* Article by FREEMEN *
It’s the year 2014 and the year of the horse. If you are like most of us, we were greeted with mostly bad news at the start of the year. Daily necessities are costing us more – groceries, toll hike, hawker food, and all types of vegetables (well, except for kangkung, that is). With everything else on the increase, what are your thoughts about the property price in the coming months?
To know more about the Property Outlook 2014, click here to know more
And while the cost of living is increasing, our salary remains the same with little or no increment at all. Not only this, for the engineers working on Penang island, they were greeted with a double whammy – restructuring (layoffs) of company, in other words, retrenchment or voluntary separation scheme.
Let me quote two examples; Dell has announced 20% – 30%of its sales and marketing staff worldwide (Source: CNet News) and Intel, world’s largest semiconductor chip maker announced plans to reduce its global workforce of 107,000 by about 5 percent this year which is equivalent to 5350 headcounts worldwide (Source: Reuters).
We’ve always been told to “be prepared” in any situation and “to make hay while the sun shines”; how many of us actually do that? I personally have heard of engineers being given only 24 hours notice that their service are no longer required and asked to leave on the spot. So, we do need to be prepared and one of the ways to “be prepared” is to create passive income, where we have income coming in without us having to work.
Property or real estate has always been known to build and to grow wealth slowly but surely. We have known individuals and close friends who have become property millionaires in the past 2 years when the properties that they bought have doubled in price. Not only has the price of the properties doubled, these individuals are also collecting positive cashflow on a monthly basis.
But of course, just like everything else in Malaysia now, the property price has also shoot up to a new high. The price has gone up so high that it is said there may be a property bubble. To add to property investor’s despair, the government has introduced cooling measures to cool the market such as the higher RPGT rates and disallowing the DIBS package by developer.
To know more about the Property Outlook 2014: In Pursuit of Financial Freedom click here to know more
This is how I look at the property market this year.
The government has given out a lot the goodies in the past years, prior to the elections. They have taken a shallow stand in withholding policies for better economic reforms, replacing them with campaign friendly policies; focusing on nationwide spending and investment initiatives, despite years of ongoing budget deficits.
Though they succeeded in painting a picture of a robust economy with positive growth figures for the past 3 years or so, most of these exhibitions of growth came at a steep price.
As of the 2nd quarter of the 2013, a global rating agency, Fitch Ratings cut its credit outlook on Malaysia’s A-minus sovereign debt to negative from stable in July, citing a lack of reform to tackle rising debt.
This is a wake up call for the government to look at things under the hard light and take steps to better ensure the stability of the nation on a mid to long term basis. The ultimatum given to our government to regain a neutral standing (-A) were to correct 3 areas of focus:
a) Reforms to fix it’s budget deficit,
b) Have the country perform better in the next 12 – 24 months, with revenue exceeding expenses; and
c) Reduce the current national dept to GDP ratio, from a regional high of 81% to 55%.
Therefore, it is my prediction that the following 3 key areas of reform will take place, within the immediate interim, if not already implemented.
1) Rationalization of nation building mega projects
There are indications of the government to slow down on big budget projects, such as rescheduling of the high speed railway (HSR) from Kuala Lumpur to Singapore and the refinery and petrochemical integrate development (RAPID) in Pengerang, Johor, from initial 2016 to 2017.
There are also reports stating the government’s initiative to space out infrastructure development in Malaysia as well as to privatize as many of these projects to reduce the nation’s burden.
2) More cooling down measures for the property market
There is already two cooling down measures introduced after the elections. The first, debt to service ratio (DSR) is reduced from 70% to 60%. With a DSR of 70%, an individual with a RM10,000 nett income, can take a loan with an installment up to RM7,000. So, if this individual were to use his credit line to take a home loan, with a 30 year tenure at 6% interest rate, he could potentially loan up to RM1,167,000
However, with a DSR of only 60%, the same individual can take a loan with a only a RM6,000 monthly installment, which means, his home loan value is now a mere RM1,000,000 instead of RM1,167,000.
The second cooling down measure introduced is the limitation of property refinancing up to only 10 years, from 30 years. This means, if you have an existing property which you would like to refinance , the maximum tenure for repayment of the refinanced amount is only 10 years.
Let’s take a look at the effect of this measure if an individual were to refinance a RM100,000 property at an interest rate of 6%. Under the old guidelines of 30 year tenure, the installment is only RM600. However, under the new guidelines of 10 year tenure, the installment is a whopping RM1,110 per month!
All these measures are focused on reducing the debt to GDP ratio and rest be assured that there will be more measures introduced in the near future, to directly curb the borrowings in real estate market.
3) Increase in revenue generating policies by the government
Our government is very sensitive when it comes to revenue-generating policies directly impacting the livelihood of the common man of the street
While many countries implement long term, gradual introduction of such policies, our government has a far more efficient way of introduction in the short term tenure.
It’s called, “Shhhh… don’t tell the public we’ve already increased prices!”
Quietly but surely, the government will be implementing subsidy reduction strategy almost immediately. Already, petrol prices have increased by 20 cents for RON95, which is a significant 10.1% overnight. Cigarettes prices have seen 14% increase in excess duties. Both were implemented in September. More of such stealth increases are scheduled within the year.
The introduction of GST is imminent.
The transport ministry has announced no uplifting of import car duties; something, which was promised during the election campaign, within the next 5 years. Reason cited – the country’s budget deficit status.
Double digit inflation growth rates are set to follow, in similar fashion as the government’s method of implementation – quietly but surely.
Does this signal the end of good times?
No. We are still fortunate to be in the “right” side of the globe at the moment. The illusion of an economic robust future is still largely painting the skies blue for the time being. However, dark skies are emerging from the horizon and one would need to be more cautious in their investment moves.
So, why still invest in property?
What other choice do we have?
With the government busy working on their own economic well-being and the world economic downturn at hand, the worst thing you can do is to sit and wait out the storm. Strong DIY investment habits must be cultivated to make us better prepared for the potential stormy seas ahead. I have been saying this for the longest time, the men on the street needs to know how to protect their own financial well being, and work together with like minded people to make our own nest eggs.
If I am right, you will safeguard your savings and nest eggs, if I am wrong, you will end up being a very wealthy person and retire rich. So, what is the worst that can happen?
Come join us this Saturday, 15 Feb 2014 is Evergreen Laurel where we share with you about the Property Outlook in 2014. We will also zoom in to talk about the property outlook for Penang and how all the market forces will affect and impact the property market and to you, as a property investor and property owner.
Happy investing,
Michael Tan
Michael is Property Coach and Lifechanger from FREEMEN will be in Penang on 15 Feb 2014 (Saturday) to share his views on the Property Outlook 2014 and the impact to the property market. In addition, he will also guide you in knowing your personal financial freedom number and from there design your property portfolio.
Come and join us on the 15 Feb 2014 in Evergreen Laurel Hotel, Penang. Book early as we will be expecting a full house.
To find out more on about the Property Outlook 2014 and the impact to property market, please click here
About Michael Tan:
Michael has been sharing with many since 2008 how to invest into properties safely and profitably through the FREEMEN™ courses, coaching classes and investment club (Real Estate Tycoon Club; RTC).
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