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Hard for property prices to go down lah..

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I read an article in The Star quoting a few experts who gave some views as to why the prices have not been trending downwards even though the total transactions have been going down since 2014. According to Jordan Lee & Jaafar executive director Yap Kian Ann, Selangor and Kuala Lumpur have a population of 7.5 million with 1.85 million residential units. With continuous urbanisation and migration from other states, these will continue to push up demand. According to Yap, the property market is not like a stock market. Any selling or buying takes time. Read my earlier article here: You need Time for property investment (updated) He then mentioned something very fundamental, “a roof over one’s head is considered a necessity”

Yap further elaborated that there are 30 other broad factors affecting prices and fundamentally, it’s based on demand and supply. Most important reason is location. The nearer to the city meant better accessibility and thus better prices. The next most important factor is interest rates. He said during the financial crisis, many central banks reacted by trying to prop up their economies and this is done by releasing more cash into the system. Low cost of financing meant better demand for property investment. Low interest rates also discouraged savings too. Due to these factors, there were some speculations which had to be cooled down. For example, in Singapore there were 8 cooling measures over a period of six years. In Malaysia, despite the many cooling measures, we can see that the prices have not really moved much, downwards.

Let me explain very briefly why it will be tough for prices to suddenly drop. There are many owners of properties who would hate to reduce their selling prices. These owners are mostly working professionals and as of now, we could see the unemployment rate remain low. In fact, the sales of luxury cars are on the way up even if the sales of ‘bread and butter’ cars are on a downtrend. The banks would also not like a sudden drop in property prices. The developers, despite trying to balance between the market requests and profitability would also not want the prices to drop suddenly. Yes, the buyers wanted the prices to drop. YET, all of them continue to only want to buy in certain areas. The equation would always be demand and supply. Sorry, it will never be average demand and average supply. It will always be location specific because this is where many buyers want and the supply being limited. Read here: Property Prices too high? YOU might be the reason

I think Yap’s points are very valid. Perhaps he should also advise buyers to be much more rational and spread out the buying activities over more areas instead of only that few selected areas. Just look at the prices of today, especially the secondary market. Areas which are only 10km away from one another can be priced 2.5 times higher or more. Of course, I still believe that the price dynamics would change when the transportation modes change too. Read here: MRT stations will change the area dynamics Happy selecting and buying, regardless of the area that you really want or need.

written on 7 Dec 2015

Next suggested article: HBA: Regulate profit margins, property prices down significantly

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