Greed is a very dangerous thing when it comes to property, really.

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Okay, I read a confirmation about an issue many have been talking about; that property prices today are lower than the property prices when it was sold many years ago. This is also one reason some say that the number of auction properties may be rising H2 2019. Article here: More auctions in H2 2019 . Many may have bought at a time when many were buying and thus the decision to buy was an easy one; without much due diligence and full of greed in the equation of buy or no buy. One critical information which everyone should note is this: Just because the banks are lending does not mean that the prices are valid. They may also have not done enough due diligence too.

Article in thestar.com.my . All these are according to sources. The amount SOME buyers paid during the hot property years starting from 2009/2010 are higher than the prevailing prices today. The number is then further amplified when these houses are put into auction when the borrower defaults. The number of defaulters are expected to rise.

Why has this happened?

> The sales and purchase agreement (SPA) price is “on the inflated side” because developers have over the years included rebates, freebies, “cash back” and interest payments into the overall house price, or the headline price.

> Banks approve loan applications based on the SPA headline price, not based on the actual house price less freebies and rebates.

Due to these issues, banks approved these loan applications because they were unable to discover what the “real price” was. Besides this, the banks were keen to lend and all these have pushed up prices. Many buyers then were buying with the intention to flip. For example, SPA states that the unit price is RM1 million but it’s actually less. Yet, the next block launch for example will be with a higher price than the previous. This meant prices kept going up. Malaysia’s house prices spiked starting 2009/10 and peaked around 2012. The article is a long one. Do read it here: Article in thestar.com.my .

For the last few years though, there’s all that shouting from many buyers that the banks are rejecting their loan applications. Well, that’s healthy, right? Perhaps the banks have since ‘discovered’ about all these discrepancies which are actually happening and is now doing sufficient due diligence on their part. If the banks did not, then I think we are well on the way towards the direction of the 2008 Mortgage Crisis which was also due to prices rising too fast because everyone was buying to flip and they were aided by banks who were all too keen to lend and believe there’s no ceiling to price increases… Now, imagine if the whole market is full of buyers who were buying to stay. The prices will definitely still rise but it will now be at a measured pace instead. So, are the prices of properties in Selangor / Kuala Lumpur still too high? That’s another article. Happy understanding.

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Article written and edited by Charles. News article summarised by Dina Batrisyia.

<Featured Image is courtesy of Stock Photos from goodluz>

Next suggested article:  When we do not know enough, it’s not investing lah…

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