My personal 2014 outlook ( Part 2 Property stocks - Do we really have bubbles in our property market? )

Do we really have bubbles in our property market? 

Thanks a lot for supporting my blog and very sorry for the slow posting as I was busy with some other projects. I believe in the past few days you might have had some bad mood due to the bad market condition. I've no mean on spoiling your mood but I would like to share some view of mind regarding the property market which will eventually affect the property stocks.

The easiest way to forecast an industry is to see whether did they get any "blessing" from the policies maker or not. As for property market, I believe that there is no blessing from the policies maker.

1st we will have to look at the government. 
According to the 2014 budget that being announced on October 2013, the Malaysian government had came out with a few measures that is infavorable to the property market. Such as
a) Increment of RPGT
b) Cancellation of  DIBS scheme
c) Financial institution are prohinited from providing final funding for projects involved in the DIBS Scheme.
d) Raising the minimum price of property that can be purchase by foreigners from RM500,000 to RM1,000,000
e) More affordable housing to be build
(Source: http://www.reuters.com/article/2013/10/25/malaysia-budget-highlights-idUSL3N0IE0TY20131025)
Any of the measures above is favoring the market?  I don't think so. Hence, its a NEGATIVE from the government.

Appreciate if you could repost my link instead of copy and paste the whole paragraph at other pages as I'm trying to make a living from blogging too! I need the traffic to get some pocket money from the ads by Nuffnang or else I will be starve til death and unable to share my views in here anymore! Many Thanks!!!

2nd we will have to look at BNM, the policies maker for the financial markets.
On 20 October 2013, our belove Bank Negara's Governor Tan Sri Dr Zeti came out with a statement of
"There is no asset bubble", which I would was wondering that did she include property market in it.
(Source: http://www.thestar.com.my/Business/Business-News/2013/10/21/No-asset-bubble-Zeti-Msia-has-addressed-many-issues-risks-related-to-it.aspx/)

 On the other hand,  the Malaysia Institute of Estates Agent said that there is "No threat of property bubble" on 25 July 2013.

 (Source: http://www.thestar.com.my/Business/Business-News/2013/07/25/MIEA-No-threat-of-property-bubble-Estate-agents-also-see-10-growth-in-property-value-this-year.aspx/)   

Can all this be trusted?
Let me tell you what will happen if Tan Sri Zeti were to say that there is a property bubble or asset bubble in Malaysia. I believe the confident of the all investors in Malaysia will be crush into pieces and scare them away while causing a massive cash out from the market. This is because that statement will deem as BNM wanted to press down the price, this will causes the market to crash! It will be a hard landing instead of a soft landing where the policies makers wouldn't want and must not let it happen!

On the other hand, why are there measures such as cancelling DIBS? Why do they plan to formulate new measurement on BLR? Does this favor the market? I guess you might wonder why do they do this now?
(Source: http://www.thestar.com.my/Business/Business-News/2013/12/18/BNM-FORMULATES-NEW-MEASUREMENT-FOR-THE-BLR-NEXT-YEAR.aspx/)

How bout the statement of MIEA? Why do they say so?
Have u ever come across a sales man that telling you his product is bad or he is going to give discount and ask u not to buy? Its their bread and butter! No one gonna break their own bowl, unless they are rich enough or really kind enough!

So now I would say that its a NEGATIVE  from the BNM side. 


3rd We will now look at the bank, the financial source for all the buyers. 

Primary Market
Have you ever wonder why do most of the property transaction were mainly under construction or new projects instead of secondary market?

According to some of my colleagues from the mortgage department, this is due to the bank had did some bridging loan with the developers. The bank will agree to finance the developers as well as the end buyer. As a result, the new buyer wouldn't have issue looking for bank to finance them.

On the other hand, the developer also come out with DIBS, where the buyer doesn't need to pay anything until they move in to the new house. The even best part is, the developer come out with a 10% rebate as well as free SPA and legal fee. This will enable the buyer to buy the house with a very small initial amout, sometimes it is not even 10% of the total cost.

Secondary Market
For the second hand property market, it is rather slow on sales. Why? Most of the time, the sellers are asking for ridiculous price where the buyer couldn't get value from the bank's valuer and end up the bank is lending lesser. The deal is unable to go through as the buyer unable to fork out the balance which causing the deal to blow off.

For an example, MR A wanted to sell his Condo in Genting Kelang for RM500,000. MR B have RM50,000 on hand as down payment and agrees to buy. Mr B look for ABC Bank to finance him. As usual, the bank will look for their panel valuer to value the house whether does it worth RM500,000.

After valuing, the Valuer came out with the conclusion that the house worth only RM440,000.
The bank will not finance MR B RM440,000 but will only finance MR B 90% of the total value. As a result, the bank will only grant MR B a loan of RM396,000. Without taking in those legal fees and else, MR B is now short by  RM104,000 after the loan. After deducting his down payment of RM50,000, he is still short of RM54,000. Where can he get this huge amount? He can only as the seller to give discount where most of the seller will ask u to fly kite. So how do MR B get a house then? How many buyers have that kindda money?

