Property Bubble in Malaysia?

Is a shortage of land in the Klang Valley creating a property bubble?

There is a shortage of land in the Klang Valley that is creating what looks like a property bubble. Do you remember what it was to drive down the Federal Highway back in the 1960’s? Did you know that all the land along the Federal Highway from KWSP (EPF) area, down the road through Petaling Jaya and Shah Alam and all the way to Klang was sold to big corporations by 2007? My guess is that they bought those locations for the main road frontage and easier access to the Federal Highway. I have not checked as of today but my guess is that even the Chinese cemetery in Seksyen 15, Shah Alam, has been relocated to make way for development.


The authorities have opened up Shah Alam 2 but it is taking time to populate the area as it is much too far from Petaling Jaya and Kuala Lumpur. I remember, back in 2005 or there about, I took some Korean investors to view the factories for sale over there. The prices were reasonable and the factories were 40,000 square feet or larger. Each factory was located on about 3 acres of land. After a tour of the premises and nodding and shaking hands, one of the Korean investors asked me “Where is the pub?”. No night life. Then and there I knew that deal was dead.


Apartment prices

If you are looking at apartments then property prices range from RM130,000 to RM2,000,000 in Petaling Jaya. You are complaining that the property prices are too high, right? Apartments vary in size from about 800 square feet to about 3000 square feet. That means a small basic apartment would cost about RM160  per square foot. There is a maintenance fee for apartments which are ‘gated communities’ and fees vary from RM100 per month to more than RM1000  per month.


Why do property prices keep climbing and does it mean a property bubble?

Property prices will always keep climbing because of inflation. Inflation is the condition where prices rise year by year. It means that, at 8% inflation, if you paid $100 for goods today, you will pay $108 for the same goods next year.


In Malaysia, historically, property prices have been climbing at an inflationary rate of 8% per year and this figure has been quite consistent for the past forty years. There may have been ups and downs in inflationary pressure of property prices but when averaged over the long term it has been hovering around 8%. Actually, it is not a linear, straight line, climb but more of periods of spurts in price increases and periods of stagnation in prices, occasionally tempered with price drops due to major economic fall outs. Is an economic crisis created by a property bubble? During economic crisis price drops are generally from owners who have lost their sources of income and cannot pay back the bank loans.



How do you grow to out run inflation?


Rule #1: To beat inflation invest in yourself first.


Remember, in the previous article, making sound investment decisions , I had mentioned that you need to make investments. The first rule is to invest in you. Many investment analysts will talk you into investing in this scheme or that scheme but this takes money out of your pocket and puts it in someone else’s pocket. If you are at a point where the spare cash is very little, I would suggest that you invest in yourself and your children, if you have children. Forget all the fancy schemes out there.

When I say invest in yourself, I mean make it a greater priority to buy your own house instead of renting. And when I say ‘make it a greater priority to buy’ I didn’t mean rush out and buy a house right now. I mean prioritise in that direction, for example putting some money aside into a savings account or a bond fund. The interest from such investments is not as important as the fact that you are accumulating a nest egg to purchase a house later. Later meaning next month or next year or in ten years time. Another day I will explain how I ‘arranged a plan’ for some of my clients when I was working as a Unit Trust agent but not today. Lets talk about the property bubble and how property prices are climbing and what is all that ‘hoo har’ on the property bubble about and are increases in property prices a load of hot air or founded on solid ground.



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