Malaysia property, to buy or not to buy

Recently, the new property launches by property developers have shown trend of price increase especially the properties in the higher end bracket.

This has inevitably caught the attention of some real estate investor as to whether there is a property bubble in the formation or is the bubble about to burst. The reason being that we are approaching year 2007 where we are now almost 10 years since the previous peak in economy.

While many believe that property prices move in a cyclical manner, the question is whether the cycle now hold true to the historical pattern of 10 years.There are however conflicting view from the various people I spoke with. Some are predicting that the down trend will come soon since we now almost reach the end of 10 year cycle. Some argue that we have yet to see a real property boom since 1997/98 as there aught to be a boom before there is going to be a bust.

We actually prefer to adopt a view based on analytical thinking. The situation today is rather different compared with the previous peak in 1997/98.

Firstly, the bank interest rates scenario is very different, back in 1997/98, the highest fixed deposit rate is about 13.5% whereas today the fixed deposit rate for 12 month tenure rarely exceed 4%. This imply too the difference in base lending rates of two different time.

Secondly, the recent inflation that we have been experiencing is attributed to the cost increase resulted by the increase in fuel price. It is not caused by the increase in demand due to speculation.

Thirdly, the recent credit thighthening in bank borrowing is aimed at the auto sector where prices have plummeted due to NAP. Many bank still offer loan at 90% margin with additional 5% for MRTA insurance.

The increase in property prices is generally due to three factors :-

1. Land cost at strategically good location has risen substantially over the years.
2. The increase in fuel prices has made transportation dearer and building material cost more these days.
3. The developers are generally building larger units nowadays.

So to buy or not to buy, that is still a multi million dollar question, but if you are buying property for your own occupation and if the house you are looking at is at the location that you like, then anytime is good time to buy your dream house.

But if you are buying for investment, then be prepared to put in some effort on risk analysis, however if you have the financial muscle to ride through any economy storm, perhap properties with good rental return will be more attractive as the depressed capital value of property with good rental return will not be that greatly felt during reccesion because even if you were not able to get rid of the property but at least the return from rental will still enable you to ride through the storm until better times return.