what we call “your own gut feeling”
Before you decide to buy a property
consider the following:-
·
Choose the type of property popular with
other purchasers (it will help to widen your re-sale market)
·
Do not over pay
·
Pay only what you can comfortably afford
·
Do your own affordability test
·
Do not follow the crowd, especially the many
“Property Gurus” whose agenda is to get you buy the properties you cannot
afford
·
Pay only the market price at the time of
purchase
·
Recognize the taboos of all the communities
in Malaysia
·
Avoid becoming your own Estate Agent, Valuer
and Lawyer: Pay for proper professional advice
before you commit to buy a property
Choose
wisely! Your decisions and actions at the point of entry will
determine your fate and your agony and pain at the point of exit when you want
to sell your house.
If undecided and uncertain
about the future better to RENT now and buy later than to buy now and REGRET
later
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 or assistance.
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