In future, renting is the best option?

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This article first appeared in New Straits Times (NST) on 17 August 2015.

A friend said that in future, no one would be able to afford a new home. Future generations would all be renting their homes. Look at the prices today. It’s already so high, how could anyone afford their own homes in future? I think he is not alone. Many have the same opinion and thus many have since either quickly try to buy one or taking the stance that since it’s too expensive, might as well rent instead of buy. So, would the future homes be too expensive that no one could afford to buy? It’s not possible to solve this by looking at Malaysia’s property market today. Let’s take a look at the property markets which are already years ahead of Malaysia. They would be a better example of what may happen in the future.

Let us look at property markets in countries more advanced, more expensive than Malaysia today. When we look at the property prices, even without conversion into RM, the prices in Singapore, Hong Kong, London or even Australia is already higher and worst in terms of affordability when compared to Malaysia. One recent example, the median price in Melbourne is already AUD668,030 (RM1.87 million) as at June 2015. I am not sure if there are really that many Australians who can keep buying at this price level. Oh yeah, an engineer in Australia is still earning a similar salary in figure as an engineer in Malaysia. I think even for a senior engineer in Malaysia, not many would be ready to buy a RM668,030 condominium today.

Hong Kong is getting unaffordable. However, we do not see everyone sleeping in the streets. What has happened today? Well, prices are indeed high but the developers are now launching units which are around the size of a hotel room. Yes, we are talking about sizes such as194 square feet. A prominent Hong Kong developer, Cheung Kong launched it last year and it was an immediate hit due to its affordable price tag; HK$1.9 million. (RM956,000) With such a size, it has enabled the price to be lowered to a level considered affordable for the middle income earners who has saved for a few years to buy their first home. My current home bought for RM540,000 is 1,743 square feet. I think it has a long way to go if it wants to catch up with Hong Kong’s price.

When we look at Singapore, the government continues to try and build HDB flats based on demand and offer them to qualified Singaporeans. For the singles, it’s harder to get a unit. The secondary units of today, even for HDB flats are already considered quite unaffordable. There are not many choices and the sizes are all below 800 square feet from my research. Yes, property remains the single largest purchase in our lifetime. As an example, even if we do not eat breakfast, lunch and dinner for 30 years, the saved amount would only be enough to pay for a 10% downpayment of a S$300,000 (RM837,000) property. For S$300,000 the choices are very limited and the sizes are small. You may search for more information in the leading property portal in Singapore: www.propertyguru.com.sg

Both Hong Kong and Singapore has very limited land space and ever growing population. As at today, for both of them, the homes remain accessible in terms of prices. The only setback is that the size gets ever smaller. If they are taken as an example of what may happen in future, I think we can already see it. There would be smaller units to maintain its affordability. However, when we take into account the available land within Greater Kuala Lumpur, this would be many, many years away. Further away should be acceptable in future too. These ‘distant’ areas are supported by new and upcoming MRT lines. From MRT 1 till MRT 3 as well as the existing and new LRT lines, monorail and trains. Yes, Malaysians can also still choose to drive too. Still believe that it’s best to rent and not buying? Happy believing whatever you think would happen, even if you believe renting is the best option.

written for NST.

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