Why property prices would fall, my view

Until today, I do not believe there is such thing as a totally free demand and supply based pricing. This is despite the fact that prices are now more transparent than ever and news travel much faster, perhaps even in the blink of a mouse click. The more common reasons would be the distortions caused by the government’s affordable projects. In the past, this has been carried out pretty slowly by one agency. Today, there are multiple programmes for affordable homes from both the federal government and the state government. Some private developers are also bidding for these projects too despite the perceived lower margin, or is it? Lower margin per unit but much higher number of units means total value of profit in number may be even more attractive! Come on, building a 20 storey and a 40 storey, in terms of added fixed costs are not two times. Okay, why would prices fall? (Don’t laugh, you know the reasons below too.)

Another financial crisis. If there is another financial crisis, the prices would fall. However, when the financial crisis happens, the first to be hit would be those overpriced properties. If you are currently staying in a RM250,000 condo and people tell you when crisis comes it will fall to RM125,000, then my advice, just hold on or if possible buy another unit. Soon, your money would triple or quadruple. Tough times don’t last but opportunities are at its highest during tough times.

Pricing by ‘amazing’ developers. In every state, there are some developers whom everyone knows that their build quality is suspect. That the materials they use are substandard. However, these developers continue to prosper by using the most awesome strategy; pricing. They only need to price their properties slightly lower than the surrounding and voila, they can sell easily. Haha. So, yes, even during good times, prices may still ‘fall’ and buyers love all these ‘fall’ in price and then hoping that the developer may just become good this time. Well, chances are it’s tough because they already sell you 10% lower, don’t you wonder about their ability to buy even better quality materials if they charge you lower?

Building costs go down. Yes, for example, cement price goes down. Labour cost is now much lower. Other materials such as steel, bricks, paint, everything somehow just became cheaper. Land prices go down because those who bought at higher priced today suddenly wanted to sell it lower. Yes, when this happen, property prices would fall. Everyone would then be able to buy good projects at lower prices. Really?

Willingness to accept lower margins. All businesses exist for profit. Well, some have higher margins and some lower. When the developers feel extremely charitable, they may sell at a much lower margin and this ‘savings’ may be passed to you. Frankly, if we are the developers, would we want to operate in a very low margin business? I think the choice is clear. When margins get way too low, many developers may not build….

Are you smiling now? Yes, I have given three reasons why in my personal opinion prices would fall. I certainly still believe prices would fall but seriously, if the main reason you are not buying is to wait for prices to fall, happy waiting. Be reminded, until today as I write this, there are still apartments which are affordable (below RM300,000) though further away from KLCC. There are still medium low cost apartments at just RM200,000 though not in great areas and there are huge number of landed properties for less than RM550,000 in “faraway” areas. Supply, demand, prices, they just can’t run away from each other.

written on 31 May 2014 updated on 8 July 2016

Next suggested article:  Penang Property Prices, still ‘too high’ (updated)

9 thoughts on “Why property prices would fall, my view

  1. Like this sentence so much ‘Tough times don’t last but opportunities are at its highest during tough times.’, agree with it fully.

  2. But according to Francis Yeoh, the best bet during a financial crisis are still properties.
    From my point of view that is partially true, it really depends on the safety net for an individual.
    Most importantly during a financial crisis, the person must be prepared if he loses his job.
    For prices to fall dramatically, it would need a lot of people to default on their loans. Otherwise,it is going to be business as usual as the governments and banks prints more money to keep the economy afloat before it sinks again in time : )

  3. It is unlikely to be subpreme crisis happned on 2008 in US, the good thing is.. there are series of cooling measure has implemented by Government to mitigate the situation which may lead to property bubble burst like subpreme crisis. i would say that it is a good step of beginning to cool the market down especially for the speculative activity from the past 3 – 4 years, furthermore, house debt is getting higher in Malaysia. it is quite risky in term of economic.

    The current situation does not seem to be healthy as the affordabiliy is an issue especially for local. i wonder is there a real demand or speculation, but latter is likely to be the case, as an advice, committing a high loan for 30 years is a painful process although the housing interest rate is still managable as of now (BLR 6.6 – 2.4 = 4.2),but what if the increase of BLR plus GST (By next year April), inflation is the main focus point to be concerned about, At last, be prepared for any unforseen situation.

    • Possibility interest hike in July 2014, implement on the GST in April 2015 (although there is no GST charged to buyer, developer will not absorb the cost by itself and will passing to the buyer by mark up the property price), continuous increased in property price is burden to the middle income to lower income group of Malaysian. “Artificial pricing” was the main concern for the current property market in Malaysia although current slowdown in property market for the first half year. The artificial demand was currently more than the supply was a main reason for hiking in the price. Over 1million of houses (appartment, condo and landed properties) to be built by 2020, and total population in Johor were mere more than 4million by 2020. Will be able to absorb the supply by the developer by the Malaysian and foreigner by that time? Will it be another “ghost city” appear in Johor which is same like China?

      Developments in the housing market can have an important impact on financial stability. However, household debts (HP and mortage loan) was currently covering up to more than 60% of the average net income of the Malaysian, Financial crisis 1997-1998, 10 years later financial tsunami in 2008..will it be another 10 years appear in 2018 which is 4 years to go? What if another round of financial turmoil happening in 2018, who will be suffer??? Answer: people and the Bank. People get retrenched (if working in foreign country, eg. SG, johorean will be first to be axed), loan still need to be servicing. Bank will be suffer for those unservicing debt. Lelong houses one by one going to auction. Then..is it the right time to entered the property market by that time?? Perhaps….Will it be downward price for property by that time..i guess so..only..if only there is financial crisis. Other than that..property price wont go down.

  4. Possibility interest hike in July 2014, implement on the GST in April 2015 (although there is no GST charged to buyer, developer will not absorb the cost by itself and will passing to the buyer by mark up the property price), continuous increased in property price is burden to the middle income to lower income group of Malaysian. “Artificial pricing” was the main concern for the current property market in Malaysia although current slowdown in property market for the first half year. The artificial demand was currently more than the supply was a main reason for hiking in the price. Over 1million of houses (appartment, condo and landed properties) to be built by 2020, and total population in Johor were mere more than 4million by 2020. Will be able to absorb the supply by the developer by the Malaysian and foreigner by that time? Will it be another “ghost city” appear in Johor which is same like China?
    Developments in the housing market can have an important impact on financial stability. However, household debts (HP and mortage loan) was currently covering up to more than 60% of the average net income of the Malaysian, Financial crisis 1997-1998, 10 years later financial tsunami in 2008..will it be another 10 years appear in 2018 which is 4 years to go? What if another round of financial turmoil happening in 2018, who will be suffer??? Answer: people and the Bank. People get retrenched (if working in foreign country, eg. SG, johorean will be first to be axed), loan still need to be servicing. Bank will be suffer for those unservicing debt. Lelong houses one by one going to auction. Then..is it the right time to entered the property market by that time?? Perhaps….Will it be downward price for property by that time..i guess so..only..if only there is financial crisis. Other than that..property price wont go down.

    • Ghost city, I don’t believe. Potential oversupply, yes there is. We just have to see how fast all the planned commercial.activities planned n started.

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