How recent budget helps lower house prices?

Recent budget as promised before tabling was to keep home prices to an affordable level however as it turned out little had been made to keep the prices from escalating in the short-term.

On the supply side the government has announced a budget of RM1.6 billion for construction of affordable homes by three agencies, PRIMA, SPNB and Jabatan Perumahan Negara, of which RM500 million for PRIMA to build 80,000 homes in Shah Alam, KL, JB, Seremban, and Kuantan.

Malaysia First Home scheme entitlement increased from RM3,000 to RM5,000 income bracket and an increase to 15% RPGT for sale of home within the first two years after purchase and 10% after 2-5 years. No RPGT after 5 years.

Innovative creation of excess demand in the local market for housing development of cheaper homes prompted when the government first announced the affordable housing scheme last year, which saw a few big developers such as MK Land gearing up in the supply of RM200,000 to RM300,000 affordable home schemes across the nation. I expect more home developers will be joining the rank to supply these affordable homes in time to come taking advantage of the excess demand in the local home property market.

In short-term, as supply of  the affordable homes remains small that keeps home prices buoyant and active. It is unlikely therefore home prices in the local market to drop favorably for middle-income group in taking the advantage of the recent budget  in buying suitable homes for family living.

My prediction is that in the next two years average home price of double storey homes will be in the region of RM400,000 to RM450,000 per unit in Klang Valley, RM300,000 in JB and RM550,000 per unit in Penang as compared to RM 550,000 – 660,000, RM390,000 to RM400,000 and RM680,000 the regions, respectively.

Derelict housing area

English: Derelict housing, Corse Road, Penilee.

Image via Wikipedia

A derelict housing area is a common feature within some areas of the city center due to the fact that either the place is kept purposely for future new developments  or for some unknown reasons no one, the authority or the owner, is able to carry out improvements within the area.

It has become the ghetto of the town, and obviously attracts people with questionable backgrounds and activities.

For some, they are unlucky to leave in that area. Because of low-income jobs they were forced to stay in the area for the time being.

These are the people of this country who are always on constant touch with the true hardship in life. They are very sensitive to all government policies and are very keen for government helps and cares. They are always the ones who use comparisons of the life afforded by other fellow lucky citizen who live in proper housing areas and that of their sporadic housing units.

In late 80’s there were large chunk of housing areas which were below the standard for good human habitation. However, now there are still other areas that are left untouched for some unknown reasons.

Go to Gombak area, which is a predominantly Malay residential area. In the area around Batu Caves, near the hill, there are still areas that can be developed to make the housing units in these areas more acceptable in standard of living condition. For example by providing good roads to the housing units and a proper sanitation, the residents too can also enjoy the progress which the country has been blessed with.

Who would do just that?. So far no one has done the task to improve the condition seriously. Pity these people.

Speculative Home Price – bubles up in 2012?

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Image by Gimi Wu via Flickr

A few groups including National House Buyers’ Association and The Federation of Consumers’ Association (Fomca) were reluctant to consider higher LTV (Loan Vs Value) ratio than the present cap of 90:10 citing it will be a burden to the first time buyer and also would go against the Government’s plan to encourage home ownership.

The worrying part for most new buyers or new families isn’t the initial cost of acquiring residential properties but they are more concern on the escalating prices of the houses in Kuala Lumpur‘s suburbs, whether now is the right time or later to start a family or to own a house. What are real reasons for home prices to increase exorbitantly?

The art and science of building homes for consumers are not that much different from the marketing and sale of  Nasi Kukus in the Ramandan bazaar. Both need skills in predicting the price, cost of production and some element of acceptable profits. If everyone in the bazaar produce similar nasi kukus, therefore it’s no matter how much your production cost is, the price will slip down at no time. Thus, the industry of nasi kukus is down.

The costs of development  for homes are little more complicated but they are similar in real term. For property development  it will involve the cost of land, building materials, marketing, professionals fees such as architects, town planners, valuers, legal fees, bridging loans and developer’s profit. Property development has an add up cost on time for period of construction that the project shall complete, the bumiputra discounts and other similar costs which shall be included to make the property development worth a while.

The basic idea for a successful sale for such a development is however the selling price or the market value of the property in the vicinity in which the proposed development is being carried out. If the proposed selling is above the current market value of  a similar property, then how do consumers know for sure the price is its money worth?

Current trend is to fair for bigger land area, better building materials, better building layout, ample road and circulations and other trendy and advanced branding terms than the earlier development projects.  Current market value of development land in the KL Suburb may come to as low as RM400,000 per acre or as high as RM1,000,000 per acre.

Those firms which own a huge land bank would make immediate profit by exposing their land as an housing area. It’s not known as to whether these firms are subject to development tax as the result of  incremental land value that has forced the price of building ballooning in many suburban areas.

As much as 40% increase in home prices registered in certain areas surpassing the 2009’s price level. That means a house price of RM250,000 now has become RM350, 000 and showing an incremental price of almost RM100,000 for each unit of similar type of houses. Some bungalows sold at RM2 million each but with a land area of lesser than 4,000 square feet, which suit as a semi detached previously.The huge profit due to the incremental value alone and taking into account a developer stands to scope another developer’s profit which normally accounts to  15% to 25% of the building cost in the same project, the winners in the upturn of the market lopsided to the developers and aren’t going to the home buyers or bankers.

The huge profit  attracts many developers in releasing their land banks into the market knowing full well the super profit they might get during the good time and in time when banks faces with stiff customer’s competitions.

What is worrying is that when the supply exceeds demand and when that happens, the home owners and financial institutions are at lost.

Thus reducing a loan to value ratio to 80:20 would in a way disturb the above speculative nature and in my view it’s good for first time home buyers. Forecast of the residential market also indicates that supply will exceed demand in 2011  or 2012.

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