RED ALERT: Dr Ernest traces how a property crash could occur
In my article last week (NST RED 27 July 2012), I studied the events that led to the mismatch of the respective “Affordability” and “Financial Obligations” of three Malaysian families who had in 2010 separately purchased the Condominium in Hartamas Regency, Terrace House in Jalan Setiajasa and Condominium in Menara Binjai.
With the looming Global Recession that also affects Malaysia, what will happen to the three Malaysian families who needed to find extra money from trading shares in the stock market and also from Direct Sales and Multi-level Marketing Network trading activities?
Selling to survive: Since July 2011, these three Malaysian families had begun to experience great difficulties trying to keep up with their monthly Housing Loan Instalment payments to the Banks. Since July 2011, they had been paying one month and skipped two months. In June 2012, they realised they could no longer continue to live this way. They decided they need to sell their properties in order to survive.
Outstanding obligations to Banks: In July 2012, these three Malaysian Families each owed their Banks nine months in overdue Housing Loan Instalment payments. Including the Principal Loan Amount, what is their respective Total Outstanding Liabilities as at July 2012?
Let’s find out:
See Table 1
The respective Total Outstanding Liabilities of the three Malaysian Families as at July 2012 are as follows:
See Table 2
Sellers cannot afford to Sell: In another previous article (NST RED 20h July 2012), I commented that “there is now a stalemate in the secondary market” with sellers not willing to lower their asking prices and buyers not willing to increase their offer prices. There is now evidence that some sellers, under pressure to sell and who fortunately bought their properties before 2008 when property prices were much lower, are beginning to buckle and are willing to lower their asking prices and sold their properties at prices of up to 10 per cent less than the prices asked by other sellers.
If what happened during the Asian Financial Crisis in 1997/1998 is a guide for what will happen next, as the Malaysian economy slows in tandem with the slowing global economy, more sellers will be under pressure to sell their properties at prices much lower than their Total Outstanding Liabilities. Quo vadis, Malaysia? (Where do we go from here, Malaysia?) Malaysian Property Sellers are now caught in a “Property Sellers Dilemma”.
They cannot afford to sell! They cannot afford not to sell! How long can this “Property Sellers Dilemma” continue before we find ourselves in a “Property Market Crash”? The present state of the Malaysian property market can be likened to a passenger plane flying from Kuala Lumpur to London. The plane has been airborne for more than six hours with another seven hours to fly before arriving at London Heathrow Airport. The plane is now flying over the Indian Ocean south-west of India. Then an emergency developed.
One engine started to sputter and after 15 minutes, the engine stopped. The pilot, a Captain with 30 years of flying experience, calmly assured the passengers the Boeing 747 Jumbo Jet has four engines. He assured the passengers that with only three engines working, the Boeing 747 can continue to fly and will safely arrive at London Heathrow Airport.
One hour after he had lost one engine, another of the remaining three engines started to sputter, and after 10 minutes, this engine too stopped. This 30-year flying veteran realised that he now has a real life and death emergency on his hands. He knows that with a full load of passengers and with only two of the four engines working, his Boeing 747 Jumbo Jet cannot possibly continue to fly for long. He knows that any time now another of his two remaining working engines will also sputter and stop. He realised that with only one engine working, his Boeing 747 Jumbo Jet will crash into the Indian Ocean with the loss of many lives.
The Captain knows he has to immediately make one of two choices: He can immediately activate the Emergency Sea Landing Procedures and attempt to make a “soft sea landing” and hope to successfully land his Boeing 747 Jumbo Jet on the surface of the sea and pray that the plane will stay afloat long enough for all his passengers to be evacuated onto life rafts. Or he can ditch some fuel and lighten the plane, change course and fly his Boeing 747 Jumbo Jet towards the nearest airport in nearby Sri Lanka or South India. He knows he is gambling with the lives of his passengers. If he succeeds he will be hailed as a saviour and a hero. But if he fails and another engine sputters and stops, his Boeing 747 Jumbo Jet will crash into the Indian Ocean with the loss of many or all of the lives on board.
The troubled Boeing 747 Jumbo Jet may be likened to the Malaysian property market and the Captain of the Boeing 747 Jumbo Jet may be likened to the Prime Minister of Malaysia. Like the troubled jet, the Malaysian property market is in trouble. Like the troubled jet losing vital engines, the Malaysian Property Market is also losing vital engines. It is losing consumers and buyers who can no longer afford to buy properties at such high prices.
Before an entire generation of young Malaysians is wiped out and made bankrupt, we look to the Prime Minister and Government of Malaysia and other national leaders to take action to safely land the troubled Malaysian property market.
There is still time (though not much time left) for a “Controlled Soft Landing” of the troubled Malaysian property market.
If no effective actions are taken, and taken soon, the troubled Malaysian property market may be heading for a “Crash Landing”.
This is a frightening scenario!
It has happened before in 1997/1998 during the Asian Financial Crisis. It can happen again if no action is taken, and taken quickly to overcome the “Twin Dilemmas” that Malaysia is now facing: The “Malaysian Property Dilemma” and “Property Sellers’ Dilemma”
What can Malaysia do?
In my next article, I will examine the possible options and actions that the Malaysian Government and ALL Malaysians working together can take to avoid a “Crash Landing” of the troubled Malaysian property market. Education, Information, Empowerment Have you ever wondered aloud “How I wish I know the real market price of my property” or “How I wish I know how much to pay for the property I want to buy”? Are there online property price search websites in Malaysia to get online and real time property prices in Malaysia? I hear there is one such website!
You may want to visit http://www.ipropertydata.com and check them out for yourself.