As an oil producing country, Malaysia petrol price is not cheap after-all.
As an oil producing country, Malaysia petrol price is not cheap after-all.
Let’s start with the bigger picture. We will take a look at what had happened for the past 5 years.
We experienced the following 3 events. For the sake of the rest of this writing, let’s called it: 3X.
1) Weakening Ringgit (source: Trade Economics)
2) Crumbling crude oil price (source: Trade Economics)
It matters because it is the main source of government income. When it is shrinking, the drawing from other income sources become necessary i.e. more tax or more bond (borrowing) or both. Crucial to understand for the later part of this writing.
3) KLCI historical high then went down and now recovering (source: Trade Economics)
The timing of 3X happened simultaneously in the Q3 2014 after 6 months of GST implementation. No, don’t mean to relate the new tax policy with 3X. GST did not caused that to happen of course (stock market maybe, as higher taxation will lower the EPS which will reduce the valuation of a company, PE and the stock price at the end). But the point to emphasis is the general business environment is getting tougher, for real. Rising cost of production from the weakening RM and taxation. To put salt into injury, the foreigner capital outflow kicked in, picking up in 2015 and somewhat softening throughout 2016. However the challenging environment remains.
2 years since the carnage of RM, the loan market is not recovering yet. Total loan 2016 is at the level of 2012 and 2011. The real estate market is hardy any good by just looking at this fact alone.
The monthly loan approval seem to trend down gradually at a slower pace even before the 3X, as early as 2013 (chart below). There is a saying, you need to climb to the highest point before taking a dive. Luckily it is not a dive, but a slide, not so bad.
In tandem with the trend in the loan market, KL residential sales throughout 3 consecutive quarters in 2016 is dismay. Why? Please take a look at the chart below. Q1 to Q3 2016, the Sale Volume are the lowest ever since 2006 (Only need to look the the Sale Volume as Sale Value give little meaning due to massive price increase previously).
The trend line also going downward.
Take the Total Value simply divided by Total Volume and we get this alternative method to look at the price trend, unlike Home Price Index (that one later). Overall, the pace of the uptrend has been slowed considerably for almost 2 years for KL market. For Selangor, the situation is more or less similar.
Selangor also experienced the lowest sale transaction in 2016 as far as this chart is able to track since 2006.A little bit different than KL, Selangor price trend has began to drop. ‘Drop’ is a sensitive word that should be used with cautious when talking with house owners especially those have shorter investment time span or house flippers.
Recently, I have a lunch with few seasoned agent friends who has been in the in market over a decade. We discussed and argued about this: Which time is “bad”er: Current market vs. 2008 Lehman Brothers’ time (we like to call it that way than The Subprime Crisis). As far as the data is concerned, the Current is definitely “bad”er. Period.
What next? Will the market turn?
Based on the ancient wisdom, yes, the answer is definite. Look at the symbol above at clock wise basis. 12′ clock is where darkness kicks in, as going toward 6′ clock, darkness is deepen to the max amid of small white circle (light) somewhere above the 6′ clock. Then, light begins to shine from 6′ clock onward gradually and slowly until the circle is complete and repeat. Only question is, it is not that easy to know where the market is at this point. My bet is around 3′ clock (purely gut feel).
Good news is total Housing Start has declined considerably in 2016 which will soften the supply glut in the next 3 to 5 years. However in the near term, we still going to witness the flush of supply from the projects started post 2013 (highest Starts in 2014). We expect to see the glut we have never before seeing, soon, likely in late 2017 or 2018.
Supply exceeded demand already, it will only exacerbate the situation further. Those not so cash rich holder or house flippers, beware. Those looking for a bargain or auction house, it could be a good time (remember the small white dot above 6’clock?) as opportunities aplenty waiting ahead.
At least the developers understand the market and has pulled the brake now by postponing or halt the launches. Otherwise, the market is at no position to absorb it.
The market needs a rest on the supply side. Lucky, we have it for both KL/Selangor or even Malaysia as a whole. It is a right direction.
By using the data we could deploy, can we forecast when the market will revive?
For this, we need to look at all these main factors: demand which consists of disposable income, GDP growth & population growth, capital market which consists of loan that caused by interests rate ….etc. It chains one after another, affects among each other. It can be quite confusing if you are not familiar with such terms.
Here is a another way that I believe will make the analysis a bit simplified. The key is the loan. In order to understand loan, broad money supply is the master key. When the broad money i.e M3 grows, GDP will follow suit. The chart below is derived by combining 2 variables GDP growth % vs. M3 growth %.
See the co-relationship? Look like a shadow. Strong huh? Of course it is.
Layman term: When the economy is good, M3 grows (which one comes first is a chicken and egg situation. More important is both go together). When M3 grows, disposable income grows and demand for housing grows as a result. (for the sake of this analysis, don’t care what the economists will say about this over simplified explanation).
