This article summarizes a discussion from the Finance Lang podcast featuring Chloe, George, and iherng, a real estate expert, on the challenges and opportunities in the Malaysian housing market, particularly for young people.
The Affordability Crisis
Khazanah's Report and the Income-to-House Price Ratio
According to a Khazanah report, the median house price to income ratio in Malaysia exceeds the United Nations' recommended standard of 3 times. This means houses are less affordable, making it harder for people to buy homes.
Market Dynamics and Free Market Principles
Real estate operates on free market principles. Prices are determined by supply and demand. The concept of "affordable housing" in city centers is often unrealistic, even by international standards. Kuala Lumpur's property prices were once cheaper than those in Thailand, Vietnam, and Cambodia, despite Malaysia having a better median income.
Historical Perspective and Changing Realities
"Tea Money" and Loan Terms
In the past, buying a house sometimes involved paying "tea money" (bribes) to secure a purchase. Loan terms were much shorter (e.g., 15 years), unlike the longer terms available today (30-35 years, sometimes even up to 60 years).
Supply and Demand Shifts
Historically, demand exceeded supply, causing prices to surge. Now, there's a perceived oversupply. Previously, developers struggled with a lack of materials.
Current Market Dynamics
-
Regional Variations: Outside of major cities, like in smaller towns, properties can still be expensive due to limited development.
-
Real Estate as an Investment: Real estate has traditionally been an investment for the wealthy. It's a misconception that recent graduates should automatically be able to afford a home.
Investment Strategies for Young People
Alternative Investments
iherng discourages young people from jumping into the real estate market without proper financial planning. He highlights the rise of online trading platforms offering access to stocks, cryptocurrency, and other investment options, providing more accessible avenues for wealth creation.
The Temptation of Consumerism
Easy access to credit and the allure of instant gratification through platforms like Shopee often lead young graduates to prioritize immediate spending over long-term investment. Marketing strategies exacerbate this tendency.
The Importance of Financial Literacy and Planning
-
Early Investment is Key: Investing early, even with small amounts, is crucial for long-term financial success.
-
Understanding Risk and Debt: Young people should avoid taking on unnecessary debt and understand the risks associated with different investments.
-
Strategic Approach to Property: It is vital to have clear plan before investing. Is it for your own home or for invesment?
iherng's Personal Journey and Lessons Learned
Early Financial Education
iherng's family played a key role in his early exposure to investing. Although he was encouraged by his family, some parts of his journey were done in secret
Overcoming Financial Setbacks
He experienced significant financial setbacks, including debt and a damaged credit score, but he recovered by focusing on rebuilding his finances and increasing his income. After a 6 year break he began re-entering the property investment market.
The Importance of Liquidity
He stresses the illiquidity of real estate, highlighting how difficult it is to quickly sell a property and access the funds.
The Dangers of "Keeping Up with the Joneses"
He cautions against the pressure to conform to social norms and purchase expensive items to impress others.
Government Initiatives and Affordable Housing
Rumah WIP and its Challenges
Rumah WIP is an affordable housing initiative in Kuala Lumpur. However, there are issues of enforcement. The original goal of Rumah WIP is to provide affordable home to the B40 people, however, some renters are able to afford the high price tag.
Housing Market Imbalance
There is an oversupply of both high-end and low-end properties. There is a shortage for mid-range properties. There is a notion that people can't afford high-end and don't like low-end.
Investment Perspectives and Strategies
The Importance of Location and Entry Price
iherng emphasizes location, entry price, and rental yield in property investment. It is essential to buy a property below the average price. Also, investors should ask themselves, does the property allow cashflow?
Addressing Misconceptions
There are also misconceptions about market timing. He emphasized the importance of not buying during the highest point in a market. He notes that when a project sells out fast, this may be a warning sign that there is no more space to increase the price.
Steps for Getting Started
-
Intention Before buying a property, investors need to consider if it will be their home or an investment.
-
Research Is it a good location for investment or living?
New vs Used Projects
-
Channel of Purchasing - new projects, used projects, and auction.
-
Considerations iherng recommends to not look at a property if you don't have 18% deposit.
Final Thoughts
The discussion highlights the complex realities of the Malaysian housing market. Early financial planning and education can help young people make informed decisions about investments and avoid the pitfalls of consumerism and debt.