Monday, February 11, 2013

Why now isn't the right time to buy property in Malaysia (part 2)

You can read the part 1 which was just a brief analysis on this:
http://hazairi-jay.blogspot.com/2011/09/why-now-isnt-right-time-to-buy-property.html

So, lets proceed with part 2, a much detailed analysis on our current property scenario.
Let's look at our house price index from the last 10 years:


House price index from 2000-2011 rose roughly about 50% on average for the whole nation. And let's look at just KL:


For just KL, house price increases about a whopping 70% from year 2000!

The media and the people especially from the property arena might say, 'Of course la it's getting higher, it's inflation maaa!!'. Okay then, let's look at our CPI (Consumer price index) for the past 10 years to analyst our inflation rate:

 inflation rate rose only 9% from 2000-2005

and from 2005 to 2010, it rose 14%. That make's the rough increase of CPI from 2000 to 2010 would be around 24%.
So, house price index rose around 50%, inflation rose around 24% from the 10 years period. Was it because we are getting richer? Let's look at the graphs below on our GDP per capita:

Our income seems to be congruent with the inflation rate which was about 25% rise from 2000 to 2011. So, where did we get the fuel to feed the property price? Now let's look at our debt:



Our household debt rose from RM200 billion in 2000 to RM600 billion in 2010. That's about 300% increase! Now let's analyst the composition of the debt:

It's not a surprise to see most of the debt which was more than 50% is because of property purchases.

So, in summary, clearly we can see that we are not getting richer as our income increases at the same rate with inflation! How can we sustain the 300% increase on our household debt? It's either we increase our GDP or banks will have to stop or strictly restrict lending. We are at the top of a cliff. It's a matter of time the bubble will pop.

2 comments:

  1. If im not mistaken GDP per capita is not the same as income per capita. GDP per capita simply means goods and services produced in a country per annum, divided by the population. You might wanna change that to a different graph.

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  2. sorry, crosshare, I didn't realize someone was commenting on this post. There's two approaches in calculating GDP. Yes, goods and services are one of it, but keep in mind that calculating GDP using the income approach (wages, company profits, interest from investments, etc,) will have the same amount using the expenditure approach. Hence, using GDP per capita is the best way to see the average of all. Median income is another story.

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