This is not funny, there are lots of cases like this. There are even some buyer that has no money for down payment will also ask a full loan which is almost impossible for bank to do so.
 

4th Developer
Developer will always try to sell as much as they can as that is the way they make their money, so how do they sell their product? The most important thing I learnt from the stock market is that the retailers will never buy a stock before they rise, they will buy only after the stock started to rise and they will chase it like hot cake and afraid that they failed to jump in to the wagon. Does this sound familiar?

Personally, I do also think that it is a psychology where the developer will create lots of stories and make lots of good projection in order to sell their product. As a result, pushing the price, creating castles in the air will be their strategy.

Looking at the Setapak area, I think there are already oversupplied for the property market. Most of the investors will tell me that they wanted to rent it out to students from TARC as well as an art school around here. By counting those Condos here, I think we can easily get more than 10,000 units of condos being raise and there are more on its way. How many students do u think TARC has? As a Tarcian, I think there will be less than 30,000 students in TARC. So how many of the investors will be able to get a good rental when there are so many supplies out there? We can easily get more than 10,000 units of old condos here!!!
I believe developers will come out with figures again telling that how many families in Malaysia doesn't own a house.

Well, I can only said that urgency is being created in order to make sales!

Appreciate if you could repost my link instead of copy and paste the whole paragraph at other pages as I'm trying to make a living from blogging too! I need the traffic to get some pocket money from the ads by Nuffnang or else I will be starve til death and unable to share my views in here anymore! Thanks!!!

5th The consumer or the buyers
As a person who studied economy before, I believe that everything will always come back to demand and supply. Looking at the property market, I believe there are lots of genuine demand out there as everyone wanted to buy a house but how many of the are really affordable? How many of them able to service the loan? I'm not even qualify for a house that cost around RM450,000 as the loan servicing is too hefty to me!

Only rich people with tonnes of cash able to buy houses to invest and poor people like me can't even afford for a house! So do that mean poor people like me will not be able to own a house? No, you must be mindful that now is an era of cheap money started from 2008 due to the American's Quantitative easing. They've been pumping lots of moneys into the market and that's the reason why the price of asset been increasing. Now, the US' FED had started to scale down the QE3 from USD 85Billion to 75Billion. That's mean the cheap money era will go to an end. At the end of the cheap money era, we will see that the interest rate will starting to goes up. Anyhow, this had already started where the 10 years bond rate for Malaysia now is 4.15% compare to 3.3%++ in May2013.

What is the impact of rising interest rate? It will increase the cost of funds for the banking sector and most probably the BNM will increase the BLR too. As BLR goes up, those who borrow money to buy a house will have to pay more for the instalment. Why? Never forget that your loan is according to balloon rate, where the interest will increase according to the BLR. In the history of Malaysia, there is a time in 1997 where the interest rate is 10%++. When the interest rate goes up, some of the buyer may fail to service the loan and get the property on "lelong", which is also the time for cheap house. Never look down on the power of INTEREST RATE, it kills!!!

Lets look at the impact of interest rate
For an example, if a person buy a house of RM500,000 with 10% down payment and will pay instalment for 25 years with the interest rate of 4.4% and the payment he has to make if BLR were to rise by 25 basis point each time. 

Loan amount	Tenure	Interest rate	Instalment
450,000	25 years	4.40%	2475.78
450,000	25 years	4.65%	2539.71
450,000	25 years	4.90%	2604.52
450,000	25 years	5.15%	2670.14
450,000	25 years	5.40%	2736.58
450,000	25 years	5.65%	2803.86

For an example, if a person buy a house of RM500,000 with 10% down payment and will pay instalment for 30 years with the interest rate of 4.4% and the payment he has to make if BLR were to rise by 25 basis point each time.
 

Loan amount	Tenure	Interest rate	Instalment
450,000	30 years	4.40%	2253.43
450,000	30 years	4.65%	2320.36
450,000	30 years	4.90%	2388.29
450,000	30 years	5.15%	2457.12
450,000	30 years	5.40%	2526.88
450,000	30 years	5.65%	2597.57

So now u see how do interest kills?

On the other hand, this and next year will be the year of pain to the consumer as the inflations and GST kicks in like what I said in the 1st passage. So do you think, the real buyer can really afford for a house that is sky high? If not, then where is the demand?

There are always buyers out there with real cash but they are doing it for the sake of investment and not staying it! Just like 1 of the high quality residence condo around Melati, it's good to stay since 2013, but until now, I don't see more than 30% of the houses switch their lights on in night time. They want to save money after buying a condo that cost them RM700,000? Or there are no tenant in it? I would call it as "Ghost House" as the owner is solely investing while unable to rent it out. I would say its the rich man out there who causes the price to hike!

