Our cars are costing us our homes!

WHEN I first started my job as an architect in the 1960s, I was on a three-year contract with a monthly salary of RM628. I bought my first car, a Peugeot which cost RM7,724, equivalent to approximately one year of my salary. The car became my reliable companion for 14 years. Those were the good old days, when a car could be bought with just one year of a fresh graduate's salary.

Circumstances have since changed. Today, for a fresh graduate to own a car in Malaysia, it will easily cost him four years of his salary to purchase a foreign car, and even a local car costs around two years of his salary. If we take into consideration his living expenses and other commitments, it may take him even longer to settle his car loan. Hence, it has left him with very little option but to take the maximum car loan financing tenure of nine years.

In the table illustration below, a fresh graduate in the Washington D.C. earning about RM11,000 (about US$3,500) per month can easily buy a Japanese Honda Civic or Toyota Corolla worth RM50,000 as it is only 0.4 times of his yearly salary.

On the other hand, a fresh graduate in Malaysia earning about RM2,500 per month needs to pay RM120,000 if he would like to buy the same type of car. It costs him four times his gross yearly salary. This ratio is 10 times higher than his US counterpart.

For youths in Malaysia, buying a car is more expensive both in real terms, and in terms of debt-to-income ratio. In reality, it means they have to either purchase a car with lower price tag or commit to a longer term loan to own a car, which cost them the opportunity of owning a home.

This situation requires our youth to choose between buying a car or a house first, and many have committed to own a car first, considering our public transportation system is still in the process of being improved.

Many fresh graduates in Malaysia who start to serve their car loan tend to delay their plan of purchasing a home.

Unfortunately by the time they can afford to purchase a home, be it three, five or nine years later, the price of a property would have escalated due to among other things, inflation, higher construction cost and higher land prices.

While it may be safe to say that their salary would also increase, generally speaking the increment may not aligned to the rate of inflation. In most cases, owning a home will be a huge debt lasting 30 to 40 years of housing loan repayment.

What can be done differently to change the circumstances? Is there a better way for them to financially plan their future? These are questions that Malaysian youths ought to consider before purchasing any big-ticket items.

Let's look at the table again. It also lists the median price for three-bedroom apartments in the suburbs of these cities. The median price of an apartment in the Klang Valley is around RM300,000, equivalent to 10-year gross income of our fresh graduates. The affordability level is more favourable compared to other Asian countries, such as Indonesia and Thailand. The prices of same size apartments in Jakarta and Bangkok range from RM350,000 to RM400,000, and costing their fresh graduates 13 to 18 years of gross yearly income to purchase a house.

Therefore, when it comes to the question of home affordability in Malaysia, we are blessed compared to our regional peers.

However, there are many factors that contribute to the challenge for our youths to own a house. Two primary factors are the additional financial commitment of purchasing a car, and the relatively lower income level in our country compared to our Western counterparts.

When fresh graduates spend a substantial amount of their salary paying for a car, they are left with little savings to own a house, and their house affordability level decreases over the years as prices rise due to inflation.

Clearly the income level of our graduates has to rise, to enable better quality of living and higher affordability level, which is the current government's focus to make Malaysia a high income nation by 2020.

Perhaps it is also time to re-look at our national car policy and how it has affected the house affordability level in Malaysia. From the numbers above, it is clear that our cars are costing us our homes.

Food for thought  By DATUK ALAN TONG

> FIABCI Asia Pacific chairman Datuk Alan Tong has over 50 years of experience in property development. He was FIABCI World president in 2005/06 and was named Property Man of The Year 2010. He is also the group chairman of Bukit Kiara Properties. (email at feedback@bukitkiara.com) 

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'No’ to property price speculation

Houses prices hardly fall

'No’ to property price speculation

Excessive Asian property price appreciation may be over for now

PEOPLE generally like to invest in properties. It is easy to understand you buy a house. It is a simple, tangible investment. It is long term and financing is usually easy. Most people tend to have positive experience after buying their first home, which normally would appreciate after a decade or two.

