Monday, October 24, 2011
Nantha Kumar's article strikes the cord. Although he is talking about affordable housing for the masses, I can relate to this article by the cost of investing in properties in Malaysia, especially Klang Valley these days.
We all want to buy properties and be able to sell at a higher price. This is reality of any investment. However, it is really getting out of hand. I was having lunch in Yut Kee last week and overheard a conversation from two ladies sharing my table. One was talking about the RM450k she paid for her condo in Bangsar South and when it was completed, she sold it for RM650k. The other lady obviously marvelled over this profit and is going to look for similar type of profitable property investment for herself.
That's the problem these days. Everybody wants to jump into the bandwagon of property investment without understanding the pitfalls. As a result, we are creating a bubble. Gone are the days when property investment was a skill of choosing the right location and type of property. Whatever you bought before 2 years ago would have made you money, whether it is a hole in Bukit Bintang or a bungalow in Putrajaya. This is mainly due to speculation, as people buy and then flip.
If we are to study developer launches today, we will find that the launch prices are much higher than existing properties in the vicinity. Of course, one would argue that the new launch includes freebies such as Guaranteed Rental Returns, furnishings, DIBs etc etc. Example is a 2 bedroom pad in Marc Residence KLCC, going around RM1000psf but there is nothing in the KLCC vicinity being launched below RM1300psf. But people tend to forget that with Marc, one gets the keys and start collecting rent in 3 months but in the new launch, it's 3 years! What's in the mind is, pay 10% today and in 3 years, flip it for a profit 1000% what was paid for the downpayment.
Another point forgotten is the rental yield. 10 years ago, you can expect minimum 10% yield on a good location. Then 8 years ago, property prices went up, rental yield still stayed at 10% because rental went up e.g. 10 years ago you can rent a 3br unit in seri Raja Chulan for RM2500. Then 8 years ago, the rent went up to RM3000. But then after, prices surged up but rental stayed stagnant. To make things worse, more brand new units came into the market to satisfy speculative tendencies and competition for tenants become very tough.
Yes, we all want property prices to be higher than what we paid for them when we bought them. But, I am saying this for genuine investors who buy properties for own stay, own business or for long term rental yield. Speculative activities are killing off this trade. To top it up, greedy developers are jacking up prices and cutting up unit sizes. Until the market is corrected, I personally am going on a boycott.