Property Investments

Understanding the figures behind property investments.

Here are the important calculations

Income Statement

Gross Rental Income

Vacancy Allowance (%)

Gross Operating Income = Gross Rental Income - Vacancy Allowance

Annual Operating Expenses 

Total Expenses include assessment tax, quit/annual rent, management service charge, fire insurance, householder's insurance, MRTA, and others.

MRTA = mortgage-reducing term assurance

MLTA = mortgage-level term assurance (MLTA)

Net Operating Income 

Net Operating Income = Gross Operating Income - Total Expenses

Cash Flow (before tax) from your property investment

Having calculated the net operating income, subtract the annual mortgage payments to obtain the cash flow (before tax) from the property investment.

Cash flow (before tax) = Net Operating Income - Annual Mortgage Payments

How much do you value or pay for the property?

Purchase price

Down payment / Equity

Balance financed by mortgage

Mortgage Summary

Bank

Term (Years)

Interest (% )

Total Monthly Payment

Total Yearly Payment

Total Debt Payment

Reference:  Mortgage Calculators

http://www.simedarbyproperty.com/Home_Loan_Calculator.aspx

http://www.mortgagecalculator.org/

Initial Yield Computation

Initial Yield = Gross Annual Rental / Purchase Price 

Those more enterprising aim for initial yield of : 

House  4 to 6%

Condo  8 to 12%

Return on Equity (ROE)

Your returns come from these 3 sources:

1.  Cash Flow (before tax) provided by the property

2.  Gains from your equity growth in the property

3.  Appreciation of your property price over the period.

Your TOTAL RETURNS at the end of the mortgage period = 1 + 2 + 3

TOTAL ROE = (1+2+3) /  Initial Down-payment  for the Property

My general rules:

1.  Properties prices appreciate by 100% every 10 years, higher for those in good locations..

2.  Rental yields are around 3%/year based on present market price.

3.  Rentals increase generally by 10% every 3 years, but only for selected properties in good locations.

When you own a good or great property in a great location at a good price, you will enjoy great ROE on your property investment, using the generous leverage provided by your bank mortgage (using other people's money).  You paid an initial down-payment, and your tenants pay for the mortgages and the expenses.  On top of this, you may even enjoy a positive cash flow from the property giving you regular income.  During the tenure, you continue to enjoy increasing rental, after-all, you have no problem getting the best tenants and the existing tenants will likely pay up since they are making good earnings from the use of the property.  At the end of the mortgage period, you would have owned 100% equity of the property, the property would have appreciated over the long period, and you have also pocketed incomes from the positive cash flow generated by the property.  Totaling all these gains and then working back to your initial down-payment (your equity), you would have realised a great ROE.  

Those less knowledgeable in share investing may wish to go the property route.



Summary:
1.  Location, location, location = good or great properties
2.  Net Operating Income = Gross Operating Income - Total Expenses
3.  Cash flow (before tax) =  Net Operating Income - Mortgage Payments
4.  Mortgage - go for the largest available mortgage, with the longest term and the lowest interest
5.  Ensure that 2 & 3 are always positive.



(Types of properties:  squatter homes, low cost houses and apartments, houses, apartments and condominiums, townhouses/duplexes, commercial, service apartments, luxury homes, mobile homes, raw land, recreational, ranches, agriculture, industrial, specialty buildings such as stadiums and theaters.)(

Smart Property Investing

Gloom beats boom as house prices fall faster here than anywhere else

By Thomas Molloy

Wednesday September 19 2012

IRISH house prices continue to fall faster than anywhere else in the world, the IMF says in a new report. The Greeks are next, while Germans and Brazilians are seeing steep price gains.

The three countries with the steepest declines in the 12 months to March, when adjusted for inflation, are the three bailout countries of Ireland, Greece and Portugal.

Spain, which has already received a banks bailout, and which is widely expected to seek a formal bailout sometime next month, had the fourth worst decline.

At the other end of the spectrum, house prices in booming Brazil are up more than 15pc while those in Germany have gained more than 10pc. Other countries which have also had increases include the Ukraine and the Philippines.

While plunging house prices have caused well-documented problems here, rising prices are also leading to widespread angst in Germany and Brazil, where many people have been priced out of the market and rents are soaring -- creating challenges for policy makers and worries about inequality.

The IMF working paper finds that Irish prices are no longer misaligned, but are still more expensive than countries such as Germany when wages and other factors are taken into account.

