Monday, April 23, 2012

KL property mart set to cool

By Lee Wei Lian

April 23, 2012
KUALA LUMPUR, April 23 — This year will be a challenging one for residential property as tighter lending bites into demand, especially speculative buying, property consultancy DTZ said today.
DTZ said in a report that Bank Negara’s new lending guidelines will cool an overheated market that has run up substantially in terms of pricing in the last two years as well as focus developments toward the more affordable housing segment.
The new guidelines, which use net income instead of gross income, will likely lead to slower sales for developers, said the report.
It noted, however, that developers remained upbeat over the year’s prospects.
“Although 2012 will be a challenging year as tighter lending bites into demand especially speculative buying, nevertheless, developers are confident that the demand for residential properties in Kuala Lumpur will remain selectively strong, as developers focus on smaller and therefore more affordable units as well as packaging launches with attractive Developer Interest-Bearing Scheme (DIBS),” said DTZ.
Bank Negara has introduced new lending guidelines, which came into effect in January, in an attempt to put a lid on household debt, currently at about 77 per cent of GDP.
The guidelines have apparently already had the desired effect on loans.
HwangDBS Vickers said in a report last week that mortgage approvals and applications in February were respectively 27 and 18 per cent lower than last year’s peak partly due to the stricter lending guidelines.
It also said the loan approval rate has fallen to 45 per cent from 55 per cent in August last year, while margin of financing has been reduced to 70-80 per cent from 90-95 per cent in the heyday of the property boom.
The residential property market has also been moderating across the causeway with Singapore reporting a sharp drop in transactions following government cooling measures such as a higher stamp duty.
Purchases by Singaporeans slumped 12 per cent in the first quarter, while permanent residents bought 7.5 per cent less and transactions by foreigners dived 78 per cent.
Singapore home prices also suffered their first drop in nearly three years when it fell 0.1 per cent quarter-on-quarter in March.
In terms of Malaysia’s office sector, DTZ said that it is likely to see greater challenges with slower economic growth and an anticipated oversupply in the coming months, as the pressure to find tenants gathers intensity.
It noted, however, that the office rental market was stable with an occupancy rate of 86 per cent.
Rent in prime office space exhibited resilience and stood at RM6.25 per sq ft per month which was unchanged from the last quarter despite weakening market conditions.
DTZ said that while the proposed KL International Financial District was an exciting development, it could heighten concerns of a property glut.
“Whilst it will be exciting for the market to see the emergence of a rival office district to KLCC, it will ratchet up the competitive pressure on rents by several notches at a time when oversupply is a major concern,” said the report.
DTZ said that the retail sector is likely to continue growing moderately supported by relatively cautious consumer spending and tourist arrivals.
It also said that new major retail centres would continue to attract retailers who are selective and would still lease space in centres that are expected to see high footfall.

Wednesday, April 4, 2012

Stricter Home Loans

Quite a number of buyers who booked new launch units have found later that their housing loan has not been approved. Bank Negara has imposed now very strict rules and raised the limit of eligibility. If one is buying a new launch unit, at most, the developer will forfeit RM500 off the booking fee for administrative charges. However, in most cases, sub-sale sellers would forfeit the entire booking fee. So, it is important to check whether you can qualify for the loan amount before committing. But a lot of people find this difficult to do especially when you have gone off to a hot cake property launch and you need to be fast enough to grab that choice corner unit.

The nearest I can find is a Indian home loan eligibility calculator at I think it is even more stringent than Malaysia's rules. I have checked this with someone who can get approval for a loan up to RM240k with ING but this calculator says he is only eligible up to RM190k. So, this is quite safe to use.

You must have in hand the following information about yourself:
- Gross Income
- Car Payment
- Monthly Debt Payments
- Interest Costs
- Home Down Payment
- Property Tax
- Condo Fees / Home Association Owner Fees

Effect of KL MRT and LRT Extension Project On Property

Significant Impact!

My hunt for properties along the LRT track has taken me to the future. That is because the pool of options along the existing track has become quite scarce and obviously, prices quite unviable. USJ is a potential area. The existing Putra LRT track currently ends at Kelana Jaya. Construction work has begun for the line extension from Kelana Jaya to Ara Damansara, then onto Subang Jaya SS16 (Subang Parade), between SS15 and SS17, between SS14 and SS18 and then it turns towards USJ, first stop between USJ6 and USJ7. There are 3 stations in USJ before the LRT goes into Putra Heights.

Within weeks of news of the LRT station locations, property prices in Subang Jaya and USJ almost doubled. For example, a 22x75feet double storey link house in USJ2 climbed from RM380,000 to just under RM600,000. One might argue that property prices, especially landed have been moving upwards anyway but nothing else is responsible for such an exponential climb. Moreover, there has been an exodus of residents from USJ and Subang Jaya towards newer suburbs such as Kota Damansara and Kota Kemuning, many blaming the unbearable traffic jam (... but only to find themselves in worst jam areas) and the high crime rate.

Some strata properties are still worth considering, being under the RM300,000 "affordability barrier". As income remains stagnant, I think anything below RM300k remain the most attractive investment as majority of new wage earners collects less than RM4000/month. They are never going to get any loan higher than RM300k. Strata properties within the 200m radius of these 3 stations in this price range include:

1. Subang Perdana Court 1, USJ6
2. Subang Perdana Court 2, USJ6
3. Subang Perdana Court 3, USJ8
4. Rhythm Avenue, USJ19
5. Subang Starville, USJ19

picture above: Rhythm Avenue in USJ19 - once a pariah project now valuation above RM330k for the 3 bedroom apartment units despite no car park allocated for owners

Unit in the Subang Perdana Court1 walk up apartments were being transacted around RM140k to RM190k up to December 2011. Then suddenly prices surge above RM200k in 2012. Recently, I found a low floor unit here advertised at RM220,000. On the same day, the agent said the owner has increased the price to RM270k and somebody is already writing the cheque. Realizing that this may be an attempt to get me to bid higher, I told the agent to let it go. When people begin to scramble like they are buying hot egg tarts, it's not worth investing anymore...

picture above: Goodyear Court 10, further away but still within the 1km radius of the new LRT extension in USJ