Just as there are two sides to a coin, we should always note that arguments happen because both sides are at the other end of one another. Yesterday, we read about PropertyGuru’s Sentiment Survey which said 58 percent of those surveyed will be buying a property within the first 6 months of 2017. This is quite an aggressive number in my opinion because I do not see that percentage among my colleagues and friends. One of my colleague forwarded me an article in freemalaysiatoday.com (FMT) which quoted a chartered property surveyor Ernest Cheong’s views about PropertyGuru’s survey result. He advised prospective house buyers to wait until property prices come down. Buying at current prices with both the domestic and international economies not doing well is like committing suicide. (Strong word actually but he explained later on why he said so.) He said the property market does not exist in isolation and buyers must take note of the economic conditions.
He also shared that it is not true that house ownership could guarantee a roof over a family’s head. In fact, rental can be a valid choice. He then added in his FMT article, “you have so-called property gurus encouraging families to buy homes they may not be able to pay for in the long run, claiming it is an investment since property prices don’t go down. What happens when you can’t afford to pay the instalments and can’t sell the property off, or if rental values can’t cover instalments? You’ll be stuck.” With the current economic uncertainty, it’s best to rent a house instead. He then shared a good advice for all the buyers who are looking at properties beyond what they could afford safely. He said, “The monthly repayment for a home should not exceed 25% of a family’s net household salaried income. The other 75% should be reserved for living expenses and, if possible, savings.”
In brief, based on Ernest’s suggestion, if the net household income is RM8,000 it’s best to only buy properties with a maximum monthly mortgage of RM2,000 Please refer to the image for some idea how the RM2,000 is derived. For families with a total household income of RM8,000,the maximum property price they should be buying would be RM450,000 or lower. He said that the typical tenure of a loan is 30 years and during those 30 years, the cost of living will go up but the salary may not be rising in-tandem. Besides, it was also reported that developers had not been able to sell 18,908 of the 81,894 units of residential and commercial properties launched in the first quarter of 2016. The unsold units were valued at RM9.4 billion. This meant that there is an oversupply situation and this has also caused rental rates to soften. This is a good time for people wishing to rent.
Should we believe the positive PropertyGuru’s Market Sentiment Survey or should we listen to a veteran in the property industry? I would say decide based on our judgement. Once we have viewed many, it is likely that we can decide better. Whatever investments we do, it’s always good to be prudent but it’s equally as important to build our wealth. Assuming we think property prices should continue dropping and we would like to wait, then set a target for it. Please do not think that we want to wait for the bottom. We will most probably miss it. Even if we want to rent, we must still be making plans to own a good unit. Happy deciding.
written on 24 Jan 2017
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