6th Wildcard that helps to drive up property price
a) The slogan that always being bring out by the developers to create urgency to the buyers are "the rising cost of materials". Does this really help to drive up the price of property? I doubt so since it's just a slogan and tactic to create urgency to the buyers. If they launch a new property and fail to get buyers to buy from them hence what should they do? Discount lo...

b) GST
As the GST will kicks in on April 2015, it is believe that the buyers might rush in to buy a house in order to avoid being tax. As a result, this might causes more demand which helps to push the price.

7th Debunk they MYTH of property market
There is always a say that Singapore and Hong Kong is an island and they are always not enough space to build houses. As a result, their property price will keep rising and won't come down. Is that so?

According to bloomberg on 28 Nov 2013, the Singapore property price fell at a faster pace on october 2013. So who said SG porperty price won't fall? It's all back to the demand and supply!
(Source: http://www.bloomberg.com/news/2013-11-28/singapore-s-home-price-decline-accelerates-after-property-curbs.html)

According to bloomberg on 11 November 2013, the Hong Kong Luxury property price drop choked by tighthening.
(Source: http://www.bloomberg.com/news/2013-11-10/hong-kong-luxury-property-prices-choked-by-tightening.html)

On 28 Novermber 2013, Barclays Plc joined UBS AG (UBSN) and Bank of America Corp. in forecasting a Hong Kong property slump, predicting home prices will fall at least 30 percent by the end of 2015 as income growth stalls and supply increases.
(Source: http://www.bloomberg.com/news/2013-10-28/hong-kong-home-prices-to-drop-30-by-2015-end-barclays-says.html)

Looking at the 2 example on above, it's obvious that even country with not enough land will also faces price decline in property. So how do Malaysia, or specifically property price in KL will not drop since we have plenty of lands that yet to develop???

Appreciate if you could repost my link instead of copy and paste the whole paragraph at other pages as I'm trying to make a living from blogging too! I need the traffic to get some pocket money from the ads by Nuffnang or else I will be starve til death and unable to share my views in here anymore! Thanks!!!

8th Why do the property counters shoot up then?
Warning! This is more to a conspiracy theory and I'm just assuming. Everybody are free to assume something. Please don't sue me! LOL!!!

In stock market, it is not compulsory that the share price will rose only if the company has good future. There are times that the counters are being push up in order to cash out as they see something bad in the future. Let's put yourself into the shoes of the company owner, if you can forsee that the company might not be having a favoring future so what should you do? Sit and wait? Look for solutions? Or maybe I can move the price up and cash in from the shares? Which 1 do you choose?

9th 2014 will be the year for 2nd hand property market?
After all the steps taken by the policies makers, it is believe that the 2nd hand property market transaction will pick up in 2014. This is because buyers will have to pay 10% down payment and starting to pay instalment after purchasing the new property, hence buyers will tend to buy 2nd hand property where they can move in immediately rather than wait for 3 years.

Undeniable, this is true but it will depends on the sellers as well as the financial institutions too! Just like the example I given above, how could the buyer buys a  property when the sellers come up with crazy price which the valuer can't even gives the same value for financing? Only buyers with tonnes of cash can do so, but for buyers who wanted to own a house like me can only wait for the crisis to come or the BLR that going to strike the owners.

10th Reassessment rate and quit rent
The reassessment rate had causes lots of issue in KL as the DBKL wanted to increase the reassessment rate. How much do you have to pay? Owners that own 3 houses and above gonna feel the heat and they will have to sell the house or increase the rental. Someone said that by increasing the rental will help where the tenant will pay for the hike, but never forget, tenant can always move out to cheaper area where the owner can't move their property to outskirt or Selangor to avoid the hike.

Appreciate if you could repost my link instead of copy and paste the whole paragraph at other pages as I'm trying to make a living from blogging too! I need the traffic to get some pocket money from the ads by Nuffnang or else I will be starve til death and unable to share my views in here anymore! Thanks!!!

11th We can make the price drop too!
As always, demand and supply is the mother of rules to economy. If all of the readers and youngster out here is not going to buy a house in 1-3 years time, I believe that the property price will eventually comes down. Why??? In order to sustain the price, the market will need to have liquidity. When all of us joins together and don't buy house in 1 year time, the market will be illiquid and very hard for the sellers to sell their stock. As a result, they will have no choice but to cut their price when they are in a rush to clear their stocks. This explain why the price will fall. Anyhow, this plan is close to impossible as we need to be united in order to get the plan work.

After reading the 11 points above, do you still believe that the property prices will go up further?
So what do you think about the property stocks then?
Haha.. Sorry for being that bearish and you can say that I have sour grape theory as well, but what I'm sharing here is really base on the facts. I'm waiting to get a cheap house in 3 - 5 years time for own staying but not investment.

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