Is Malaysia
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
I will examine the issue “Property
Bubble: Fact or Fantasy” in 3 Articles. In Part 1 of my 3 Articles
I will examine the 1st Characteristic of a Property Bubble namely “Rapid
increases in property prices”.
Is Malaysia
We shall now examine the 3
characteristics that preceded the bursting of a Property Bubble to ascertain if
Malaysia
is heading towards a Property Bubble.
Examination of 1st
Characteristic - Rapid increases in property prices
Did Malaysia ’s
property prices increase rapidly? For
the answers, we will examine the movement of prices of terrace houses and
condominiums in typically Middle Income Residential Suburbs in Kuala Lumpur from 1981 to 2013 including:-
i)
Overseas Union
Garden
ii)
Happy Garden (Terrace Houses)
iii)
Taman Desa (Terrace
Houses)
iv)
Bangsar Baru (Terrace Houses)
v)
Taman Tun Dr. Ismail (Terrace Houses)
vi)
Faber Heights
Overseas Union Garden , Kuala
Lumpur
Year Property Type Land
Sale
Area Sq. Ft
Sq. Ft RM RM
5/1999 Terrace House 1,600 250,000 156 100
9/2002 Terrace House 1,600 260,000 162 103
11/2005 Terrace
House 1,600 320,000 193 124
9/2007 Terrace House 1,600 350,000 218 140
9/2008 Terrace House 1,600 420,000 262 168
9/2009 Terrace House 1,600 450,000 281 180
12/2009 Terrace
House 1,600 505,000 315 202
7/2010 Terrace House 1,600 530,000 331 212
11/2010 Terrace
House 1,600 575,000 359 230
6/2011 Terrace House 1,600 675,000 421 270
5/2012 Terrace House 1,600 830,000 518 332
Happy Garden, Kuala Lumpur
Year Property Type Land Sale
Area
Sq. Ft
Sq. Ft RM RM
8/1990 Terrace House 1,540 120,000 78 100
7/1993 Terrace House 1,400 150,000 107 137
1/1994 Terrace House 1,915 170,000 88 113
12/1998 Terrace
House 2,883 200,000 69 89
8/2000 Terrace House 1,540 245,000 159 204
11/2002 Terrace
House 1,200 215,000 179 229
8/2004 Terrace House 1,540 348,000 225 288
3/2007 Terrace House 1,400 578,428 413 529
3/2011 Terrace House 1,400 851,000 607 779
3/2012 Terrace House 1,400 948,000 677 868
3/2012 Terrace House 1,400 1,100,000 785 1,006
Taman Desa, Kuala Lumpur
Year Property Type Land Sale
Area Sq. Ft
Sq. Ft RM RM
12/1991 Terrace House 1,872
185,000 98 100
9/2004
Terrace House 5,424 650,000 119 121
2/2006
Terrace House 1,646 328,000 199 203
7/2007
Terrace House 2,646 365,000 137 140
3/2008
Terrace House 1,649 520,000 315 321
12/2009 Terrace House 2,044 660,000 322 328
6/2010
Terrace House 1,869 620,000 331 338
7/2011
Terrace House 2,259 580,000 256 261
9/2011
Terrace House 1,869 830,000 444 453
10/2012 Terrace House 2,126 1,100,000 517 527
Bangsar Baru, Kuala Lumpur
Year Property Type Land Sale
Area Sq. Ft
Sq. Ft RM RM
5/1999
Terrace House 1,760 456,000 259 100
5/2002
Terrace House 1,760 790,000 448 172
9/2005
Terrace House 1,760 610,000 346 133
6/2008
Terrace House 1,760 850,000 482 186
1/2011
Terrace House 1,760 1,180,000 670 258
10/2011 Terrace House 1,760 1,750,000 994 383
3/2012
Terrace House 1,760 1,300,000 738 285
8/2012
Terrace House 1,760 1,450,000 823 317
12/2012 Terrace House 1,760 1,530,000 869 335
3/2013
Terrace House 1,760 1,580,000 897 346
Taman Tun Dr. Ismail, Kuala
Lumpur
Year Property Type Land Sale
Area Sq. Ft
Sq.
Ft RM RM
1/1992 Terrace House 2,797 400,000 142 100
1/1995 Terrace House 1,980 660,000 333 234
10/2000 Terrace House 3,109 610,000 196 138
8/2001 Terrace House 2,130 580,000 272 191
5/2002 Terrace House 1,900 658,000 346 243
8/2007 Terrace House 1,900 780,000 410 288
12/2009 Terrace House 1,872 866,000 462 325
11/2010 Terrace House 1,807 1,020,000 564 397
8/2011 Terrace House 1,721 1,330,000 772 543
8/2012 Terrace House 1,904 1,330,000 753 530
Year Property Type Unit Sale
Area Sq. Ft
Sq Ft RM RM
8/1984 Condominium 936
190,000 218 100
1/1985 Condominium 882
198,000 244 112
11/1996 Condominium 1,183 275,000 250 114
10/2000 Condominium 936 228,000 265 121
5/2004 Condominium 1,215
295,000 261 120
9/2007 Condominium 936
245,000 281 128
9/2010 Condominium 946
355,000 406 184
8/2011 Condominium 946
480,000 545 250
8/2012 Condominium 936
510,000 586 268
4/2013 Condominium 946
530,000 602 276
Summary on Price Increase
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
Conclusion on 1st
Characteristic
From reading the above
statistics, during the period from 1981 to 2013, property prices in the 6
locations in Kuala Lumpur at various rates as follows:-
Location Lowest Price Highest Price Period Increase
RM RM %
Overseas Union 250,000 830,000 1999
– 2012 332
Garden
Happy Garden 120,000 1,100,000 1990
– 2012 1,006
Bangsar Baru 456,000 1,580,000 1999
– 2013 346
Dr Ismail 400,000 1,330,000 1992 – 2012 543
With price increases ranging from
276% (2.76 times) to 1006% (10.06 times), such increases would be considered “rapid increases in property prices”.
The 1stt Characteristic of a
“Property Bubble” is fulfilled.
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
Taman Desa Terrace 185,000 (1991) 1,100,000 (2012) 527
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
Taman Desa 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
Mont Kiara/Duta Hartamas Kuala Lumpur 20,160
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
Taman Desa 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
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.
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
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