Tuesday, May 24, 2011

Do We Have a Property Bubble?

As an investor, I should obviously be pleased with the prices of properties we see today. However, I feel suspicious more than pleased... About 5 years ago or less, we were looking at studio apartments in the city center being priced below RM200k for example a 350sf studio in Casa Mutiara was going for RM180k. 2-3 bedroom units at the city fringe such as Titiwangsa Sentral at Jalan Ipoh were going less than RM300k. This gives many junior executives with a salary of around RM3500 and below an opportunity to purchase a property to invest in or to live in. But today, city properties have now appreciated in most cases 100%. However, salary remains the same and rental income has not really gone up a great deal. And in the case today where some areas are witnessing a glut, rental has indeed dropped. So, what was once an 8% to 10% rental yield investment has become less than 6%.


What more surprising is even new launches at far flung ulu places like Shah Alam are selling 665sf studio units at RM330k and above! The project with the floor plan below will be managed by Best Western and comes with a Guaranteed Rental Return over a specified period. Then we have got the Eves Suite launching in Ara Damansara from RM360k for a 680sf studio unit! Ara Damansara is a good area. But RM360k???

Do we have that many people with this kind of disposable income to invest? And not to mention the tenants to pay that 6% yield these punters are asking for. With a RM330k investment, one is staring at a RM2000 monthly installment. So, only those with a salary of RM3500 and above are going to be able to afford. I won't be surprised that punters like us with already a few properties in our portfolio are those who can afford to go in. So yes, there may be some buyers, but where are the tenants?


kvinlim said...

that's very true, it's seriously overprice with no supporting foundation on the pricing as there is basically no changes to anything else. people do still have disposable income at current time, considering our stocks are recording high at 1,540 points now, so pocket is full. where else to park the money? but once the stocks market crash, things will turn ugly, i think very ugly ...

Kevin said...

stock market crash is never pretty, but dont think that's enough to prick a bubble. bubble wears a wild hog's skin.
if supply and demand alone to do the trick, try couple more years down the road.
yes, i do think bubble is that resilient. you need an economy sharp pin to poke it.

dnal12 said...

The properties in KL are still very cheap and underpriced. The economy is growing up and the prices of properties in KL should eventually catch up with those in Singapore and in large cities of China. No reasons that Malaysia should be cheaper than Singapore where there are no natural resources at all. The inflation in the property market would push salary increases.

David Teh said...

I think there's already too much speculation in the market by punters. A good example would be developments like Setia Alam where buyers only need to fork out the initial 10%, then no money down until development is complete and get the CF approval. Most of these guys are selling it off to the secondary market to make a quick profit. Looking at the selling prices, there's no way the rental can cover the bank repayments...

Having said that, I think there's a substantial amount of people out there borrowing to the edge of their loan margins. Come an increase in interest rates, couple with rising living costs (and a stagnant income), the possibility of a crash is very possible.

Most importantly, there are heaps of developments out there being sold out on their launch day. But who's renting? Do we have that big an influx of people coming to the city?

SinLeong, what are your thoughts on the oversupply of property? Do you have any hard figures to share

sinleong said...

i dont have figures.. but i can tell u from experience that it is becoming increasingly difficult to rent out properties. on over supply, its important to buy into niche developments with key differentiations to attract tenants. otherwise, one would just be fighting on price

Anonymous said...

I dont know whether there is a bubble to come or not. However in Penang, all new launches are snapped up. Also from talking to the sales people, the Chinese nationals (Chgina people) are buying up everything.

allan said...

auction properties also the trend now, look at the number of low end to high end properties up for auction. Everyone is riding on the wave to make quick profit. behind this wave is a huge ass tsunami waiting to drown everyone.

Anonymous said...

any view on the richmond project that is coming up?

AussieBotak said...

My wife and I live in Australia, and might come back to Klang in the next couple of years when we have children (as her family are longtime residents of Klang, and we come back to visit every CNY)...

We were thinking about getting a place in Mont Kiara, but after doing a bit of research we're going to hold off.

There is a similar (though not exact situation) here in Perth that has seen housing value growth rates slow to a crawl - the only thing propping markets up is the increase in wages in a strong mining sector here.

I agree with the author and posters here... if incomes and rentals are stagnant, personal debt is rising, properties are in oversupply but still rising in price? That means bubble. My wife and I will leave our "Powder Dry" for now I think and wait 6-12 months.

All the Best.

Peter Achutha said...

Yah, I know everyone thinks prices are high. Even one of my grandfathers thought so. If he had bought the graveyard at Jalan Sultan Ismail I would have inherited a billion ringgit but that didn't happen and now I worry about the price of eggs http://www.drpetersnews.com/what-is-inflation-and-how-to-manage-inflation.html

Thanks for the nice article and interesting visitors.

Anonymous said...

this property boom is large fueled by cheap credit as a concerted effort for U.S and E.U bail out.

IT is not difficult to see once you notice the synchronized property boom across Asia.
When it will burst? based on not so long ago history, U.S/Europe burst when mortgage interests rate up.
When interest rate will up? When bank discount rate up.
when discount rate up? when the govt bond up.
When the govt bond up? when the investor start to doubt the ability to pay and demand higher rate.
when they will do so? when investors face credit shortage.
when credit shortage will happen? when Lehman Bro, Country wide ... bankrupt. (note: this is a very simplified explanation)

Anonymous said...

Hi Sin Leong,

I stumbled upon your blog after a search on Malaysia House market. A very good read I must say, hence I kept reading the old entries and came across this blog entry which mentions Eves Suite in Ara Damansara.

The date of this blog entry was 24 May 2011. Eves Suite was priced at RM360K which from what you have written, was already high.

Today, 5 August 2012, which is merely 1 year and 3 months after, the price of Eves Suite has raised to RM420K. That is more than 16% (i.e. > 1% increase every month!!)

After a long day of researching Housing Market in PJ/KL area, I am frustrated because with salary that's close to RM4000 per month, it seems like I will not be able to buy a decent condo in PJ area.

Any advice that you might have, for a junior exec, who earns roughly RM4000 per month, that would like to get a condo in PJ area? Will be great to hear from you...

sinleong said...

RM420k for Eves Suite is highly speculative. More so when the building is still under construction and still many developer units available. The higher price is deceptive because during launch, developers offer various discounts, rebates and incentives to buyers who would largely snap up smaller and lower floor units, thus cheaper. Usually, those left for sale are the more expensive units, if they are studios because there really isn't much to differentiate them from others, except for the floor and view.

If you go to those almost completed projects today, you might be delighted to find remaining developer units still being offered at the price they were launched 4 or 5 years ago. Case in point is the Regalia in KL. I know someone who just closed a deal at RM540psf for a 2br unit 800sf, with car park and 10% rebate thrown in!

Empire Damansara buyers bought 600+ studio units which were sold-out. This is slightly different because unlike Eves Suite and Regalia, Empire was sold out. The price at launch was about RM140k and now they are transacting at RM260k. Even so, majority of the 600 buyers are speculators hence you can see the market being flooded by sub-sale.