Prices up because of ‘location supply scarcity’

Is it easy to control property prices? Well, due to land scarcity, Hong Kong and Singapore would be two very good examples of how governments try to control the supply of incoming units with the hope of ensuring a more orderly price increase. Singapore, though the building of it’s HDB flats would flood the market with more units if there are more demand anticipated in the following year. Else, it would build fewer units so that the prices do not actually drop due to oversupply of units. Hong Kong meanwhile releases more lands to the private developers through auctions with the hope that more units built meant amore affordable price tag for the flats. Well, the property prices in both countries are still extremely unaffordable today but perhaps if they did not take these measures, it could have been worse?

What about Malaysian property market? The property prices have also increased and some say doubled or tripled within the periods of 2009 – 2013, depending on the type of property that we are looking at. Statistically, this has not happened to every single area or type of properties but when we narrow it to certain areas, it has certainly doubled or tripled. Have we ever wondered why? Especially when it’s quite clear that there are now oversupply of luxury condos and the older secondary market is really still lagging behind the price per sf of newer ones? I would term this imbalance in property prices between hotter spots versus cooler spots as “location supply scarcity.” Generally, people love to buy what others are buying and thus majority typically follows the majority.

Seriously, for the years before and years after I bought Relau in Penang, people asked time and again, why. When I announced that I would be buying Sungai Ara, the questions came flooding again. In recent years and until today, for those who has yet to visit me in Damansara Damai, the comments are sometimes so awesomely insane that I just smiled these days. I am very sure the areas where they are staying in Greater KL today has no jams, has lots of nice malls, high-end international schools and even expensive private hospitals. That’s why the prices per sf they are willing to shell out is easily RM600 per sf or higher while my area should be worth just RM450 per sf or lower. Haha.

The trick is actually to understand why you love a certain area. Else, we would face the “location supply scarcity” over and over again which is why the popular areas are today reserved only for the super-wealthy or for those who somehow able to get a home loan and overstretched themselves so thin that hopefully no unforeseen circumstances happen to them for the next 25 years.

Dear kpiandproperty.com readers, please take out a piece of paper, write down again, all the WHYs for a good area. Then, browse online for areas with secondary properties which has a lower price per sf than the typical hotspots. Start researching if all the WHYs you listed in your piece of paper are also in these secondary areas. Time to call your real estate negotiator for viewings. Buy and hold a bit as times are bad currently. As long as we do not over-stretched or buying something way too overvalued, we should do just fine. Oh yeah, majority of anyone and everyone in Singapore or Hong Kong today is already a millionaire due to the property they bought years ago. The question is, would we want to start this journey to be like them one day. Happy Year of the Monkey. (A good friend reminded me, Monkey without k is Money, haha)

written on 6 Feb 2016

Next suggested article: Maintenance is key to secondary high-rise properties

 

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