Look, I am not very familiar about property investment but I am looking to purchase a home sooner or later.
That led me to some digging on the internet and this article will somewhat be helpful if you are like me who needs more information on how prices of property are affected and how is it going to be in the near future.
here is the article:
Source: Loryau.blogspot.com
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 aNEGATIVE from the government.
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.
Full article available here
have a nice weekend,
Yours sincerely,
Check Out my other posts here- My Justinnation
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