Old but expensive

High prices of PJ houses

Published on 7th June 2012

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Peter Yee

Our property investment consultant Peter Yee is the author of the books, You Can Become Rich in Property and The Certain Way to Life’s Riches.

Formerly an educationist, he has also been a management consultant, stockbroker, restaurant owner, property investor and investment coach.

Yee has a doctorate and master’s degree in business administration as well as a bachelor of science degree. He runs workshops on How to Make Money from Residential, Commercial and Auction Property in Malaysia.

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Question

In 2007, my wife and I, purchased a condo unit in Petaling Jaya SS2 for a low price. It was a good deal as property then was much cheaper compared to prices now.

However, my dream has always been to own landed property. Therefore, I plan to purchase a double-storey terraced house in Petaling Jaya.

I have been looking at numerous double-storey, freehold terraced houses in Taman Mayang, Damansara Jaya, SS2, SS3 and Taman Megah over the past year. But I am a bit deterred by the high asking price, usually RM700,000 to RM950,000.

I noticed that houses priced within RM700,000 to RM800,000 in PJ are usually basic units, requiring at least RM100,000 to renovate to upgrade it. These houses are almost 30 years old. Otherwise, the houses may not be in an ideal location, for example, near a power station, T-junction, sewerage pond or facing a highway.

Terraced houses with renovations and which require only a minor touch-up would usually be priced between RM800,000 to RM950,000.

Generally, owners like to price their property value above the market price and as such, I have difficulty in obtaining valuation assessment from the bank which matches the owner’s asking price.

Q1: Do you think that freehold, landed residential properties in PJ will appreciate further in the near future?

Property in PJ, especially landed residential property, is in a rather saturated market. Property here was built almost 30 years ago and since then, prices have risen almost 10-fold. Almost all freehold land in PJ has been developed and limited land is available.

However, due to its central location, PJ still remains a popular choice among investors due to its proximity to KL and other places in Selangor.

Other nearby townships, such as Subang Jaya, Shah Alam, Puchong, Bandar Sri Damansara, Desa Parkcity, are newer developments compared to PJ. Would property in such places appreciate more in the future, as these areas have more potential for growth?

Q2: The economy in Europe has been rather unpredictable lately. There are uncertainties and property prices are plummeting. Property in Australia has also been on the decline, where the market has been very slow and properties take months to sell. Would world economic events and the property market situation have an impact on the prices of property in Malaysia?

Q3: I have also been talking to many of my friends in the property industry (real estate agents, bankers, developers and property investors) and reading many property blogs about the so-called "property bubble". As we all know, almost all property in Malaysia has appreciated easily between 50% to 100% within the past few years.

Can the property market sustain such a huge growth? More importantly, can the Malaysian economy and property buyers maintain this growth? Even now, I can see that the property market is a bit slow, compared to say the same period last year.

I am keen to purchase landed property in PJ but I am uncertain about the current property market situation.

Budding Property Investor, Petaling Jaya

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Answer

Dear Budding Property Investor,

You seem to be an analytical person, capable of analysing the property market quite well. However, due to your relatively young age, you may lack the experience in identifying the property cycles.

Being older, and based on my experience and observation of more than 20 years, the property market is non-linear. It has its own up-and-down cycles as explained in my book: You Can Become Rich in Property (Chapter 17).

The Malaysian House Price Index shows that house prices have declined, since the second half of 2011. (Refer to Personal Money magazine #130, June 2012, page 63).

A1: The secondary market for landed, freehold residential property in Petaling Jaya will maintain its pricing level in the near future, possibly followed by a minor correction.

The secondary market for landed, freehold residential property in PJ will maintain
its pricing level in the near future.

And it will continue to appreciate after that, due to its strategic location and demographics. People would still want to stay there, as most of them are highly-paid professionals like yourself. However, no one can predict the future accurately. The situation of inflated property prices in over-supply locations, will most probably correct itself when it reaches a point where the affordability is beyond the masses. It is all about demand and supply and what the masses perceive as value to their lifestyle.

A2: The global economic uncertainty and changes in the property market will have an impact on the property prices in Malaysia. What is not certain is the duration and timing. The declining external economy may reduce exports from Malaysia. Reduction of exports will then affect Gross Domestic Product (GDP) and a decline in growth. This inevitably may increase the unemployment rate. If the property owner is out of a job and is unable to service the monthly repayment to the bank for more than three to six months, the bank will then auction their property until it is sold. The property prices will decline by then as there will be more supply in the market than demand.

A3: There are many conflicting information about the Malaysian property prices in the market. For those with a vested interest such as property developers, property agents and sellers, they will attempt to convince prospective buyers of the high potential capital gain of their property.

On the other hand, Bank Negara Malaysia (BNM) has been monitoring the property loan rates and putting in place, responsible guidelines such as:

- increasing the Real Property Gains Tax (RPGT) to 10% for the first two years
- third residential property loan capping at a maximum of 70%
- loan amount based on net income to help curb speculation and prevent a property bubble

For your case, I am guessing that you may still have an outstanding loan for the condominium and still a paying monthly repayment to the bank. It is likely you may also have a hire-purchase car loan. Being an IT professional, you may lead a manageable and comfortable lifestyle at this point of time. It is advisable to have prudent financial management so that your dream home improves the quality of life for your family rather than becoming a long-term payment nightmare.

You may plan your monthly repayment based on an allocation of 30% of your monthly income for buying your property. If you choose to upgrade your condominium to your dream home now, you may have to sell your condominium at an appreciated value, to help reduce your loan commitment. You may also choose to stretch your loan tenure to the maximum to minimise the monthly repayment.

In other words, if you choose to purchase your dream home now, you may have to pay your new monthly loan repayment until your retirement.

Generally, property prices in Malaysia have appreciated beyond the affordability of most people and the probability of a correction over the next few years is relatively high. After that it may appreciate again in tandem with the increased income of Malaysians, foreesably in the future.

In your case, start preparing yourself such as increasing your savings and studying the property market carefully. Purchase your dream home at the right time and at the right price as the purpose of the dream home is to not only improve your family's quality of life both physically and financially but also in the hope of achieving capital gain in the future.

Peter Yee

http://www.starproperty.my/PropertyGuide/Finance/22052/0/0