Few days ago, I was chatting with Ken Lim, the founder of Penangpropertytalk.com The issue revolved around the possibility of property prices downturn. Today, he wrote an article about it. Read it here. He gave an amazing example which everyone can relate to easily. His friend who owns a semi-detached home worth over RM2 million in the island of Penang asked him about the possibility of the government doing something to control the property price. The reason he asked was because his daughter wanted to buy a property. Ken asked his friend to sell to him (Ken), his semi-detached home at the original developer’s price. His friend rejected him instantly. Ken told his friend that this is the reason why house prices, once up would be find it hard to come down.
I told Ken that I related a similar story to the staffs of a Singaporean bank recently. They asked why would prices not come down? Well I explained that the possibility of house prices not going up can be seen from the prices we pay today for a bowl of curry mee. Long time ago, a bowl of curry mee costs just 20 cents or even lower. At that time, a house can be bought for less than RM10,000. IF, everything remained exactly the same as long time ago, then the prices of houses would not rise. If it did not rise, it does not need to come down. At the same time though, nothing would ever change. This is the price of development. Before 2009, there were less complaints about the too expensive home prices. Long time ago, there were not even smartphones or Starbucks. No 80 inch LED TVs. However, is that what we really want? The life of yesterday? When I was young, for one fried ikan kembung, we had to share between me, my brother and my sister. Today, I do not even stop with just one fish. Oh yeah, if you long for the life of yesterday, you may not be reading this too because no one would be willing to pay 50% the price of a house of yesterday for a Macbook which I am using currently.
Oh yeah, there is definitely a chance for prices to stay stagnant. Using law, every type of houses built have a pre-determined price. Condo should be just RM350,000 and nothing more. Double Storey Terrace must only be RM500,000 and nothing more. Developers do not need to build a differentiated type of condo. In fact they can copy and paste a similar one for every NEW development. Land prices must not change or go up. You buy land at RM2 per sf, you can only sell at RM2 plus a little inflation later. Thus, land owners should not make a profit. Salaries should also just stay the same every year. 🙂 Hey, there’s no inflation, thus why ever higher pay? Okay, I am joking but please note that when we look at the fundamental of why prices would continue to inch up, we would understand that it has to move up. Make no mistake, if your salary is not moving as fast, you either have to buy a cheaper unit first or you work harder and make your pay become higher faster. Perhaps a third one, wait for the affordable homes from the government.
In Forrest Gump, the famous sentence was, ‘Life is like a box of chocolates, you never know what you gonna get’. For property, it’s like climbing a mountain. If you are not skilful enough, just start with the hills. If you are very experienced, you can try the mountains. One thing is for sure, whether you are a good climber or a bad one, you would still have to climb or you can only stay at the foot of the hill or mountain and watch as others climb. Some may climb too fast and may fall down. Some may found a short cut and thought they will continue to find these short cuts. During bad times, the volcano may erupt or landslides may happen but after all have passed, you better continue climbing because property prices will never be staying stagnant for a long time.
written on 2 Nov 2014
Next suggested article: GST and Property, nothing much, sorry.