http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=all
Pay attention to the following notes that I'm sure ring the bell among us today:-
- Then came the crashes in both stocks and property, after the Japanese central bank moved too aggressively to raise interest rates. [The days of rising interest rates are already here; heightened inflation and easy money policy today will accelerate the pace a lot more faster in time to come.]
- Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan's six largest cities, residential prices dropped 64 percent from 1991 to last year. [When prices deviate too far away from its intrinsic value, any asset for the matter will also drop in prices.]
- Their experiences contain many warnings. One is to shun the sort of temptations that appear in red-hot real estate markets, particularly the use of risky or exotic loans to borrow beyond one's means. Another is to avoid property that may be hard to unload when the market cools.[We now have plenty of exotics offers from banks and developers to own properties e.g. 0% down payment- swipe a 5% down payment with your credit card and do a balance transfer at 0% for 6 months, no principal repayment until vacant possession, some even without interest service, few with even no repayment 2 years after vacant possession, massive discount of 7-10% upfront and more. Loan tenure up to age 70-75 is easily available as though Malaysia Inc are ready to take employees in their 60s and 70s...LOL. The fact is that people in their late 40s or 50s today are deemed as old fittings in a corporation where the Management desires to replace them with young blood anytime. Besides, many are willing to look beyond prime areas e.g. Cyberjaya, Semenyih, Rawang etc and maybe Bukit Beruntung again?]
- Most of all, economists say, Japan's experience teaches the need to be skeptical of that fundamental myth behind all asset bubbles: that prices will keep rising forever. [The strong belief that property is the exception here. Our many "successful" property investors in their 20s and 30s today have only seen this in stock market and not property market. That's why property market is the only "Superman" among all asset classes.]
- Like their United States counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. [Many property investors hold multiple properties on loans today, some beyond their affordability.]
- 'During a bubble, people don't believe that prices will fall,' he said. 'This has been proven wrong so many times in the past. But there's something in human nature that makes us unable to learn from history.' [Even with US housing market collapse in front of our naked eyes also not sufficient to do the job!]
- 'People were in a rush to buy, and at extraordinary prices. I saw this same haste psychology in Japan' in the 1980's. 'The classic definition of a bubble,' he added, 'is people buying on false expectations about future prices, and buying with the hope of selling in the future.' [The expectation of higher property prices is so so strong today. Buying property in Asia today is like 'Now or never'.]
- In the 1980's, the expectation of rising real estate prices made many Japanese homebuyers feel comfortable about taking on huge debt. And they did so by using exotic loans that required little money upfront and that promised low monthly payments, at least for a short time.[Buy with minimal down payment and sell for a 30-50% gain upon completion in the next 2-3 years hoping that prices will keep rising at at least the same pace as what they have seen the last 2-3 years. No one intends to hold property for rental, all ready to sell assuming there are always ready buyers out there. Today, banks are willing to take more than 50% of your gross income plus rental income plus other deposits you have into the calculation of maximum loan they are willing to lend to property investors. Previously they took only circa 35%.]
- A similar pattern is found today in the United States, where the methods include interest-only mortgages, which allow homebuyers to repay no principal for a few years. Japan had its own versions of these loans, including the so-called three-generation loan, a 90- or even 100-year mortgage that permitted buyers to spread payments out over their lifetimes and those of their children and grandchildren. [Singapore has this.]
The sub-prime happened 3 years after this article in 2008; while we are fuelling the property bubble that many still deny, the days are numbered before the same thing happen again. The difference is that history keeps repeating only in different areas and different generation... I expect the next major economic crisis to hit us back in Asia, to be led by China and Australia (see graph below).
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