There is a time lag from broad money changes. The after effect is to be seen after a quarter or two in real estate market (again, don’t take it literally as it comes from myself. To avoid embarrassment, don’t simply quote it. Skip the following if you’re not interested: broad money supply affected by bond, interests rate, export/import, investment and intervention like central bank open market operation)
What is the situation of broad money now? Remember the previous Housing sale data? The broad money growth for 2015 – 2016 is below 5% which is far from double digit growth as we experienced in 2008 to 2014. A slower growth than previously is considered a declined, agree? So, there was no surprise at all when the banks approved lesser loan amount or tighten lending standards because they simply can’t lend out like before.
One of the major the reasons for the sluggish broad money growth is the capital outflow (3X revisited). As an antidote, Bank Negara has reduced OPR in the middle of 2016.
source: Trade Economics
As expected, the cut has triggered the sell-of of MGS Bond (you and me also felt the pain from the weakening of Ringgit) and spike up the yield above 4%.
The safest investment group in financial standard is sovereign bond. As in our case, the MGS (Malaysia Government Bond). The spread (the difference between 2 variables) between mortgage rate (average 4.6%) & MGS is only at (4.6% – 4.0%) 0.6%. That means the problem of miss pricing happened in either the bond market or mortgage market. Laymen term: the mortgage rate is very low now at the current bond yield level. (Ying-Yang symbol refresh)
Besides, as government coffers shrink due to lower oil income, to sustain the public expenditure, increase of taxation or/and borrowing become a necessity. (Most governments in the world will not austere willingly by cut spending and reduce its sizes unless has no option left although it is a viable way to solve the money problem and beneficial to the general health of economy in long term).
This will make the overall business environment in the country tougher. As it becomes harder to do business, earning a profit is becoming a secondary goal because more and more businesses are merely fighting for survival instead. An increase of overall disposable income is a cloud-9 dream.
Both public and private sector are chasing the ever smaller money pool which will make the money scarcer and cost arising. The money cost is interests rate.
It is important because the price of real estate is an inverse related to mortgage rate (emphasize).
(to make the chart, I have recalculated & adjusted the 10 years home price index [2000 to 2010] to fit the span from 1988 to 2016 in order to reflect a continuous trend).
We are standing at the verge of some event, possibility a turn of market direction. A big market revival or a large scale price drop? It seems like a tug of war between the policy market (aka. intervention) vs. market force. We will see who will win.
Previously related post:
Why? The Board is not able to the assist the distressed person dealing in real estate transaction.
From The Star (3 Mar 2017):
SHAH ALAM: Members of the public are reminded to not use the services of illegal real estate agents and negotiators.
Deputy Finance Minister Datuk Lee Chee Leong said many problems arose when people engaged the services of illegal agents as opposed to their licensed and legitimate counterparts.
Lee added that the Board of Valuers, Appraisers and Estate Agents Malaysia’s biggest test was due to this problem.
“The greatest challenge faced by the board is when members of the public use the services of the illegal estate agents even though we have repeatedly advised against such usage.
“This has also resulted in the government losing out on its revenues as these illegal agents do not pay taxes or the Goods and Services Tax,” Lee said in his opening speech at the Malaysian Annual Real Estate Convention 2017.
The two-day convention was organised by the Malaysian Institute of Estate Agents (MIEA).
Lee said the board would not be able to assist any person who uses the services of the illegal agents in the event they face problems and are cheated of their money.
This is a good news for the house buyers. Should the decision was in favor of the developer, the buyers’ grievances would be bad: both vacant possession in time and late payment claims are denied.
From The Edge:
PETALING JAYA (Feb 27): The aggrieved buyers of Sri Istana Condo on Jalan Kuchai Lama, Kuala Lumpur have succeeded in defending their rights to claim liquidated ascertained damages (LAD) for the delay in delivering vacant possession to them.
The buyers who were represented by a legal team from the National House Buyers Association (HBA) was granted an Order of Certiorari to quash the previous decision made by the Minister of Urban Wellbeing, Housing and Local Government.
The ministry had in its letter dated Nov 17, 2015 granted an Extension of Time (EOT) for vacant possession from 36 months to 48 months in respect to the Sale & Purchase Agreement between BHL Construction Sdn Bhd and buyers of Sri Istana Condo. The project was to be delivered to the owners in May 2015. With the EOT, the owners could not claim LAD compensation from the developer.
HBA had then taken up a class action on behalf of the buyers against the ministry and the Controller of Housing and the case was heard at the High Court (Appellant and Special Power Division) today.
HBA secretary-general Chang Kim Loong in a statement today stressed that the EOT denied unit buyers the rights to compensation in the form of LAD for the delay in delivering vacant possession. The court decision made today allows the buyers to demand for the LAD to be paid.
“With the decision (made by the High Court) in favour of the house buyers, it means that the EOT issued by the Housing Controller is void and house buyers are entitled to claim for LAD from those developers who sought out the EOT (now ruled void). Compensation for LAD is payable for late deliveries,” he said.
