The Malaysian Property Dilemma

Presented by Dr. Ernest Y Y Cheong

Malaysian Annual Property (MAPIS) 2012, 11th October 2012, Singgahsana Hotel, Petaling Jaya, Selangor

ERNESTowning CHEONG PTL Property Reasons for buying and

CHARTERED SURVEYORS

The Malaysian Property Dilemma

Why do people buy and own property? It is a place to call home and perhaps to raise a family. Others are more fortunate to have spare cash and see properties somewhat differently
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

They buy for the steady source of additional income that comes through rental or leasing. They buy for investment to realise capital gains They speculate on properties that quickly appreciate in value, over a short period of time.
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Location, Location, Location!

Why do Real Estate Agents chant "Location, Location, Location"? What do Real Estate Agents really mean? Are there other important factors to consider when buying and selling property?
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Property prices will keep rising There is a perception that when you buy from developers, whether a home, office or shop, when you sell the property in the re-sale (secondary) market, you will always be able to sell at a higher price and make a profit. Yes or No?
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Property prices will keep rising There is a perception among Malaysians that property prices will continue to rise thus putting pressure on younger Malaysians to rush to buy their dream homes now before it is too late when they cannot afford to buy. Facts or Fantasies?
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Bukit Beruntung, Selangor

Year Property Type Land Area Sale Price RM 100,000 85,900 27,500 72,000 Price/Sq. Ft RM 63 61 13 34 %

7/2000

2 Storey Terrace

1,400 sq ft 2,100 sq ft 2,100 sq ft

97 21 54

11/2005 2 Storey Terrace 12/2006 2 Storey Terrace

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

9/1993

2 Storey Terrace

1,600 sq ft

100

Wilayah Complex, Jalan Dang Wangi Kuala Lumpur

Year Property Type Land Area Sale Price RM 163,800 125,000 41,000 120,000 70,000 57,150 Price/Sq. Ft RM 585 355 281 309 361 408 %

9/1989

Shop-Lot

351 sq ft 146 sq ft 387 sq ft 193 sq ft 140 sq ft

61 48 53 62 70

10/2002 Shop-Lot 3/2006 Shop-Lot

10/2010 Shop-Lot 4/2011 Shop-Lot

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

2/1981

Shop-Lot

280 sq ft

100

Jalan Hujan Emas 1, Overseas Union Garden, K. L

Year Property Type Land Area Sale Price RM 250,000 260,000 310,000 280,000 380,000 Price/Sq. Ft RM 156 162 193 175 237 %

5/1999 9/2002

2 Storey Terrace 2 Storey Terrace

1,600 sq ft 1,600 sq ft 1,600 sq ft 1,600 sq ft 1,600 sq ft

100 103 124 112 151 The Malaysian Property Dilemma

11/2005 2 Storey Terrace 11/2006 2 Storey Terrace 9/2011 2 Storey Terrace

ERNEST CHEONG PTL CHARTERED SURVEYORS

Jalan Desa Mesra, Taman Desa, Kuala Lumpur

Year Property Type Land Area Sale Price RM 185,000 650,000 900,000 840,000 580,000 Price/Sq. Ft RM 98 119 171 389 256 %

12/1991 2 Storey Terrace 9/2004 5/2006 2 Storey Terrace 2 Storey Terrace

1,872 sq ft 5,424 sq ft 5,263 sq ft 2,156 sq ft 2,259 sq ft

100 121 174 396 261 The Malaysian Property Dilemma

12/2010 2 Storey Terrace 7/2011 2 Storey Terrace

ERNEST CHEONG PTL CHARTERED SURVEYORS

Property prices will keep rising It is FANTASY that property prices will continue to increase and will never fall. Like stocks and shares, gold and other commodities, property prices CAN RISE and CAN FALL.

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

ERNEST CHEONG PTL What can you afford to buy?

CHARTERED SURVEYORS

The Malaysian Property Dilemma

Malaysians are broadly divided into 3 Income Groups: High Income: Take home pay RM14,000 per month and above Middle Income:

Take home pay RM8,000 per month

Low Income: Take home pay RM3,000 per month.

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Lower Middle Income Families RM3,000 - RM8,000 per month incomes

The Malaysian Property Dilemma

Upper Middle Income Families RM8,000 RM14,000 per month Incomes

High, Middle and Low Income

For the purposes of this Study, we will focus only on the High, Middle and Low Income Malaysian families.
ERNEST CHEONG PTL CHARTERED SURVEYORS

Affordability Tests
We shall follow 3 Malaysian families
The Malaysian Property Dilemma

High Income: Take home pay RM14,000 per month and above Middle Income: Take home pay RM8,000 per month

Low Income: Take home pay RM3,000 per month.

