Thursday, 12 August 2010

Welcome to a speculator’s market


SINCE the last quarter of 2009, property prices have not gone up incrementally. They have escalated, especially for landed units. In certain locations, prices may be unsustainable.

Up to the first quarter of this year, intermediate two-storey houses in a popular part of Petaling Jaya were transacting at about RM650,000.

Yesterday morning, an agent said the company had sold several houses facing T-junctions (which are not popular units among buyers) in the same township. These were 2 1/2-storey houses. One was sold for slightly more than RM1mil, among the highest he has ever seen in that location for a house located opposite a T-junction while another was sold for RM950,000, the lowest among the three.

Even at RM950,000, he felt that it was rather high. He is also rather concerned about valuations these days. “I like this property business. I want it to grow. But not this way!” he said.

In certain locations, especially in gated and guarded communities, it has come to a point where valuers are reluctant to put a value on a property.

How do you pin a value on a house when next month the price will be different? Prices are simply moving too fast.

Due to pressure, the valuer may have to value it. If the previous transaction was RM1.6mil, he may then reluctantly value the next one at RM1.63mil. The result is that the price of houses in that gated and guarded development becomes increasingly higher. It eventually becomes a speculator’s market, not a buy-to-stay market.

While valuers play their role by succumbing to pressure to put a value to properties, banks do the same when they promote various kinds of creative financing. When banks advertise free legal fees, it is not truly free. That amount is already packaged into the scheme.

Banks too play a part in today’s increasing property prices. As banks consider the buoyant property market, and as competition among banks heats up, mortgages seem to be a good way to increase their loans business.
So they create all sorts of attractive schemes.

Last year, banks were promoting lending rates at base lending rate less 2.2%. Earlier this year, it was base lending rate less 1.9%. Today, a foreign bank is promoting base lending rate less 2.3%.

It is this which encourages people to sign up for several loans.

Over in the condominium sector, prices are driven by various factors. In a matter of weeks, a serviced apartment project will be delivering units to buyers. When it was launched several years ago, it was priced at about RM160,000 to RM170,000 for a 400-sq-ft unit.

Even before the keys are handed to buyers, prices of RM250,000 and RM260,000 are being bandied about today.

In the next 12 months, barring any contagion effect from their souvereign debt situation in Europe, developers will be having more launches. They are aggressively gearing up to launch their projects today.

So ultimately it looks like the resounding performance of our residential properties today is due to a lack of other better investment alternatives, including the volatile equity market.

So from buyers who are at a loss where to put their money, to the banking sector eager to give out more loans, to valuers pressure to put a value on a property, to agents eager to get their commission, and developers, at every level, all are part of the market forces at play.

Back to that house at the T-junction, here is some food for thought: Whether it is RM650,000 or RM1mil, the rental remains at RM1,500 a month.

·The writer remembers the US subprime crisis and how it pulled down the global financial system. There needs to be some prudence in our property market too.

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