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Saturday, May 8, 2010

Coping with the big tickets

Although there are buyers who have no qualms paying the prevailing high price for their dream house in a well sought after location, many Malaysians are really worried about the rising house prices and wonder how they are going to manage.

There is certainly cause for concern as a property is a big ticket item and paying for it takes up a big chunk of a person’s income. Depending on how much downpayment has been paid for a property, mortgage loan repayment can easily takes up to 40% of a borrower’s monthly paycheck.

National Housebuyers Association (HBA) honorary secretary-general Chang Kim Loong laments that even new graduates are finding it increasingly difficult to make ends meet these days.

He says a new law graduate who earns RM2,200 a month is also not in a position to sign up for a new house on their own (unless they have rich parents to chip in).

A decent terrace house in a relatively good location cost nothing less than RM400,000.

Owning a car is also another must-have item at least until the public transport system gets a total overhaul. Add them up with the other daily ancillary expenses including food, toll rates and petrol, among other things, we see why many people must be struggling to make ends meet.

There are some industry players who have the habit of comparing property prices in Malaysia with those in other countries like Singapore, China, Hong Kong and Bangkok, and comment that local property prices are still much cheaper.

It is not healthy to make such conclusions based on the property price alone. Other factors also should be factored in and it is important to see how much disposal income they have left after paying for all their expenses.

One of the most important considerations is the people’s income level. Malaysia is not yet a high income economy and most Malaysians are still stuck in the middle income trap. Although there is the aspiration to move the country up the income ladder, it will take a few years at least before that can be realised.

The whole economic structure needs to be revamped. Even at the service industry sector such as restaurants, employers have to be prepared to employ only Malaysians and pay them higher salaries.

Instead of relying on the cheap foreign labour, it is about time to revert back to our local staff. This is one of the necessary early changes that need to be implemented for the realisation of the Prime Minister’s New Economic Model.

As we know, things are getting more unpredictable these days and we are witnessing first hand that the only certainty is uncertainty.

The contagion effect of the global financial crisis is still raging in some parts of Europe and may spill over to other parts of the world.

Like pendulums, economies and industries are being subjected to the vagaries of the ever changing external environment. The most susceptible will be industries that depend on external demand, including commodities and manufacturers of products for export.

While the landed property market is still quite well cushioned from the external factors, there is still some degree of influence as far as foreign demand is concerned.

Being quite a “domesticated” market has its advantages as developers can depend on local buyers to drive demand.

The country’s relatively young population provides a ready catchment market and consistent demand for houses, especially mass housing products.

But the high-rise condominium market, especially in the KLCC area, is still languishing.

It will take a while for the new supply of condominiums to be absorbed and for prices to get back to their previous high.

For landed housing, demand has been kept robust by the prevailing low interest rates and easy availability of bank financing.

Given the intense competition among banks and ample liquidity in the system, mortgage rates will likely remain accommodative.

Nevertheless, it is important for all stakeholders to keep a close watch on the market and make the necessary changes whenever necessary to ensure the market remains stable.

Deputy news editor Angie Ng hopes buyers and industry players will exercise prudence for a sustainable and healthy property market.

By The Star (by Angie Ng)

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