ERNEST CHEONG PTL CHARTERED SURVEYORS

Scenario No 1 - High Income Family

RM Family Income (2012) RM 14,000
The Malaysian Property Dilemma

Expenditure
EPF 1,540 Income Tax 2,200 Grocery 800 House Rent (Live in own house) 0 Car Loan 2,500 Car Maintenance & Petrol 800 Food (Dine-out) 600 Childrens Education & Related Expenses 800 Children Pocket Money 800 Others 500 Emergencies 500 Surplus available to pay Housing Loan

11,040 --------2,960 =====

ERNEST CHEONG PTL CHARTERED SURVEYORS

Scenario No 2 - Middle Income Family

RM Family Income (2012) RM 8,000
The Malaysian Property Dilemma

Expenditure
EPF 880 Income Tax 700 Grocery 500 House Rent (Live in own house) 0 Car Loan 1,500 Car Maintenance & Petrol 700 Food (Dine-out) 400 Childrens Education & Related Expenses 500 Children Pocket Money 500 Others 300 Emergencies 300 Surplus available to pay Housing Loan

6,280 --------1,720 =====

ERNEST CHEONG PTL CHARTERED SURVEYORS

Scenario No 3 - Low Income Family

RM Family Income (2012) RM 3,000
The Malaysian Property Dilemma

Expenditure
EPF Income Tax Grocery House Rent (Live in own house) Motorcycle Loan Motorcycle Maintenance & Petrol Food (Dine-out) Childrens Education & Related Expenses Children Pocket Money Others Emergencies Surplus available to pay Housing Loan 180 0 300 0 400 300 100 300 300 300 300

2,480 --------520 =====

ERNEST CHEONG PTL CHARTERED SURVEYORS

ERNEST CHEONG PTL CHARTERED SURVEYORS

Affordability Test

The Malaysian Property Dilemma

Affordability Test
Surplus income to pay Housing Loans
The Malaysian Property Dilemma

High Income Family Middle Income Family Low Income Family

RM 2,960 1,720 520

I conclude that the High Income Family, Middle Income Family and Low Income Family can only afford to buy the property types with the respective affordable Housing Loans as shown in the next slide
ERNEST CHEONG PTL CHARTERED SURVEYORS

Affordability Test
Monthly Family Income RM 14,000 8,000 3,000 Affordable Property 2 Storey Terrace House Apartment Low/Medium Cost Flat Affordable Price RM 550,000 320,000 95,000 Affordable Housing Loan RM 495,000 288,000 85,500 Monthly Instalment RM 2,960 (30 yrs) 1,720 (30 yrs) 520 (30 yrs)

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Affordability Test I conclude that based on Malaysian families financial ability and affordability, the prices of 2 terrace houses in Taman Desa, Bangsar Baru, Damansara Heights and Taman Tun Dr. Ismail and condominiums in Menara Binjai and Hartamas in Kuala Lumpur, are beyond the RM550,000 price range that Malaysian families can afford to pay. I find this conclusion to be a very depressing and discouraging scenario, as shown in the two tables below:ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Prices of Properties Malaysian Families can afford to pay

RM14,000 monthly Income RM8,000 monthly Income RM3,000 monthly Income Property Price RM 550,000 320,000 95,000 Housing Loan RM 495,000 288,000 85,500

Prices of Properties in Kuala Lumpur

Location Taman Desa Bangsar Baru Taman Tun Dr. Ismail Damansara Heights Menara Binjai Hartamas Regency Property Type 2 Storey Terrace 2 Storey Terrace 2 Storey Terrace 2 Storey Terrace Condominium Condominium Sale Price RM 910,000 1,180,000 1,020,000 1,160,000 780,000 1,600,000 7/2011 1/2011 2/2011 9/2011 9/2011 10/2011 Sale Date

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

The Malaysian Property Dilemma

ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Premised on the above information and analysis of the comparative figures between actual prices of properties in Kuala Lumpur and the ceiling price of RM550,000 that Malaysian families with monthly incomes of RM14,000 and below can afford to pay, can we still claim that Our property prices are still affordable is a true representation of the actual situation and reality facing Malaysian families today? This is

Thank You
ERNEST CHEONG PTL CHARTERED SURVEYORS

The Malaysian Property Dilemma

Presentation by

Dr. Ernest Y Y Cheong

Ernest Cheong PTL Chartered Surveyors
No. 37-2, Jalan Desa, Taman Desa 58100 Kuala Lumpur, Malaysia Tel: +6 03 7980 4512 Fax: +6 03 7980 4519 Email: enquiries@ecptl.com Website: www.ecptl.com
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ECPTL 2005

Thank you

The Malaysian Property Dilemma