Australia, which is enjoying a commodity-inspired bubble, has the most "misaligned" prices in the world, according to the study of 54 countries.

While many believe that our house price collapse was the worst in the world, the IMF study suggests that Estonia holds that distinction.

House prices fell further in Estonia, the Ukraine and Lithuania.

However, declines here have continued for longer than most other countries, which means that we may yet chalk up the worst bust in history.

The report says that house prices in the US have started to pick up a little recently, but globally prices are still on a down trend. While overall the trend is mixed, there is no sign of an uptick in the global index of house prices.

The findings suggest that long-run price dynamics are mostly driven by local factors such as income and population growth. The effect of more globally connected factors such as interest rates appears to be less strong.

Credit market conditions can have an impact in the short run and, ultimately, when the correction starts, affect both financial stability and the overall economy.

House price growth can be explained by several short-run factors, such as growth in incomes, asset prices, and population, and long-run-factors, such as the ratio of house prices to incomes.

The difference between actual house prices and those predicted on the basis of these fundamental factors gives another indication of whether prices may have more room to fall.

- Thomas Molloy

Irish Independent

http://www.independent.ie/business/world/gloom-beats-boom-as-house-prices-fall-faster-here-than-anywhere-else-3234147.html

Global house prices hit by credit crunch and eurozone crisis but the rich are OK

By Ian Cowie Your Money Last updated: December 2nd, 2011

166 Comments Comment on this article

House prices could soon start to fall around the world as a result of the credit crunch and eurozone crisis, one of the biggest global estate agents has hinted.

Knight Frank, which operates in 43 countries, across six continents and claims to have sold property worth US $817bn or £498bn last year, can scarcely be accused of talking the market up. It reckons the average house price edged higher by only 1.5pc last year – little more than the margin for error across such a large sample.

The Knight Frank Global House Price Index includes fast-growing emerging markets where double digit increases were widespread until recently, but even these constituents showed more sluggish growth in the third quarter of this year.

As a result, the index remained flat for the last three months. Residential analyst Kate Everett-Allen said: “Looking forward, house prices are likely to show little improvement in the final quarter of 2011, given that much of the unravelling of the eurozone sovereign debt crisis took place post-September and has yet to be reflected in the index results.”

More than half the 51 countries covered by the index – which is based on government or central bank statistics – showed falling house prices during the last quarter. Hong Kong topped the global property table, with house prices 19pc higher than a year ago. The only other countries to deliver double digit gains over the same period were Estonia (14pc);India (14pc) and Taiwan (13pc). Mainland China lagged in sixth place with growth of less than 9pc with fears of house prices falling by 20pc next year.

At the other end of this year's global index, Ireland showed house prices falling furthest. The average was more than 14pc lower than a year ago,with some properties being offered for auction with asking prices of only £18,000. Russia was second from bottom of the table with prices nearly 11pc lower, following Ukraine (-8pc) and  Cyprus (-7pc). The latter Mediterranean island is popular with many British pensioners because of low rates of income tax on retirement income.

Britain ranked 30th in the table with an annual decline shown as just 0.5pc, despite this week’s figures from the Land Registry, based on tax paid by homebuyers, that show prices fell by 3.2pc. Britain’s sovereign status outside the eurozone has not protected it from global economic gloom. Ms Everett-Allen said: “With politicians seemingly helpless to get to grips with the eurozone debt crisis, this has reawakened fears of a double dip recession, not just in Europe but around the world. Unsurprisingly, this economic uncertainty has been reflected in the performance of the world’s housing markets.”

America ranked 39th in the table with an average decline in American house prices shown at 3.9pc. Obviously, the average price changes conceal wide variations at either extreme. Knight Frank’s research suggests luxury property is holding its value better than more modest homes, as the global rich continue to regard property as a safe haven for capital preservation while the squeezed middle and poorer people bear the brunt of tax hikes and government spending cuts.

http://blogs.telegraph.co.uk/finance/ianmcowie/100013552/global-house-prices-hit-by-credit-crunch-and-eurozone-crisis-but-the-rich-are-ok/

Spain's banks hold billions of euros in properties that will be tough to sell

The Real Threat Facing Spanish Lenders

Spain's banks hold billions of euros in properties that will be tough to sell

One analyst estimates it could take 40 years for banks to unload their holdings Denis Doyle/Bloomberg

While Europe’s sovereign debt crisis grabs all the headlines, distressed real estate may pose a bigger threat to the Spanish banking system. The country’s lenders hold about £30 billion ($41 billion) of unfinished homes and land that’s “unsellable,” according to Pablo Cantos, managing partner of MaC Group in Madrid. MaC Group is a risk adviser to several leading Spanish banks. “I’m really worried about the small and medium-size banks whose business is 100 percent in Spain and based on real estate growth,” says Cantos. He adds that only bigger, more diversified lenders such asBanco Santander (STD), Banco Bilbao Vizcaya Argentaria (BBVA), La Caixa, and Bankia are strong enough to survive their real estate losses: “I foresee Spain will be left with just four large banks.”

