All time high property prices

Whoever you meet and in any conversation, high chances that the conversation will touch about high property prices, investing in properties or investing in stocks. Awareness in investment seems to be all time high in conjunction with all time high KLSE Index and all time high property prices.

In Q1 this year, we see demand for properties has soften due to tightening of the lending policy by Bank Negara such as 70% loan for 3rd residential properties (onward) and use of net income (instead of gross income) for Debt Service Ratio (DSR) calculation which in turn used by Bank to decide on loan approval. According to bankers, loan approval rate had come down; but we know the property prices still inching up. 

In fact, property prices in Kajang (place I live) have gone a bit insane. For example: 2-storey terrace in TTDI Grove known as Acacia (Phase 9) is selling for above RM680k – RM720k ; serviced apartment in Taman Kajang Sentral is selling for RM368,544 for 1047sq.ft unit which work out to be RM352/sq.ft. For comparison, I bought my 2-storey terrace house (22ft x 70ft) from sub-sale market in 2008 for only RM160k and current asking price for similar houses is nothing less than RM280k. My portfolio growth in tandem with escalating property prices in Kajang because I owned few of my investment properties here. This is what I’m waiting for, since I start investing in properties in 2006. However, I’m in mix feeling; feel happy but at the same time a bit worry on sustainability of property prices. Warren Buffet has stress again and again “Be fearful when others are greedy and be greedy when others are fearful”

I like point brought up by Datuk Alan Tong in yesterday The Star’s Biz Week (Saturday, 12/5/2012) titled Food for Thought: Applying the brakes – made for the short term – can be dangerous. According to him, the basis for rising property prices now is largely due to the direct and indirect impacts of quantitative easing programmes i.e. the increase of money supply, carried out by governments around the world since the start of the global financial crisis. This phenomenal is called “value slump”. When there is too much money chasing too few goods, prices will increase but not necessarily value. In reality, we are facing a situation where there is too much money in the system, causing a decrease in the real value of money and pushing up prices of goods and services including construction materials.

He gave an example, in early to mid 2000, a condominium in Mont'Kiara which was sold around RM500k would now cost us about RM800k today, equal to a 60% increase. But if we measured in a different “currency”, that condominium would have cost us 8kg to 10kg of gold in early to mid 2000 and today, only worth about 5kg of gold. This is a sharp decline of 38% to 50% and is an illustration of how prices are going up due to the drop of currency value because of worldwide inflation and pump-priming policies.

Property developers will always “justify” the high property prices was due to increase in construction cost and land cost. This has been pointed out by Daniel Lim, COO of Property Development Division in Sunway Group during his presentation at The Edge Investment Forum on Real Estate 2012. But seriously; how long can it sustain if we are currently facing “affordability” issue? The income for average Malaysian is still too low for the high property price. The short answer is “I don’t know”. But my advice to those wants to buy property for investment in 2012 is to be careful and think long term. And remember that “you make money when you buy the property, NOT when you sale”.