How much would a less popular area appreciate?

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Have we ever wondered why some properties in certain popular areas rise in prices faster than others? Would the less popular areas even appreciate at all since they are always not the most preferred? Remember some facts. Material or even total construction costs for different areas within the same state CANNOT be so different that the prices are two times higher for the hotspot and less than half per sq ft basis for the less popular one. I know, some would now argue that land costs are increasing. Do read a little, land costs in Malaysia, versus the gross development value (GDV) is still considered very low by world standard. In other words, your property prices per sq ft differences which can be anything from 50% to over 100% is not simply due to land costs.

In brief, it really does not make sense for such a huge price difference, except for the crazy demand for one particular favourite area and too little demand for another shunned by everyone area. Recently, a friend who viewed a condo in Damansara Damai said that his agent told him that the place he was buying would increase to RM800,000 in the future. He asked me if it would happen. Actually, the question should be whether the hotspots nearby these secondary areas would rise. Once these more favourite places increases in price, the secondary areas would just track them. The secondary areas may not be the leader in these price increases BUT it will always track the more popular areas.

Another even more important observation. I told this friend that the condo he viewed would STOP increasing in price IF the prices of all the hotspots today also stops increasing in price. The probability of that happening is nearly none if we are looking at a few years ahead except if we are faced with another financial crisis. When we look back at history, this has also not happened. Even if the prices are only growing at the same rate of inflation, it is still a BIG number. I seriously do not think Damansara Damai would suddenly increase in price even if the MRT 2 includes a Damansara Damai station. However, when all the areas next to and nearby which are currently priced higher moves up, there’s no other way except up. As for that RM800,000 prediction, let’s just say it is slightly more positive than me. My personal view is slightly more conservative. Let’s just wait and see or buy and wait.

written on 4 Feb 2016

Next suggested article: Buy secondary. 30-40 percent cheaper

kopiandproperty.com

kopiandproperty.com

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