Thursday, December 22, 2011

Property Speculation

Before I continue my tirade against greedy property developers, I'd like to for a moment train my guns on some speculators. This picture above is a single storey corner house at Petaling Jaya Section 14, about 300m to the Asia Jaya LRT station and the Tun Hussein Onn National Eye Hospital. At the back of the house, you can see the mixed commercial and residential project by Malton. Obviously, the location is very good despite being leasehold and about 40 years into the 99 year-lease.

Last year, this charming little basic house was in the market. The owner who bought it 1st hand paid under RM90,000 for it. Back then RM90,000 is a lot of money. Initially the owner wanted to let it go in 2010 for only RM280,000. Eventually, he managed to get RM385,000 for it. Which is fair price, considering the interests he has paid and the appreciation over the years. The new owner who bought it has no interest to either live in it or rent it out. Instead, he has put it back in the market immediately for RM650,000.

Without going as far as condemning this, I'd just leave it to all your own opinions. Some say fair enough, everyone just wants to make some money. But my very own opinion is:

1. People seeking to buy properties for their own stay will end up not affording it or have to look further from the city or at the very least, have to bear more interests from the bank - not to mention having to shell out a huge upfront as the valuation is much lower than the asking price

2. Investors who bought it for the location will need to charge a much higher rent in order to cover the capital costs and interests payment

Only one winner here as far as I can see...


Live Long MU Fan said...

To buy to live in...RM385K is possible...put in another RM100-200K for renovations ....

To rent out at say RM2000 and principal repayment of RM385K...may not be easy...

To buy at RM650K, it seems like greater fool theory .... Own stay still might be possible, but investment?

Anonymous said...

when it comes to the issue of abnormal property price increase, many tend to blame on speculators. But, please ask this question whenever the 'evil' speculators looming in mind: "When is the time the speculator come in a market?".

Almost in all circumstances, speculators simply follow the markets trends. It means in other words, there is a market boom taken place first that attract speculators later. Or else, they are not speculators but entrepreneur who is able to foresee trend/market changes before the rest.

Believe it or not, the current property boom is created (in most part) by the government. Crazy?

Through central bank, reducing interests rate (via open market operation) make the cost of borrowing cheap. With cheap credit, investors(developers, lenders, banks)are attracted to borrow and start series of investment. Clearly in Malaysia case, the credit is leaking into real estate and to some extend stock market.

This money supply (M2/M3 has double digit growth since 2009) increase initially circulated within the banking system and through it, bank has more liquid than before and they too, start to lend out to secondary market, i.e. property buyers, credit card, personal loan.

Party is getting hotter everyday and everybody want a piece of cakes and started to jump in (i.e. valuer has more gut to give higher than normal appraisal with the worry losing business to competitors, bank compete by lowing -BLR, apart from cooking many aunties doing part time property agent, developers giving more deals and etc)

we may ask how government want to increase the money supply at such a rapid growth in the first place?

Well, that's go back to our government stimulus plan 1 and 2, during end 2008 and 2009 as a aftermath of US financial crisis, to deter or dodge the incoming crisis. But don't worry, our country is not alone, everybody is doing the same thing.

If want to know how it will end, just pay attention China, HK, Singapore since we were taken similar medicine to stimulate economic growth for the past 3 years.

Ann Khee said...

OMG Can't imagine the power of speculation ! Property is unbearable unaffordable for middle class people.

Freddie Jr said...

I believe this was the same property that got me interested back in 2010. But the asking price was RM400k back then. No banks would value it at that price. Furthermore, it was just not feasible for anything, be it renovation/flipping/rental.

Then of course you can rely on luck, just like this brave soul who wants to flip for RM650k.

If you're a startup investor, best to follow Sinleong's approach, which is basically look for good entry level properties with good rentals to offset your loan repayment. Can't go wrong with that.

Anonymous said...

Willing buyer , Willing seller :)

from a banker

sinleong said...

correct... but look at it this way:

1. Willing buyer at this price = waterfish

2. Needy buyer have to look further away - but i think as far as bankers are concerned, they dont really care, would they?

Anonymous said...

Gomen one of the culprit. If they are sincere to curb rise, imposing higher RPGT is the way to go.

GE coming. Look good, feel good factor, need to window dress. Property up, all owners happy. Refinance plenty of cash. Many friends buying new cars, houses this CNY. End of the day, don't be fool by the gomen.

Katrina Tong said...

Crowd mentally means that people fearing will still succumb to the speculators