Spain’s central bank tightened rules last year to force lenders to set aside more reserves against property seized in exchange for unpaid debts and is pressing them to sell assets rather than wait for the market to recover from its four-year decline. Yet unloading the real estate may be difficult or impossible. Bank-owned land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos predicts. Fernando Rodríguez de Acuña Martínez, a consultant at Madrid-based adviser RR de Acuña & Asociados, has a more dire view. About 43 percent of unsold new homes are in exurbs far from city centers, he says, and “if you take into account population growth for these areas, there’s no demand for them. Not now or in 10 years.”

Dozens of Spanish banks have failed or been absorbed since the economic crisis ended a debt-fueled property boom in 2008. The cost to taxpayers of cleaning up the industry’s books has come to £17.7 billion so far. Banks may face increased pressure following Nov. 20 national elections that propelled the conservative People’s Party to power. Its leader, Mariano Rajoy, has said the “cleanup and restructuring” of the banking system is his top priority.

“Stricter provisioning rules for land need to be implemented,” says Luis de Guindos, director of PricewaterhouseCoopers and IE Business School Center for Finance. De Guindos has been named by newspapers as a contender for finance minister in a Rajoy government. “Many banks will be able to deal with it, but others won’t.”

Idealista, Spain’s largest real estate website, currently advertises 45,912 bank-owned homes there, up from 29,334 in November 2010. In 2008 it didn’t list any.

Spanish home prices have fallen 28 percent, on average, from their peak in April 2007, according to a Nov. 2 joint report by Fotocasa.es, a real estate website, and the IESE Business School. Land values fell 33 percent nationwide. Fernando Acuña Ruiz, managing partner of Taurus Iberica Asset Management, a Spanish mortgage servicer, expects the slide in home prices to continue. “Spain has 1 million new homes that won’t be completely absorbed by the market until the middle of 2017,” he says. “Prices will fall a further 15 percent to 20 percent in the next two to three years.”

Banks are reluctant to acknowledge the size of the declines. There is an “enormous” gap between prices offered by lenders and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos says. He estimates that prime assets can be sold at a 30 percent discount, while portfolios comprising land, residential, and commercial real estate may sell only after 70 percent discounts. “Therein lies the problem,” he says. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium-size banks can take such a hit?”

The bottom line: With home prices down 28 percent from the peak, real estate losses may swamp smaller lenders, leaving Spain with four big banks.

Smyth is a reporter for Bloomberg News.

A History of U.S. Home Values

China expects further rate hikes to cool property market

China expects further rate hikes to cool property market
(Xinhua)
Updated: 2011-01-03 10:50


BEIJING - The new year may be tough on people who plan to buy homes and those who already bought homes using bank loans, as China is very likely to announce new interest rate hikes this year after two increases in 2010, which will add to the financial burdens of home buyers.

"I thought I could pay off the mortgage ahead of schedule. But it seems impossible for me now after the government raised interest rates by 25 basis points on Dec 25," said Wu Jing, a female white-collar worker employed at a foreign-funded enterprise in Beijing.

China raised its benchmark one-year lending and deposit rates to 5.81 percent and 2.75 percent, respectively, beginning on Dec 25, 2010.

"The latest interest rate hike will add about 170 yuan ($25.76) to my monthly payment," Wu said.

She took out a one-million-yuan loan to buy a second home at the beginning of 2010.

The Christmas Day rate hike came after the government raised rates in October for the first time in more than two years to tame inflation and prevent asset bubbles.

Also, six times last year China ordered banks to set aside more money as reserves in a bid to control liquidity.

Further, the December hike will not be the last one in this cycle of interest rate increases, as the problem of excessive liquidity cannot be solved quickly in the world' s fastest-growing major economy, said Yu Yongding, a researcher at the Chinese Academy of Social Sciences.

Chinese banks extended 7.44 trillion yuan of loans in the first 11 months of 2010, just shy of the government' s annual target of 7.5 trillion yuan.

