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
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