Bread & Butter Properties

Bread & Butter Properties
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Friday, September 3, 2010

New property rules in Malaysia soon?

Singapore recently announced further restrictions on people buying second homes in a move to cool down the overheating property market. The amount of loan a borrower can have is now reduced from 80% to 70%, thus increasing the amount of equity you need to have in the 2nd home.

Likewise in Malaysia, the central bank (BNM) is contemplating similar measures; after initial signs of a property bubble percolating appear. Some semi-D houses in gated and guarded (G&G) community of Desa Park City now costs nearly RM1m compared to those in nearby Bandar Sri Damansara which are around RM400-500k only. It is often argued that G&G deserves a higher premium compared to those without, hence a higher appreciation. But perhaps a 100% premium is a tad high?

In any case, according to a prominent economist I spoke to, it is likely that the measure by BNM may be targeted say for those property worth RM500k and above, as this is the segment that shows signs of speculative bubble. Hence, it is unlikely to affect "bread and butter properties" such as apartments/flats below RM150k. Which is good news, really as you can still continue to buy rental units with higher margin of finance.

However, the downside of such a speculative bubble brewing in the higher end property market is that it also affects the lower end prices. A 1B 2RM flat I used to be able to get for RM75k (which is about RM5k below market value) is now priced at around RM95k. While I am happy that my own unit has appreciated by c.20% in the last 1 year but it makes it just a little more difficult to buy at a low, low price. In fact, to justify the higher prices, I have started to increase rent by between RM30-50/month to bring it in line with my target gross yield of c. 8%. So, as you can see, any appreciation to your rental property is a bonus, but very often, it also helps to push rental prices up. You gain from both angles*.

*assuming interest rates does not move up rapidly of course.

SINGAPORE Aug 30 (Reuters) - Singapore on Monday announced
restrictions on people buying second homes as part of new measures to
cool the residential property market.

These included decreasing the amount of loans a person can take to buy
a second property to 70 percent of the property value, down from 80
percent currently.

The government will also impose a stamp duty on homes that are bought
and sold within three years, increasing the holding period from the
current one year.

"The government's objective is to ensure a stable and sustainable
property market where prices move in line with economic fundamentals.
The property market is currently very buoyant," the Ministry of
Finance, Ministry of National Development and Monetary Authority of
Singapore said in a joint statement.

Prime Minister Lee Hsien Loong said on Sunday the government will
build 22,000 new public homes next year, up from 16,000 this year, in
a bid to ensure housing remains affordable.

"We've acted twice to cool the market -- once last year and once in
February this year -- but prices are still rising, Lee said. "We need
to do more."

Private home prices in Singapore rose 11 percent between January and
June, according to the Urban Redevelopment Authority. (Reporting by
Harry Suhartono, editing by Kevin Lim)

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