Also, though shrinking from the previous month, the country' s trade surplus in November reached almost $23 billion, with imports and exports both hitting record highs.

"The rise in bank lending, trade surplus and hot money inflows pumped more money into the economy, already awash with capital, prompting the government to take more measures to drain liquidity this year," Yu said.

Guo Tianyong, a professor with the Central University of Finance and Economics, said interest rate hikes would help control liquidity, curb soaring property prices and keep the real estate market stable, despite added pressure on the balance sheets of home buyers and developers.

"It will be more difficult for developers to secure loans after further interest rate hikes," said Lian Ping, chief economist at the Bank of Communications, China's fifth-largest lender.

China's property prices climbed 7.7 percent from one year earlier in November, the slowest pace in a year, according to data from the National Bureau of Statistics.

"If interest rates continue to rise in the first quarter of 2011, the government's efforts to cool the property market will show more noticeable effects in the second half," Lian said.

The rise in interest rates also prompted banks to adjust their lending structure.

China Construction Bank (CCB), the country's second largest lender, said it would increase investment in the construction of affordable housing this year, while raising the threshold for commercial property developers to receive loans.

CCB has extended more than 20 billion yuan to support the building of affordable housing and individuals' purchases of such homes, vice president Zhu Xiaohuang said.

The bank's move was in line with the country's effort to increase the construction of affordable housing to 10 million units this year from 5.8 million units in 2010.

It also reflected the country's shift to a prudent monetary policy in 2011 from a moderately loose stance adopted to buoy the economy during the financial crisis.

Further, Lian Ping said the government should ensure adequate capital supplies for new projects and emerging industries this year, despite its decision to tighten bank lending, in order to minimize the effect of reduced liquidity on the real economy.

Property lessons from the UK’s busted boom

Property lessons from the UK’s busted boom

Greg Hoffman

November 29, 2010 - 3:08PM

In the UK after a breathtaking boom, property owners have watched prices fall 10 per cent since the third quarter of 2007. Those less fortunate have experienced declines of 20 per cent or more (especially in the north).

Swingeing government budget cuts are yet to hit an economy already lacking confidence and there’s no shortage of fear-inspiring newspaper articles. Gloomy times indeed.

“North may never escape negative equity,” shouted one headline in The Times earlier this month. The paper cited a study by Standard and Poor’s that showed, “One in ten homeowners in the North West is in negative equity, trapped in properties worth less than the amount they owe and vulnerable to repossession as the public sector sheds jobs.”

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But what really caught my eye, particularly in light of my April column, Property valued properly, was the following (italics are mine):

“Savills, the estate agency, argues that in a new era where mortgage finance remains perhaps permanently constrained, some low-grade properties in the North may never recover, whatever the direction of prices elsewhere. Such dwellings may be valued only on the rental income they offer to landlords, as the would-be owner-occupiers of such homes will be denied finance.”

The notion that properties may be valued “only on the rental income they offer” is presented as something of a revelation. To me, this is indicative of an asset class where prices have (or had) broken free of economic reality. Now they are returning to it.

At universities all over the world, finance students are taught that the value of any asset is the stream of future income it will provide, discounted back into today’s dollars. Most professional sharemarket and bond investors would concur with this rule.

Even industrial and commercial property investors recognise that the income stream is of supreme importance. But when it comes to residential property, the same rules seem not to apply.

Without rehashing the arguments for and against Australian residential property being an exception to the laws of finance, to me the UK provides an interesting case study. Three and a half years ago, many Britons were as adamant as Australians are today that “property never falls”.

On a recent trip I was assured that “property in the south-eastnever falls” (my italics); an illustration of how hard it is to escape from dogma once it becomes entrenched in people’s minds.

The Australian property price debate is divisive and emotionally-charged but, whatever your view, it’s foolhardy not to acknowledge the possibility that capital gains may not always be counted on to bridge the gap between the rental income (or rent saved) and a fair return on your capital.

In many cases, those who bought during the UK boom, accepting low yields in the hope of future capital growth, are now living with the consequences of “negative gearing” and nasty capital losses. It’s not a pleasant combination.

My advice is not necessarily to avoid the property market altogether but to ensure that any debt you take on (as an owner-occupier or investor) can be easily serviced should economic conditions deteriorate. As my old scoutmaster used to say, it’s best to “be prepared”.

This article contains general investment advice only (under AFSL 282288).

