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.