Property Investment Musings

1. The second half of 2013 witnessed some major changes in the areas of banking, property and taxation. Loan approval was based on net income after all deductions. In the past, it was based on gross income.
   
2. This move alone handicapped a significant number of applicants and many had their loans rejected or approved for lower amounts instead. The buyer thus had to forego the purchase or had to come out with higher down payments.
   
3. For those who poured out high down payments, the reduced disposable cash served its intended goal, which is to stifle speculation activity for those who aimed to flip it as soon as practicably possible.
   
4. However, this measure did not stop foreigners who had the benefit of higher exchange rates from making continued and sustained purchases. Very often, these foreigners made cash purchases and the tweaking of loan requirements were of no consequence to them.
   
5. Then came the next salvo. Minimum price for property purchase by foreigners was raised to RM1m and this was coupled with an upward revision of the Real Property Gains Tax (RPGT).
   
6. By referencing against the Singapore Dollar (SGD) at an exchange rate of RM2.50, the entry price thus became SGD400k. Not exactly a deterrent since HDB flats in Singapore cost way more than that.
   
7. As such, genuine foreign buyers still made a bee-line to developers doors albeit the need to fork out more in terms of entry price. This thus made the foreign quota allocated by developers, a sure sale.
   
8. The RPGT put a major halt to speculators who bought just to trade it away as a commodity. Coupled with restrictive lending, a dampener has been put in place to restrict runaway prices.
   
9. The effectiveness in the interim at least, looks promising. Only time will tell whether these cooling measures have achieved its intended outcome.
   
10. While foreigners seem to be unscathed by these revisions, the general pulse among local purchasers look a little withered these days. Those who jumped into the property bandwagon at elevated prices seem to have no spare cash to purchase another unit.
    
11. This is evident by the new banners put up by some developers. The artwork may have changed but the model is still the same. It simply indicates that these houses remain unsold even though the banner and buntings have faded due to rain and sunlight.
    
12. Usually, these are luxury units such as bungalows and semi-detached houses. Locals simply do not earn high enough to afford while foreigners who have no problem with the price, have used up their quota. The developer thus, is left with unsold units.
    
13. Locals who bought at steep prices in the past mainly did so out of fear rather than need. Many, whom we have spoken to, were willing to part with their entire savings due to the fear of not being able to afford a house in future.
    
14. Another segment bought extra units either as investments for their children or simply out of greed to capitalise on the frenzy of fear by selling it to those who missed purchasing it in the past.
    
15. Back to the unsold units. we anticipate the usage of very creative financing options by developers to get these units sold. Among the popular methods known is the rebate approach to reduce initial down payment to the popular guaranteed rental scheme.
    
16. Our thoughts are that this will continue for a while and if the “discounts” are enticing enough, there will be takers. For now, prices still seem to be at lofty heights and we don’t see them crashing down.
    
17. Otherwise, there will be pandemonium in the financial markets with banks, developers, loan borrowers and even the stock market experiencing major turbulence which can bring back memories of the 1997 financial crisis.
    
18. As we see it, either one has to increase income to stay where one wants to live, or consider moving to areas beyond city limits where it’s more affordable. Such is the price of development.
    
19. Otherwise, the government has to come out with significant number of units of affordable housing within city limits or drastically improve our badly needed public transport system to encourage migration to suburban areas. Only time will tell how this pans out.
    
20. In the meantime, here’s wishing everyone all the best in finding your property of choice. May you find it sooner rather than later.
    
21. Merry Christmas and Happy 2014!