"The BIRTH of a HOMELESS GENERATION"

Is owning a property a dream to many? Would you like to have your own home one day? I guess many do want it. Sadly, as I conduct a research, I discovered there is this growing phenomenon facing the youth population in our country Malaysia, that is "The Birth of a Homeless Generation'.

Affordability

1) Based on Budget 2014 announced by our Prime Minister Najib in October 2013, per capita income is estimated to grow to US$ 17,173 (RM 54,253.97) from US$ 16,743 (RM 52,895.49).For your information, per capita income refers to average income and is used as a measure of the wealth of a country's population. 

2) That will work out to be an average of RM4,521/month per capita income. Could people afford to buy a property based on that income?

Question: So where would you want to stay? 

Answer: Hmm~ I want to stay in a condo within Klang Valley with proper facilities & established public amenities, I want a good lifestyle (LIVE, WORK, PLAY). 

Latest Property Prices, 2014

(a) Setia Walk (Puchong, Selangor)

Selling Price: RM611,000 (1,390sf, 3+1 Bedroom)
Source: Propwall.my

(b) Gembira Residence (Kuchai Lama, Selangor)

Selling Price: RM700,000 (1,168sf, 3+1 Bedroom)
Source: Propwall.my

Alright, assume you are looking for an older condo and found a very good deal with a Selling Price of RM 500,000 ( 3+1 Bedroom, 1300 sf Condo at Klang Valley) 

Please refer to the table below for better illustration:

Item	RM
Property Selling Price	500,000
Down-payment (10%)	50,000
Loan Principal (90%), 35 years loan	450,000
Interest rate (BLR – 2.4%), BLR = 6.6%	4.2%
Monthly Loan Instalment	2,047

Remember about the average income per capita of RM4,521 stated above? Your balance will be:

Balance of Disposable Income: RM 2,474 

(Workings = RM 4,521 - RM 2,047) 

What about other expenses? Lets take a look:

Item	RM
Balance Income	2,474
Car Loan (rm60k +/- car)	600
Petrol	300
Toll	50
Car Park	50
Car Maintenance	100
Insurance, Road Tax etc	200
Car wash	50
Total Car Expenses	1350
Condo Management Fee	250
Food (rm20 x 30 days)	600
Smartphone bills	100
Entertainment (movies, holiday)	200
Clothing	50
Balance (Deficit)	(76)

Wow, negative balance of RM76...

What about parents allowance? baby expenses? property quit rent & assessment fee? holiday expenses? insurance payment? etc

IMPORTANT QUESTIONS WE SHOULD ASK OURSELVES:

(a) Do we have RM100,000 CASH in our bank account by 30?
10% downpayment of rm50k, legal & stamp duty fee for Sales & Purchase Agreement & Loan Agreement of rm20k, renovation, furnitures etc

(b) Is my income sufficient to support my lifestyle expenses and to service a property loan in the future?

(c) Where would I want to live in the future? What type of property? What kind of lifestyle?   

I would say most youth in Malaysia would not have RM100,000 cash by 30, and would not have an income that is sufficient to service a property loan, car loan and daily expenses.

The plan of owning a property is usually delayed, or will become a far-fetched dream. Just look at the youth in Singapore & Hong Kong, it's becoming an ultimate dream to just own one property on their own.

Many youth (I said the word 'many', not all) will choose to deny this phenomenon, they basically live in denial. And many will say, it's alright the property prices will come down, I will make my purchase then. It's true to a certain extent, lets take a look:

Cooling Measures on Property Prices:

Below are 6 measures taken by the government to cool down the property market by reducing speculation and making sure property loans are granted to genuine buyers who can afford to service the loan. (We don't want to be like the United States who is recovering from the subprime-crisis)

1) Removal of Developer Interest Bearing Scheme (DIBS)

2) Higher Real Property Gains Tax (RPGT)

3) Loans to be assessed based on Net Income (after deducting EPF, Socso, other loan payment), and not Gross Income 

4) Loans based on Nett Selling Price for new property launches (after deducting discounts, legal fees etc)

5) Foreigners can only buy properties above RM1 million

6) Refinancing on Residential Props under Individual to a maximum 10 years period

With the measures taken above, property prices is expected to reduce marginally or remain flat in locations that are not very attractive.

However, there are factors that will drive property prices up in good locations (5-10% increase), refer below for better explanation:

Factors to drive Property Prices UP:

1) Subsidy Rationalisation on Sugar, Petrol, Electricity etc 
Just take a look at the prices for 'Teh Tarik', 'Roti Canai', 'Mee Soup' etc. Increase in construction cost or daily expenses will be passed on to the next property buyers.

2) Supply vs Demand in key areas (Greater KL, Klang Valley, Penang, Iskandar Malaysia)

According to a property market report by the National Property Information Centre (NAPIC), average housing completion yearly was 100,000 units (Supply) relative to the average annual household formation, which was 140,000 (Demand).

Therefore the issue of not producing houses fast enough in key locations to cater to the increasing demand arises.

3) Foreign investments

Foreigners from Singapore, China, Hong Kong etc to compete with locals to purchase properties in strategically sustainable locations such as properties within Klang Valley, Greater KL, Penang, Iskandar Malaysia etc.

Further upside for Property Prices come 2015:

Goods & Services Tax @ 6% (Implemented by April 2015)

We have already noticed the price hike of daily consumers goods & services, the issue is the prices will increase further in 2015 when GST is implemented. You may refer to countries like Singapore when GST is implemented in the past.

With the increase in construction cost, who do you think the developer will pass on the cost to?

Reflection:

I really hope that I am WRONG and my friends are RIGHT that property prices will go down to an affordable level in the future, as many could afford to buy themselves a property.

But what if I am RIGHT, what if prices went up to RM700,000 for 1,300sf condo in the Klang Valley? Wouldn't it be a BIG BIG PROBLEM for many youth out there.

There is a saying, it's of little use to make any prediction, it's better to be READY at ALL TIME. I prefer the latter over the former.

Solutions:

1) Get one property at a discount AS SOON AS POSSIBLE especially for people without a property.

2) Increase FINANCIAL EDUCATION to make GOOD FINANCIAL CHOICES every day that will make a great difference in your life.

3) Take MASSIVE ACTION to make it happen, merely knowing something without acting on it will only make you a FOOL.

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