Greg Hoffman is research director of The Intelligent Investor. 
For more Intelligent Investor articlesclick here.

http://www.brisbanetimes.com.au/business/property-lessons-from-the-uks-busted-boom-20101129-18dju.html

Is a property bubble forming?

Saturday September 18, 2010

By ANGIE NG
angie@thestar.com.my

There has been some concern in recent months over an imminent real estate bubble in Malaysia. How real is this threat or is it merely confi ned to a few hot spots?
CONCERNS over whether the local housing market is overheating and will lead to an asset bubble are raising questions on whether there is a need for more tightening measures to curb speculative buying and ensure the market stays sustainable.

Dr Yeah Kim Leng ... ‘Anything can trigger a collapse. An economic slowdown, for example.’

The local housing market has not “hit the roof” like in some places in the region such as in Hong Kong, Shanghai and Singapore which have recorded sharp price jumps of 40% to 60% since last year.
Nevertheless, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30% over the past six to eight months. Bank Negara is keeping a close watch on the mortgage loan market and is engaging with bankers on whether tightening measures such as capping the loan-to-value ratio (LVR) at 80% should be introduced. It will be unlikely that the central bank will impose the mortgage loan limit across the board but the measure will most likely be targeted at the critical sectors, such as the upper medium to high-end landed residential sector and non-owner occupied houses.
Purchasers who own multiple properties may also be subject to the new loan limit if it is implemented.
The RPGT factor
Industry observers say another measure at the Government’s disposal is raising the quantum of real property gains tax (RPGT), which is currently at 5% for all property sold within the first five years of purchase.
The Government has tweaked the RPGT on various occasions depending on market conditions.
From April 2007 until it was reintroduced in January this year, all gains from property transactions have been exempted from the tax. The exemption was granted as a support measure to reverse the flagging property sales during the market downturn.
Under Budget 2010, the RPGT was brought back in January, albeit at 5% for all property sold within the first five years of purchase.

Tang Chee Meng ... ‘The state of the property market is very much dependent on the state of the country’s economy.’

If the Government decides to reintroduce the RPGT in its entirety, property speculators will get the brunt of the “axe” as gains from property sales within the first five years of purchase will be subjected to a tax of 5% to 30%.
The maximum 30% is for disposal within the first two years; 20% within the third year; 15% within the fourth year and 5% within the fifth year. Profits earned from disposal in the sixth year and beyond will not be taxed.
How far the Government will go on tightening the noose on mortgage loans and the RPGT is still left to be seen. But some changes can be expected in the horizon if price increases become more prevalent and broad-based.
Consumer and industry groups are concerned that if the tightening measures are introduced, they will impact the affordability of property buyers and market sentiment.
Usually if a market is flushed with speculative buying and a bubble is imminent, property prices will spike sharply across the board of a certain market within a short time like what is happening in a number of countries in the region today.
A case in point – a 26-year-old government-built apartment of 420 sq ft in the Sham Shui Po area of Kowloon district was transacted at HK$1.98mil, or HK$4,714 per sq ft.
Fuelled by high liquidity and record low mortgage rates, Hong Kong, China and Singapore have implemented tightening measures to clamp down on property speculators as risk heightens that the sharp escalation of property prices will result in a market collapse if the bubble burst.
Reason for concern?
Is Malaysia facing a similar risk and is there worry of an imminent overheating or bubble?
Real Estate and Housing Developers’ Association (Rehda) president Datuk Michael Yam discounts the possibility of overheating or an asset bubble in the local market.

“We believe the steep price increases are only reported in scattered locations in the Kuala Lumpur City Centre and some landed housing projects in the Greater Kuala Lumpur area. This does not represent a bubble but more of a short-term deviation from fundamentals that are due to isolated speculative activities in some areas.
“Generally, the local property industry is chugging along at an even keel. We believe that prices are already peaking, and we are neither hot nor cold. The recent spurt in prices may be due to the effect of the earlier stimulus package and liquidity but that has stabilised and a plateau has been formed,” he relates to StarBizWeek.
Yam says that unless there are government incentives, there is generally no excitement or broad-based stimulation in property activities. For an increase in activities, the impact of the Economic Transformation Programme, Government Transformation Programme and the NKEAs and even Malaysia Property Incorporated as major catalysts has to come in.

“Landed terrace and semi-detached houses have seen big capital appreciation due to the limited stock available and future supply especially in prime locations. As a consequence, prices of current stock in strategic areas of Medan Damansara, Bangsar, Sri Hartamas, Bandar Utama and even new launches at Desa Park City are at or above the RM1mil mark for a double or 3-storey terrace house.
“However, one must appreciate that the price a house commands (other than its location) is dependent on its built-up, specifications, value added renovation and unique features not normally available in a standard offering,” he points out.
Tackling structural issues
Yam says the industry and the Government need to accelerate supply and also review the causes and hurdles that either impede or slow down the delivery process. Areas that need to be examined include the cost of doing business and the efficiency and subsidies that affect delivery to avoid overheating due to pent-up demand.
He disagrees with new tightening measures. “As it is, the market is not exactly buoyant and is only driven predominantly by owner occupiers. Any additional regulations such as higher RPGT, capping loan amounts and imposing higher deposits, or increasing the cost of housing delivery such as making the build-then-sell system compulsory would be a disincentive to the industry,” he stresses.
Malaysia Property Inc chief executive officer Kumar Tharmalingam says the issue of a bubble is being overblown.

“A single swallow does not make a summer. There may be certain projects fetching premium values or prices for their products, but it is not representative of the overall market.
“Our data shows values are rising in the Klang Valley but they are within specific locations and projects sought by a special brand of investors who want exclusivity. The strong buying interest is not across the board but is mainly centred in the high growth markets of the Klang Valley, Penang and Johor,” he adds.
Kumar says concerns that the potential slowdown in the West will affect the local market are also overrated.
“Our banks are strong and have not buckled even during the global financial crisis in 2007/8. We have systems in banks that keep on fine-tuning the loan to equity ratio depending on the earning capacity of the borrower. Bank Negara is watching the situation and will call in loan to value ratios to change if the situation warrants.
“Our property purchase system from a primary developer is probably the most seamless in Asia. All the necessary checks and balances are built into place by the developers, bankers and solicitors to make sure that the developers have the right purchaser who has the necessary finances and affordability to purchase the property,” he says.
An imminent uptrend?
Meanwhile, developers are monitoring the sale of their products daily and any signs of weakness in the market will be felt by them “since they stand to lose the most if the buyer pays a deposit and walks away from the purchase later,” Kumar adds.
According to Mah Sing Group Bhd group managing director and chief executive Tan Sri Leong Hoy Kum, the property market is still in the early to mid-phase of an upcycle.
“We do not see a strong risk of a property bubble happening yet and there is no sign of overheating. The price increase in properties has not been broad-based, but demand driven and rather selectively in prime locations.”
Leong says certain locations and types of products are more resilient in terms of demand, capital appreciation and value preservation.
“A healthy property market is good for the economy and quality properties in prime locations are deemed to provide a good hedge against inflation. Barring any external shocks, we are cautiously optimistic that the property market should continue to do well in the short and medium term,” Leong says.
Kumar concurs with Yam that the Government’s stimulus packages are only filtering into the system now and are creating greater confidence and interest in the property market.
“There are not enough viable investment instruments around and that’s why investors are rushing to buy property. Generally, our financial market still lacks depth such as good financial planners and advisors on investment opportunities. There is still a preference for solid and secure investment instruments like property,” he adds.
Kumar says developers will slow down on their launches as they do not want a property overhang of unsold units.
“Over the next few years we are going to see smaller launches in the Klang Valley as our property market consolidates and developers are going to release property in batches to test the market.
“Developers are venturing into niche products with better quality finishings and designs, as buyers want the least fuss these days. This has driven developers to go into higher value residences,” he concludes.

http://biz.thestar.com.my/news/story.asp?file=/2010/9/18/business/7043925&sec=business

Related Stories:

A leaf from history

Reasons for this perceived bubble

What industry players say

Cooling down the market

A roof over our heads: Should we buy or rent?

By RAYMOND ROY TIRUCHELVAM | Jul 10, 2010

A roof over our heads: Should we buy or rent?

PERSONALLY speaking, I have been faced with this question – to buy or rent a house – many times in my life. While I haven’t quite found a clear answer to that, I have decided to go with both. I have bought a house (or rather acquired one through financing) but am renting it out while I live in a rented premise with my family.

It is a known fact (if not compounded by our parents, and uncles and aunties) that one should, if they can, own a house. Generally speaking, renting somehow has some negative connotations. Ideally, we should buy a property early in our lives to take advantage of the longer loan financing period and if we can, try to settle the financing early.

While there may be no straight forward answer here, there are several pertinent questions we need to ask ourselves. Where do we see ourselves, five, 10, or 30 years down the road?

