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Property market welcomes new group of buyers

March 13th, 2012 · No Comments

Starting tomorrow, new guidelines from Bank Negara Malaysia to curb rising household debt are going to kick in. The guidelines cover all consumer loan products including housing, personal and car loans, credit card receivables as well as loans for the purchase of securities.

Instead of loan approvals being based mostly  on gross pay, they will be based on net pay, after income tax, social security deductions and the Employees’ Provident Fund contributions. These are the three major items. The purpose of this ruling is to reduce the household debt which has been increasing.

In all likelihood, property sales will be affected but what is interesting to know  is, how the said  ruling will affect an increasingly younger generation of buyers who come into Malysia property market for the first time.

In the last 24 months, developers have seen a new group of buyers. They are in the younger generation and much more aggressive, upbeat and very adventurous. Many of them are in their 20s or early 30s. Many buy with joint names and they are not related to each other. They buy studio units and two-bedroom condominiums, with a built-up of between 600sq ft and 800sq ft with a price tag of averaging RM500,000. When the mortgage payment kicks in, that RM450,000 loan (based on a 10:90 scheme) will equate to a monthly repayment of about RM2,500.

A developer says this situation is due to a combination of factors. The steep rise in property prices in the last two years, coupled with the gains, have spurred this young group of buyers in assuming this responsibility of a  long-term commitment.

More than 10 years have passed, during the stock market bull run of the 1990s, the market was on an uptrend for a good number of years before the Asian Financial Crisis hit the region. During that time, many young people, including college students, began dabbling in the stock market.  That period  prompted young people to learn about stocks, the last couple of years have introduced them to another investment instrument. The distinction between the two is the outlay, and the duration of that commitment with stocks needing a smaller capital and more liquid.

Developers say there are basically two groups of young people who have entered the market in the last two years. The first group are those who, seeing the gains made by earlier purchasers, enter the market with the purpose of making a quick gain. Another group speculate into the market before prices rise  further and they plan to hold the property for a much longer term.

A major factor that encourages this group of aggressive young buyers is the availability of easy credit. The introduction of the 10:90 schemespersude them to form a  decision. Many hopes they will be able to flip that property on completion and make a  25% to 30% gain.

For the  group who are buying to flip, they may discover that the gains is not worth for the simple reason that the principle of making a 25% to 30% gain is based on a rising market. Prices are today stabilising and there is a glut of high-rise condominiums.

Lawyers and property professionals say investors are unlikely to make that 20% gain going forward. Furthermore, the 5% real property gain tax will also shave off gains. In the event they are unable to off load their units fast enough, they have no choice but to rent them out, but they may encounter another problem a glut of condominiums and few tenants.

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