Chang noted that the rights and entitlement to LAD cannot be taken away by the Controller or Minister with a stroke of a pen.
“The general principles of contract still apply. The parties are bound by the terms of the contract which they have signed and any modification or variation of any of the terms of agreement would require the consent of the other contracting parties such as purchasers,” he added.
“The granting of the EOT to defaulting developers makes a mockery and defeats the intent and object of the Housing and Development Act which is to protect house buyers,” he added.
From The Star:
PETALING JAYA: House buyers won this round following the High Court’s landmark judgment that the Housing Controller has no power to grant extension of time (EOT) to developers who delay the completion of housing projects.
National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong said the association has 10 EOT cases in its books, including the case of the Sri Istana condominiums in Kuala Lumpur.
Of the figure, Chang said he has documentary proof for eight cases approved by the Housing and Local Government Ministry.
It was learnt that seven were granted by the previous Minister Datuk Seri Abdul Rahman Dahlan while the current Minister Tan Sri Noh Omar approved three.
“House buyers are deprived of the liquidated ascertained damages (LAD) because of a stroke of pen by the Housing Controller.
“The cases that we have are in Klang, Kuala Lumpur, Shah Alam and Johor Baru,” he said when contacted yesterday.
In an earlier press release, Chang said the decision was in favour of the house buyers, meaning that an EOT issued by the Housing Controller was void and house buyers were entitled to claim for LAD.
“Compensation for LAD is payable for late deliveries.
“The general principles of contract will still apply. The parties are bound by the terms of the contract, which they signed and any modification or variation of any of the terms of the agreement will require the consent of other contracting parties, namely the purchasers,” said Chang.
In separate matter, condominium buyer Daniel Loh was sued by the developer for not signing the supplemental agreement for an EOT of six months.
Loh said when he signed the Sales and Purchase Agreement, there was a clause stating that the project should be completed in 36 months and a sub-clause stating that the developer should seek consent from house buyers if they wanted an extension.
He was slapped with an originating summons by the developer after he refused to sign the supplementary agreement that was sent to him thrice.
Loh, who lost the case recently, said he was only allowed to claim eight months of LAD instead of 14 months for the late delivery of vacant possession.
“I was only allowed to claim LAD after a 42-month period instead of 36 months as stated in the agreement.
“The six months would come up to around RM40,000,” he said.
It has been a while since the intense capital outflow happened that caught the attention of the mainland policy makers. We heard about the stories how the government there worked to curb the conundrum. Many are quite staggering.
Here is the list of tools available.
source: Zero Hedge
BREXIT is almost certain.
Who is next? It has all to do with Schengen Agreement. Perhaps this picture can give some enlightenment.
What is Schengen Agreement.
Ever since Donald Trump has been elected as the President of USA, the split between left and right is only getting wider.
This chart gives a general pictures of the major media political & economics inclination. As a libertarian organization, I think Mises Institute should be closer to Neutral.
Source from The Edge
Not correct, there is no mention of the mother of all bubbles. What a big mistake.
When the printing press is working turbo charged, in a market that is lack of viable bond market and ailing tiny stock market. There is only one way to go. No brainer.
Q1 2016 M2 & M3 finally reversed the long non growth months.
But marginally, below 2%.
We will see what is the situation for Q2 next week when the data is out.
For whatever the figure would be, do not take it as an indicator that the real estate market is going to revive. Yes, it is a wishful thinking.
Must read if you want to know more about the Strata Title Act. This is a really good article. In depth and layman.
Higher than normal banking interests rate, how many want to borrow? Not many IMO.
Govt allows developers to lend to homebuyers – The Edge
Excerpt from the NST:
KUALA LUMPUR: Effective today, eligible housing developers can obtain licences to provide housebuyers with up to 100 per cent of their home loans. Urban Wellbeing, Housing and Local Government Minister Tan Sri Noh Omar said the licence is to be issued by the ministry under the Money Lenders Act 1951 (Amendment) 2011. He said they were providing developers with the licence to provide loans to overcome difficulties faced by buyers in securing bank loans. “This proposal is a win-win solution for both developers and housebuyers,” he said in his keynote address at the 19th National Housing and Property Summit here today. Noh said developers can now profit from sales of property as well as from the end-financing schemes. “They (developers) can expect long-term income as loan repayment periods could be between 10 to 20 years,” he said, adding that the scheme was for all housebuyers. The ceiling for the interest rates under the scheme are a maximum of 12 per cent with collateral and up to 18 per cent without collateral. Noh also said they are allowing developers to provide loan facilities to overcome difficulty in closing sales. He however said that the developers would be screened and only certain projects would be given the licence. Noh also announced that the Cabinet had approved a Rent-To-Own (R2O) scheme for eligible buyers of People’s Housing Project units. He also said that in the wake of the Zika threat, the ministry has made it mandatory for developers to install mosquito traps at project sites.
Read it from a science magazine. This is how fast it flies: