The anti-speculation measures outlined in Budget 2012 have curbed the activity of ‘flippers’, but their real impact in opening up the housing market has yet to be seen.
TWO years ago, Calvin bought a property in Johor from a developer supposedly priced at RM924,800.
“Supposedly” because the developer had thrown in a massive credit note of RM141,184 as incentive and rebates to “reward” Calvin for his early-bird purchase.
So, the nett price for the property should have been reduced to RM783,616. But because the sales and purchase agreement had the price at RM924,800, taking a 90% percent loan would have given him a neat profit – because the loan would be more than the nett price he was paying for the property.
“If you buy from developers while the property is under construction, it doesn’t require a valuation report so developers can artificially jack up prices like that,” says Calvin’s wife, Priscilla, who works in a bank.
She says it is not uncommon for developers to work hand-in-hand with banks on this because both stand to gain.
Ever been to one of those new project launches only to find infuriatingly that one of the blocks and the choice units have already been snapped up even before the launch?
Malaysia Institute of Estate Agents (MIEA) president Siva Shanker points to the cosy “property investors clubs” as the culprit.
“In these investor clubs, members ‘gang up’ and sometimes buy up the whole block.
“But these people are not end-users. They are speculators. They are like middlemen who take these units from developers without paying anything, then sell them off for a higher price or flip them after two years when the project is completed,” he says somewhat disapprovingly.
He says that often before a launch, developers offer the first bite to these property investor clubs.
“And they can never get enough. They’ll take the whole block and sell the 100 to 200 units to their own members.
“And when the developer launches the project a few days later, he can say Block ‘A’ is already fully sold and bump up the price for Block ‘B’,” he says.
What happens here, he points out, is that the genuine house-buyer ends up paying a higher price, or in some cases being deprived of a chance of buying a unit because it is already sold out even before the launch.
Siva, however, stresses that people should not blame developers.
“The developer is a capitalist. His job is to make money. If he can sell at a higher price, why shouldn’t he?
“Blame the speculators because they are the ones who are driving the market really high,” he adds.
The recent Budget 2014 announced a slew of measures aimed at curbing speculation in the property market, which has been spinning out of control and putting houses, particularly for the lower and middle income groups, beyond their reach.
The measures include a 30% tax (RPGT) on profits, if the property is sold within three years of purchase, 20% in the fourth year, 15% in the fifth year and no tax if it is after the fifth year.
Developers too will no longer be allowed to offer the developers’ bearing interest scheme (DIBS), a scheme which speculators loved and took advantage of, because they did not have to pay interest during the construction period and would only need to start servicing their loan once the house had been completed and handed over, by which time the price of the property would have gone up and they would be able to “flip” it for a profit.
From January, when the new measures come into effect, developers would also need to spell out details in their pricing, including listing down the price of the benefits and incentives offered to buyers such as the exemption of legal fees, stamp duty, sales agreement, cash rebates and ‘free’ gifts such as renovation and all the built-ins.
Another measure is that foreigners would now be allowed to only buy properties that cost RM1mil and above.
Siva says while the primary market (i.e. buying new units from developers) make up only 20% to 25% of total transactions in the market, this is really where the massive speculation is happening and this has been spiralling out of control and creating distortions in the market place.
“The developer is saying there is demand and ‘let us build, build and build’ but they are building only high-end properties
“If one guy goes and buys 20 units from a developer, is that real demand? Is he going to live in these 20 places? Who is going to live in these 20 places?”
“Developers don’t want to build the RM200,000 or RM300,000 units anymore (although these are in high demand) because the profit is less.
“If I was a developer, I would do the same thing. They are in it to make money. And just because they are doing such a fabulous job, selling very well and the market is zooming, you can’t now blame them.”
But Siva has less sympathy for speculators especially those in it for the short term.
He says thanks (or rather no thanks) to the (soon-to-be-prohibited) DIBS, speculators have been buying properties “they don’t need and can’t afford.”
“If you bought a RM1mil property and took a 90% loan of RM900,000 and the developer gave you a 10% rebate which comes up to RM100,000 and picked up the stamp duty, legal fees and absorbed the interest rate during the construction period, you bought that property without taking a sen out of your wallet!”
“That’s scary and dangerous because the only reason you could buy it is because you didn’t have to pay for it in the first place.
“But if they made you pay 20% down payment and pick up the cost of the legal fee, pay the interest for the first two years, you wouldn’t have been able to buy the place and would have therefore stayed away from that purchase.”
For him, the 30% RPGT for the first three years and removing DIBS are smart moves that will reduce speculators to some extent.
People would balk at having to give away 30% of their profit as RPGT, he says, and without the DIBS, buyers would now need to pay the interest on their loan even during the construction period so this would deter speculators who have been having it good for these past few years with no-money-down housing schemes.
In any case, with so many high-end properties in the market these days, Siva questions who the property speculators are hoping to rent their units out to, if they are not able to sell it.
“If the monthly rent is RM7,000, RM8,000, RM9,000, RM10,000 most Malaysians can’t afford this.
“Only the expats can afford this. But the number of expats here has reduced drastically because the economic crisis in Europe had many companies sending their expats back to their home countries. Although things have improved a bit in Europe now, the number of expats coming back here is still not like before.
Siva also wonders about the thousands of units coming up in the Iskandar development region in Johor.
“Are they expecting 30,000 expats to live and rent there? I don’t think so. I feel a lot of these units will be empty.”
He describes as “madness” the rate property prices have been growing in recent years, with prices jumping by RM300,000 in just a matter of two years.
“The growth is too high, too fast and at that pace, the fundamentals can’t hold. And if many people can’t service their loan or sell their property, and if their numbers are in the thousands, then the market can come crashing down.”
So Siva is somewhat pleased that “brakes” are being applied to the property sector to slow it down and stop it from racing out of control.
For him, as long as property is being viewed as a financial instrument, the home owner will lose out to the investor and speculator who has far more resources and insider information to buy before a launch.
“That is why genuine house-buyers are screaming because they are not able to buy a property for themselves which I think is unfair.
“There must be social justice. Everything can’t be about making money and capitalism. What about the person left behind? He is going to suffer more and more.”
It is too early to say if the stringent measures announced in Budget 2014 three weeks ago will affect the property market.
But Siva says it has already affected market sentiment.
“There is virtually no activity in the market because everybody has a knee jerk reaction but this is only to be expected in Malaysia.
“Every time there’s an announcement, there is a huge knee jerk reaction and people panic and act like their mother died.
“Nobody buys and sells anything, then after three or four months, people forget, then slowly a semblance of order returns and life gets back to normal.”
Which is what he expects to happen with the property market this time. He does not think the curbs introduced are going to bring down prices.
“I don’t have a crystal ball but I don’t think prices will go up either. I think prices will consolidate for the next three quarters, then we should recover in 2015 and start moving along to another high in 2016.”
So what is his advice to wannabe home buyers?
Barring a serious mishap or global economic downturn, he doesn’t see property prices coming down, he says.
“Nothing is going to be cheaper than it is today – not sugar, not petrol, not underwear! It is the same with property.
“Land prices, cement prices and labour costs are going to be more expensive. So if you want to buy a property, now is as good a time as any.”
He says if the buyers can’t afford units at the present price, they should consider buying a property a little further away or a smaller unit, then upgrade later in life.
Secondary market
One of the things worth considering, he says, is to buy from the secondary market (which means not buying a brand new property but buying existing properties from those who want to sell).
Buying from the secondary market, he believes, can sometimes save a person 30% to 40% of what it would cost if that person had bought a new property within the same area.
Citing as example, one of the latest condominium projects in Bangsar which is selling at RM1,500 per sq ft. But there are older development projects there that one can still buy in the secondary market for RM600 to RM1,000 per sq ft.
“All the speculation is in the primary market, so you can get a good property in the secondary market for cheaper. You just have to put in more effort and look out for them,” he says.
And what is his advice to flippers who are now ‘stuck’ because of the new measures?
“To those who bought based on greed and ‘kiasu’-ism based on the advice of so-called property gurus whose credentials are suspect, I am sad for you but you walked into this.
“So if now you can’t afford and really need to sell, don’t be greedy and put such a high price on the property that makes no one want to buy it.
“Bring the price down if you can and try to sell it as fast as you can so that you don’t get into the trap of not paying your banking loan and falling into a non-performing loan situation.
“Your greed is what got you there in the first place. Don’t let that greed propel you further into darkness.”
But if the speculator chooses to look for a tenant instead to subsidise the mortgage payment, Siva says, he should be realistic.
“Stop listening to the advice of your so-called property guru who advised you three years ago that you can get more than your mortgage on rent because sometimes you can’t.
“So if your monthly mortgage payment is RM3,500 and you want a rental of RM3,500 and are stubbornly waiting, you should stop now. It is better to accept a lower rental because the alternative is zero.” - The Star