First, let us exclude investors from our category as they would naturally fall under the ‘buy’ status, and let us delve into the lives of the average man-on-the-street manifested in these four individuals – Robroy, Rizal, Rowena and Rossindra, who face a similar dilemma.

Robroy is 35 years old, married with two children, and works as an senior accountant. He works for a multinational company and therefore is required to travel, and at times is posted overseas for a few years. He also has chalked up some credit card debts from all the travelling, and have been delinquent in payments during his absence in Malaysia. Most recently, he was posted to New Zealand and is now considering migration.

Rizal is 30 years old, married with two wives and six children and is a businessman who owns several restaurants. His income is good, but it fluctuates, and he currently has some savings which he plans to invest. His big family helps him runs the business.

Rowena, is a 28 year old care-free person, whom after graduation could not hold a steady job, but is very happy with part-time jobs that give her the freedom to travel as she loves travelling. She has a boyfriend and plans to get married in a year or two.

Rossindra is 25 years old; she is a social science university graduate who has decided to dedicate her life helping the needy and healing the world. She is currently working under one of the Unesco projects in Myanmar. She gets paid pretty well, and with food and lodging fully provided at her workplace in Myammar, she saves almost all her salary. She recently took over the rental tenancy of her parents who live in a rented house, and is considering alternative options.

Of these four individuals, who do you think should buy a house or rent? The following represents my take, which of course, is open for discussion.

Robroy should rent, mainly because of his work commitment. His work requires overseas posting, which includes his family, especially since he is considering migrating to New Zealand. Furthermore, he has been delinquent in his credit card payments, and this may not go well for his loan financing if he wants to buy.

Rizal should buy, mainly because the nature of his income is uncertain and he has amassed some savings, which should aid in his down payment for a house. He had originally wanted to buy a house in cash but given the size of his family, he decided to buy a bungalow for which he has settled 50% of the payment while the remainder is financed through a loan. As he rents his restaurant outlets and the returns from his business is used to settle the rent, he is confident that buying a house is a much better option for him.

On the other hand, Rowena, quite clearly falls under the rent category. First, she does not have the financial ability and second, she has not quite decided what she wants to do in life. Furthermore, her part-time jobs may not provide her with a good credit standing with the banks. Her boyfriend whom she intends to marry happens to be rich.

So, naturally, if things go as planned, she may be able to solve, to some extent, her financial issues.

Rossindra, on the other hand is in a real predicament. While her position and work do not necessitate her to rent or buy a house, she is undertaking the obligation to pay rent for the house her parents stay in. She is considering the option of buying a small house and naturally, her parents are overjoyed to finally live in their own house.

Buying a house is usually, for many, a once-in-a-lifetime decision. So don’t rush into it. Take your time evaluating the possible scenarios and outcomes and of course, make sure you choose a suitable property. Whatever it is, you must try to avoid putting significant pressure on your financial status.

● The writer, a business planner with SABIC Group of Companies says: I would rather my parents choose my house than choose my wife.

http://www.starproperty.my/PropertyScene/TheStarOnlineHighlightBox/5773/0/0

UK House prices: is it time to buy or sell?

House prices: is it time to buy or sell?
The housing market's recovery is under threat, so it could be time to act before it's too late.

By Richard Evans
Published: 7:22PM BST 03 Jul 2010

10 Comments

Photo: HOWARD McWILLIAM

The property market may be Britain's national obsession but it is proving a hard market to call. Despite fears of a second credit crisis, house prices have recovered to within about 15pc of their peak and the latest figures show that the market is still rising, albeit slowly.

"The market is finely balanced. There are similar numbers of buyers and sellers, and no one can say which way prices will go," said Jeremy Leaf, a north London estate agent. "The market has never been more interesting – in some areas it may be time to sell, in others the right time to buy."

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So how can you navigate your way through this jungle? How can sellers pick the right time to put their property on the market, and how can buyers make sure that they pay the right price and don't find themselves saddled with unaffordable debts?

For many, the most important factor in deciding whether now is a good time to buy is the likely direction of house prices. The consensus among economists and housing experts is that the recovery is running out of steam, and that prices look set to stall at best and fall at worst. Such pessimism is fuelled by public sector cuts, further job losses and fears of Britain falling back into recession.

Ed Stansfield of Capital Economics said: "Low interest rates should be supportive for house prices. But public sector job losses, tax rises and spending cuts will squeeze household incomes further, as well as denting confidence.

