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Property prices – 10% up for 2014?

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Another prediction of property price increase in 2014. This is the Property Outlook Conference (POC) 2014. According to Andaman Group managing director Datuk Seri Vincent Tiew, rising costs will push up the total net cost for a developer by 5% to 8% and thus property prices could go up by about 5% to 10%. The chief reasons being labour, utilities, raw materials and toll charges. He said that these direct and indirect costs would have to be passed to buyers because developers may not want to absorb the costs. In terms of property buying sentiment slowdown, it is more likely due to the stringent lending requirements instead of the RPGT.

Renesial Leong meanwhile said that rising prices are not just in Malaysia but it is a global phenomenon. Nonetheless, Renesial said property investment is still the best hedge against inflation. Leong said there are areas that have been experiencing an oversupply of office space, but there is still strong demand in other areas. I have read her book before, she has a lot of good points on buying for rental.

I think the message from all these prominent speakers are that prices will continue to rise. We do not need to attend any seminars to tell you that prices has never stopped rising from the days that our parents bought their first property. My parents bought their first property in Teluk Intan, a semi-detached house which is considered huge if it is in Penang today and they paid RM55,000 for it. It has not risen by a lot, maybe just RM200,000 today? However, if we do a simple calculation, it has risen about 363%. Divided by 30 years meant 12% increase per year. No matter how much maintenance, other associated costs etc are added into the numbers, there is nothing that will give you more than 10% return year after year for 30 years, safely.

The worry all of us should have is whether the price increase is sustainable because if prices increased too fast, it will impact the debt level that everyone has and this is very dangerous when economic downturn happens. Many would default and banks maybe shaky. This will in turn affect everything else. Always remember, if certain prices are already too high and everyone you know are putting everything they have into property investment, be sober and it may be time to just step back a little and rethink. Remember the saying, ‘A fool and his money soon parted’.

written on 3rd jan 2014

next suggested article: Penang property market slowed down

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