Lessons From Hong Kong Property Bubble

When chief executive Tung Chee-Hwa of Hong Kong’s first post-handover administration promised to achieve a 70% home ownership level within 10 years by backing the construction of 85,000 flats a year by the public and private sectors, he worsened the slide of the property market that was already overblown.

GOVERNMENT POLICIES

According to media reports, average home prices plunged 70% from its market peak in 1997 to HKD 2, 428 per square foot in August 2003. When property prices were at its lowest, the government suspended land sales in an attempt to support the market. This resulted in today’s shortage of new housing, which pushed home prices up to more than 13 times the annual household incomes.

The market soared 268% from its lowest in August 2003 to HKD 8,94-1 per square foot in November 2013.
Prices in 2013 surpassed the 1997 peak by Fifteen percent, with risky fever getting driven flat values to the next high.

This led the government to doubling stamp duty for flats and non-residential properties worth more than HKD 2,000,000 in February 2013 to head off a property bubble.

PROPERTY MARKET 2013

According to Midland Realty, a Hong Kong Property agency, the governments curbs saw residential transactions in the secondary market tumble to 17,872 between June and December 19,2013.

This is a significant drop from 23,0/39 deals recorded in the secondary market in the first half of the year.

Flat values surged 7% in the first three months to March 2013,but started to decline after cooling measures had dented demand.

The 2.6% increase in home prices in 2013 is lower than a 23% gain in 2012.

CURRENT SITUATION (2014)

Mortgage rates may rise in Hong Kong in 2014,due to the tapering of monthly bond purchases by the US Federal Reserve.

This would reduce the affordability of residential real estate, which in turn would lead to a downward pressure on residential capital values.

CBRE Taiwan, Macau and Hong Kong senior managing director Craig Shute said to the media that more than 30,000 residential units could potentially hit the market this year.

It in possible that a few developers might offload stock before the lending rates increases further.

The combination of increasing rates and new residential supply being sold at discounted prices may lead to a mass-market price correction of 5 to 10% by the end of the second quarter of 2014.

LESSONS TO LEARN

What can investors learn from the above developments? The movements in the property market are influenced by policies implemented by the authorities and also through economic factors.

The rise and fall of the volume and values of I property transactions is normally preceded by such developments.

Therefore, it is important for investors to be conscious of the fact that the property market f- isn’t motivated by the blind belief that it will r continue to rise.

Just as there are economic cycles where economies can both rise and fall, the same is applicable r! to the property market.

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Should We Buy and Renovate For Investment ?

Buying a property for investment can be one of the best decision one can make however, just buying the property is not good enough you must know what you want to do with it. For this purpose we spoke to Adrian Wee of Impression Design and Contracts, an interior decorator as well as a property investor who advises investors on the concepts of Buy Renovate and Sell (BRS) or Buy Renovate and Rent (BRR).

It has been a long route of learning for Adrian Wee when it comes to property investments. He has learnt the hard way that investing works only if you do your due diligence.

Hailing from a small town in Seremban, he has been investing in properties and designing show houses for property developers for the past 15 years in and around Seremban town but his first foray into property investing was a disaster.

He exclaims “I didn’t believe in property! I lost a lot of money investing in properties. Fifteen years ago my wife and I,we bought two properties and both of these, we sold at a loss and this loss was not just a few thousand ringgit but almost RM 100,000. So obviously I was scared to invest. Instead I focused on interior design. I designed show rooms and show units for developers.” He further explains “In my fear I let go of a lot of good deals and now obviously I regret. However, I have become a better investor and try not to make the same mistakes again.”

THE TURNING POINT

A few years ago, in 2010,he met a well-known developer who convinced him that property was the way to go if someone wanted to earn their financial freedom. This was a turning point for Adrian, who shakily began investing in properties again and has not looked back since.