"What's more, the uncertain outlook for mortgage funding means that the availability of mortgage credit is unlikely to improve and could even be tightened again later this year. Given that the market remains overvalued, I suspect that house prices will end 2010 down by 5pc and will drop a further 10pc in 2011."

Hetal Mehta, the senior economic adviser to the Ernst & Young Item Club, said: "It is not looking good for the housing market ... we may be at a turning point." Howard Archer of IHS Global Insight said he would "not be surprised" if house prices were flat overall for the rest of this year and Peter Bolton King, the head of the National Association of Estate Agents, predicted a similar outcome.

Others predict a sharper correction. After all, as a multiple of earnings, housing remains far more expensive than the long-term average.

According to Nationwide Building Society's house price index, the average first-time buyer now needs 4.4 years' income before tax to buy their first home. Nationwide's average price to earnings ratio since 1983 is just 3.3. By this measure of affordability, prices would have to fall by 28pc from their current level to reach the long-term average for first-time buyers.

Interest rates are also critical, both for their influence on house prices and for the affordability of your own mortgage. A Reuters poll of 61 economists last month found that the majority expected no rise in rates this year, followed by an increase to 0.75pc by the end of the first quarter of 2011 and a further rise to 2pc by the end of the year. Once Bank Rate starts to creep up, history suggests that lenders will swiftly follow suit by increasing mortgage rates.

Ros Altmann, a governor of the London School of Economics, said the small print in the emergency Budget suggested that the Government expected rates to rise too. "The Government's change of pension indexation – pensions will be linked to the Consumer Price Index [CPI] measure of inflation instead of the Retail Price Index [RPI] in order to save costs – confirms that the Government itself expects rates to rise," she said. "CPI will be lower than RPI only if rates go up."

But Mr Stansfield said he expected rates still to be at their current 0.5pc at the end of 2011. "The scale of the fiscal squeeze is likely to ensure that economic growth remains pretty fragile and ensure that the economy continues to operate with ample spare capacity. That will push inflation lower and allow the Bank of England's Monetary Policy Committee to keep interest rates at current levels until at least the end of next year," he said.

For would-be sellers it seems a bigger gamble to hold off in the hope that the housing market will continue to improve than to sell now following a recovery in house prices and an improvement (for the time being) in mortgage lending conditions.

"There has been an increase in the supply of property coming to the market following the abolition of home information packs," said Simon Rubinsohn, the chief economist of the Royal Institution of Chartered Surveyors (RICS). "As a result, the number of new instructions being received by estate agents is now outstripping the increase in buyer interest."

The advice to buyers is to drive a hard bargain. The recovery has not brought the housing market back to the boom days and many sellers will be fearful of a housing slump.

"Some areas have oversupply, others have shortages, although sometimes only of particular types of property," said Mr Leaf, who is also a housing spokesman for the RICS. "To find out what is happening in the area where you want to buy, there is no substitute for doing the legwork. Walk the streets at different times to make sure it is right for you. View plenty of properties, make offers, gauge the reaction – sometimes you find out more from rejections."

There is another reason why now might be the optimum time to dabble in the housing market – mortgage rates are at a seven-year low.

You can avoid a nasty rise in your mortgage repayments when interest rates do rise by choosing a fixed-rate home loan. Although these mortgages tend to be more expensive than variable-rate trackers, you can pay less than 4pc for two-year fixes, while those who want certainty for longer could fix for 10 years at 4.99pc from Yorkshire Building Society, although you would need a 25pc deposit.

There are tentative signs that the mortgage market is worsening and so it might pay to act fast. The Bank of England said on Thursday that mortgages would be harder to obtain in the next three months amid fears of a "deterioration in the economic outlook". It said lenders expected to find it harder to secure the cash on the wholesale markets to fund loans. This was the pivotal reason why mortgages became so costly at the height of the credit crisis.

House price bears reckon that many home owners could not cope with a rise in interest rates. Some, they say, are able to keep their heads above water today only because they are paying rock-bottom interest rates – as low as 2.5pc, in some cases. But these borrowers are fully exposed to a rise in Bank Rate, while remortgaging to a fix will see their repayments rise immediately. A tick up in repossessions cannot be ruled out.

For now, the housing and mortgage markets are in as good health as they have been since the credit crunch took hold, but the outlook looks decidedly grim.

Someone with access to funding who could cope with a rise in interest rates might be able to grab a bargain by choosing the area and property type carefully. Existing home owners whose finances are stretched to the limit might equally take the opportunity provided by the current resilience in prices to get out of the market before prices fall.