Simple things can morph into complex series of events. Buying houses may turn to speculation, massive speculations become a boom and bust “housing bubble”; banks may collapse from huge bad mortgages, a financial crisis and then a government bailout ensues, an economic recession soon follows. These events sound a little too familiar.

Low interest rates, massive liquidity and investors shying away from volatile stock markets, are some of the many reasons cited for Asia's potential property bubbles today. From 2009 or so, private residential properties have seen large average price jumps in China (Beijing +100%), Hong Kong (+53%), Singapore (+53%), Malaysia (+21%) and Indonesia (Jakarta +14%).

Asian policy makers have taken many pre-emptive actions to control this property “bubble”, usually by regulating excessive speculation and guiding mortgage lending by banks. In Hong Kong, policy makers try to discourage speculators by raising special stamp duty for short term resale of residential property (5% to 15%, depending on holding period); in Singapore, measures include a hefty extra 10% stamp duty on purchase price for non-residents. In Indonesia, there's a maximum 70% property loan limit.

Recent data suggest such curbs did not slow the Hong Kong or Singapore property markets for long. Transactions or prices picked up again recently. We believe however, if Asian property prices rise rapidly again, tougher curbs may be in the cards. The slew of increasingly tough measures in China the last 18 months is seen as an example. An avalanche of curbs eventually made China home prices dip for eight straight months up to May 2012.

Historically, financial crisis in many countries (Japan 1991, US 2008 and Spain today) are caused by property price bubbles bursting hurting consumers, banks and businesses. Therefore, it makes a lot of sense to have responsible lending.

Asian policy makers, having learned bitter lessons from the 1997/98 financial crisis, sees pre-emptive measures to control any potential property “bubble” as crucial to avoid banking problems or crises.

Governments in Asia on the one hand want to curb excessive price speculation, while at the same time, know that home ownership is a very important (and personal) issue notwithstanding it is also a big contributor to domestic economic growth.

What Asian policy makers aim to do is best captured in a Chinese phrase, which literally means “in peace time, think about danger”. The best time to prepare for rainy days is when the sun is shining it's a lot harder to do so in a storm.

The biggest challenge for policy makers is to develop a sustainable property sector and promote home ownership (especially first time house buyers) without boom and bust. That includes the balancing act of curbing property speculation without inadvertently pulling the brakes on the economy.

Some Malaysian non-listed property developers I met recently have expressed deep concerns that sales of their high-end, new condominiums are lagging, because buyers find it difficult to get financing.

Bank Negara's curbs on lending for third property mortgage (maximum 70% financing) and stricter banks credit standards appears to be working for now.

The intent of Bank Negara, we believe, is to nip excessive property price speculation in the bud. Current property curbs ensure at least prices don't run up too fast and banks may allocate more funds to first time house buyers rather than investors or speculators.

Interestingly, property developers who don't complain about curbs are often the established ones who prefer sustainable growth, rather than a boom and bust property market. I believe many property companies have learnt not to borrow too much.

Tellingly, the top five Malaysian listed property developers have reduced average net gearing from 70% in 2000 to 18% in 2011, (Indonesian and Thai property developers reduced from 612% to 9% and 255% to 84% respectively). Asean property companies today are undoubtedly less leveraged with healthier cash reserves.

That's one reason why most property developers in Malaysia, Indonesia and Thailand for example, are not rushing to unload properties at massive discounts, even as property curbs bite into sales. They know current measures are temporary and consumer demand is likely robust for quite some time.

Asian consumers are financially better off today. Healthy employment and wage increases across Asia means consumer demand for housing will likely stay buoyant and house prices, like in normal times, will gradually rise over time.

However, the intriguing impact on Asian properties today given the mind set and propensity of policy makers to pre-empt any potential property bubble I believe periods of excessive property price appreciation in many Asian property markets may already be over for now.