This time he armed himself with knowledge and hard work. He attended property seminars, read books and magazines, spoke to property experts than only he delved into investing. However, he found himself having a formula for success, which he shares quite candidly. As he was speaking to a lot of investors and property buyers through his ID work he realised that a lot of people buy properties but do not know what to do with it,
other than plain sell or rent it out, without really maximising their profit. He realised that people could actually buy a property, renovate it and rent it at a higher price (BRR) or they could buy,
renovate and sell (BRS) again at a higher price.

To achieve this profit the renovation must be done accordingly. Some investors do not know anything about renovation, they hire an ID and leave it to the ID. The issue is a lot of IDs are not investors, so they do not renovate for profit but for aesthetic values instead.

WHAT TO LOOK OUT FOR WHEN RENOVATING

Another important consideration to take when renovating the property is the lifestyle of the people around. Is it a family oriented area, or are there many young professionals etc? Understanding the area and the lifestyle of the people there is key to the renovations. For example if its family then do structural changes, like adding an extra room or extend the kitchen, add a bathroom etc. These would bring up the price of the property, banks actually value properties based on the number of rooms available etc.

The profit potential in the secondary market is tremendous, for those properties that are between 15 to 20 years old you can get back whatever you invested in renovating. As an example for a RM 180,000 property (single storey terrace) if you do the proper structural renovations you can sell the house at RM 250,000,making a RM 30,000 profit based on the 10% renovating cost.

You can also increase the value of a property by creating a perceived value, this means simply by renovating it nicely and getting a tenant, the perceived price of the house will go higher. Investors can also buy shop houses and partition the place into smaller rooms and rent out. That way constant rental income can be generated.
One has to be creative when investing and know the differences and be sure of what they want to do with their investment. If it’s for selling than make the property attractive, people are willing to buy if something is attractive, so the idea is to make your property attractive!

Women Property Investment

Women play a vital role in the workforce in Malaysia. According to The Grant Thornton International Business Report (IBR), women recorded 40% of the total workforce. This makes us the highest one in Asean.

On the other hand, in terms of salary received, women take home a lesser income than men. According to Household Income and Basic Amenities Survey Report 2012 published by Ministry of Statistics, men in town receive a monthly average pay of RM 6,010 while women only receive RM 4,239.

Although the average salary is lower than what men have, it is still at a level of eligibility to get a loan to buy a property, with the condition that they meet the banks requirement.

Women have a bigger buying power nowadays. However, women involvement in property investment is still comparably smaller than men.

Most women are still interested in investing money for a collection of handbags and shoes; the stereotype.
In this 21st century, women are no longer a regular mom and housewife. Life is challenging as more women now are employers, professionals or mothers with careers.

The cost of living is also rising. This causes sole dependency on the husband for the household income and future financial planning not a good decision. Women have to play an important role or have a solid backup plan.

LEVERAGE

If let say one payslip may enable someone to have at least two 90% housing loan, two payslip will result a four 90% housing loan for four properties. Obviously, four properties are better than two. It means, there is more passive income stream and more asset for retirement.

This is why the most successful property investors are normally those who have financial planning and act together with their spouse. They are like-minded couples with the same objectives. A team will make it easier and therefore provide better leverage.

HAPPILY EVER AFTER?

Most women feel very comfortable being dependant on the husband. They are of the opinion that, having one nice house to stay in is good enough. As long as they have just enough money to survive, they are doing well.
However, according to the Minister of Women, Family and Community Development, from January to June 2012,there are 22,306 divorce cases filed and recorded by National Registration Department. Muslims’ case is 22,306 that is more than 95% of the total figure while for non-Muslims’ it is 1,062 cases.
This is shocking figure shows us that marriage is not a happily ever after story. Women should be ready to equip themselves with mental strength, a good career, enough saving and a financial plan for themselves and their children should this sad situation occur.

WHEN TO START

Therefore, though property investment is a guy-thing. Women should learn, to break mens monopoly. But, when to start?

Looking at the divorce rate and to safeguard women’s welfare after divorce, they must act and think ahead of time. They should start to buy property while they are still single.
This is due to the fact that Malaysian law treats any property acquired during the marriage as matrimonial property. Even if the property is bought under one name, bought under joint-effort or single effort, his or her spouse has the right to claim his or her share on the property. This applies to Muslims and non-Muslim marriages.
The ex-spouse may file a claim to the High Court, if the couple is non-Muslims, or to Syariah High Court, if the couple is Muslims. They have to prove that the property is acquired while they were still a valid husband and wife and to prove their contribution to the property or to the marriage. Then the court will decide how much the share the claimant deserves.

Their ex-spouse will not be able to claim any share on this property because it is bought before the marriage. However, the woman must manage the property itself and ensure that the there is no contribution, either monetary or non-monetary from the ex-spouse to the house.
Women seek security. Therefore, having a 100% ownership house is the most secure thing they should think and plan when they begin their career.

TOO MUCH PHYSICAL WORK?

It is true that managing a house will require physical work. Pipes may break. Electricity wiring may have problems. Tenants may cause broken doors and it needs to be replaced. These are among the issues owners have to handle when renting their house.

Thus, for some pretty ladies out there, they think these issues and rectification are not suited for them. That is why they ignore the potential of property investment and let it be conquered by men. They forget that they do not need to do all these things on their own? There is some people out there called as handyman, plumber or electrical technician that can help them anytime.

TEDIOUS HANDLING TENANTS

Some women feel that it is tedious to manage tenants. The process of letting a house itself needs some effort. They as a career women and a mother could not cope to add one more things-to-do in their already hectic days.
Do not worry. As I mentioned above, you can get a professional real estate agent to help you find a tenant and take care of your house. Plus, there are individuals who do sublet business. You may rent out your house to them for a longer period of term. They will then furnish it and re-rent it for a profit margin.

As long as you get your rental consistently banked in into your bank account every month, you will be happy enough. It is for them to bare the risk if the tenants move out and the house is vacant for a certain period of time. They also will take care of the house and maintain it so it is always in a tenantable condition as they need to attract tenants.

JOINT LOAN

After marriage, most women tend to do joint loan with their husband to buy a decent house to stay. If the husbands salary is only eligible for a loan of RM 200,000, joining with the wifes income may enable them to buy a bigger house. Maybe they are able to secure a loan to buy a RM 400,000 house, if for example the wife’s salary is about the same as the husband.

This is a popular and good strategy to own a more comfortable house for a big family. However, this may end up not a very brilliant plan.

Refer back to the story about matrimonial home. If anything happens to the marriage, the husband will have 50% share of the house. Imagine,this is the only house this couple have. Of course, after the divorce, both will fight for their right.

Therefore, it is better for women to have a backup. Buy at least one property before marriage.
Then do not do joint loan. It is better to buy two property with the total price of RM400, 000 rather than buy one property at the price of RM 400,000. Worst case, the divorced couple can have one property each. Another reason why a joint loan is not a very good idea is because of the 70% loan-to-value restriction for the third property onwards. Joint loan causes both buyers to have one housing loan record in the CCRIS, the credit record kept by Bank Negara.

If there is two joint loan applications, means this couple can only buy two properties with the loan of 90%. The third house will be 70% loan, either under one name or also under joint-application.
In comparison, if the wife does not agree to do joint loan application, the couple may buy four properties with 90% loan. There will be two properties under the name of the husband and two others under the name of the wife.
Again, obviously four properties is way better than two.

NO MORE MEN MONOPOLY

Every year, the number of women who enrol to a higher institution is increasing. Hence, the number of them entering the workforce is increasing too. Women are brilliant. They are hardworking. They have the courage and are able to face challenges.As there is no longer a job identification by gender, women can enter and perform almost all jobs out there. They can be a great engineer, an architect or even a ships crew.Therefore, there are no excuses that women cannot do property investment and generate a handsome profit out of it. At the end, this is for their own good and their children’s future.

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