I believe policy maker's curbs on excessive price speculation is a right policy. Even if there's short-term pain, it will likely make Asian economic growth sustainable for the longer term in these difficult times.

Singular Vision
By TEOH KOK LIN

Teoh Kok Lin is the founder and chief investment officer of Singular Asset Management Sdn Bhd.

A need to invest in security

With the recent spate of attacks, robberies and snatch thefts, we really need to pay more attention to security issues – with emphasis on ‘pay’.

On Sunday, I visited a friend who was staying in a hotel along Old Klang Road in Petaling Jaya. At the time, there was another man in the room.

Minutes later, there was a knock on the door. A boy rushed in, breathless.

The other man in the room had left the boy and a couple of girls in his car while visiting the friend. Someone on a motor-cycle had knocked on the car window, asking for directions. And when they lowered the windows, the knives had come out.

The trio lost what little money they had, along with their handphones. They couldn’t even call to tell the guy about their problem. Thus, the dash to the hotel room.

Reality had hit close to home, even as we were talking about the recent spate of robberies in car parks and malls.

Call it a weird coincidence, but that hotel overlooks the scene of probably the most-publicised case of car park abduction and assault in the country. It was here, along Old Klang Road, that Canny Ong, after being abducted in Bangsar, was raped, murdered and torched in 2003.

And only last week, I had visited the Bangsar Shopping Centre from where she had been taken.

After the recent spate of robberies and attacks on women in malls and hypermarkets, I had wanted to see how much the security in the mall had improved. I must say I came away fairly impressed.

The car park was quite brightly lit, there were guards at both entrances and exits – and they were peering into the cars that were entering and leaving. I guess that’s to ensure no abduction ever takes place again.

There were a couple of guys on bikes, and a couple of others on bicycles. And yet another was walking from car to parked car, checking if all were secure. And the guy in the long-sleeved shirt slouched near the fire hydrant? He was the supervisor.

These were not your retired pakciks and uncles, trying make some extra money. They were Nepali army-trained personnel. They looked nice and smiled at everyone but one wrong move, and they can turn nasty. Really nasty, I am told.

Vincent Tan, the BSC asset and property management senior manager says they have 350 CCTV cameras covering all basements and floors.

They’ve also got dog units that patrol the area after dark. And if you are afraid to walk to your car at night, all you have to do is ask and the guards come along in buggies to take you to your vehicle.

More importantly, there are these blue pillars with panic buttons on them. You press the buttons, and the guards come running. They are even to be found in the ladies’ washrooms – the panic buttons, not the guards.

Of course, all that sounds good but I did have a couple of unanswered questions. Other malls are mulling ladies-only parking areas but I didn’t see any such markings there. There may be plans, though, says a friend who works there.

And how many people would know about the panic buttons? There is little by way of education.

I would have plastered notices of these measures all over the mall to make sure everyone would know what to do – and also tell the ladies to take note of the nearest blue column when they park. That way, they would know where to run when faced with an emergency.

It’s bad enough having nowhere to run when robbers hit you at home, or target the elderly, as they have been doing recently. Being robbed while out having retail therapy is hardly therapeutic.

I would think that security, indeed, is something worth investing in as far as malls and hypermarkets are concerned. After all, a mall that’s seen to be safe is likely to bring in the crowds and the paying customers. The key word, however, is “investing”.

Security guards, by and large, get paid pittance. And they have to throw their bodies in the line of fire. Guards in many factories and residential areas are paid as low as RM700 a month.

And in the malls, I am told, they may get RM900 to RM1,000. And I know of Myanmars who help out at hawker stalls and earn about RM2,000 a month!

Maybe we should be rethinking the value of the security guards. After all, if we expect them to lay their life on the line to save ours, we should be ready to pay a fair price.

After all, it’s also the price of our limbs and our lives.

Why Not? By D. RAJ

> The writer is dreaming of the day when we can have mall cops – friendly, well-paid policemen who ensure our security everywhere. But, for now, that remains a dream. 

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