Cheap then, affordable today and property price in future?

This afternoon, I had lunch with a few colleagues. One of them asked about buying a new property as she wanted to move to a bigger home with her husband. Her new baby is due in January 2017. When she asked about property prices and the potential capital appreciation, I shared with her that when we buy today, the appreciation we can expect would have to be more realistic. If we were to look back, perhaps in 2007, the prices of condos of 1,000 sq ft may only be RM200,000 – RM250,000. At this price level, within a few years, the prices doubled. Today, there’s hardly any condo of 1,000 sq ft which is below RM500,000. (Unless we buy further away or in not so desirable areas.) Today however, when we buy the RM500,000 condo of say 850 sq ft – 900 sq ft, it is unrealistic to believe prices will increase to RM1,000,000 within the next few years. In fact, regardless of ringgit’s movement, it is highly unlikely too.

The reason is simple, the income level of Malaysians. At RM500,000, most couples with stable incomes in good company would be able to afford it, even if life would not be rosy after buying it. However, at RM1,000,000 I think only when the couples are both senior managers, then they may be able to afford. Even then, life wouldn’t be rosy too. Else, these 7 figure properties would depend on businessmen. Be reminded however that if I am super wealthy, I will not be looking to buy a below 1,000 sq ft condo where the density is very high. I prefer more exclusivity and thus these properties wouldn’t appeal to me. Will it increase to RM1,000,000 someday? Your guess is as good as mine but perhaps we should look at 10 years at least? If it goes up to RM1,000,000 within next few years, let’s get ready for property bubble bursting. Oh yeah, HDB flats in choice locations and sea-view in Singapore are already reaching SGD 1,000,000. Read here: FLAT for SGD1.2 million (RM3.672 million)

My friend told me that she thinks Semenyih is a bit far for her. She is thinking about Cheras, the part closer to the city centre and not the deep end. Desa Parkcity is meanwhile a bit too expensive for her. I told her that instead of identifying the area in advance, she should understand her reasons for buying first. If she likes a certain area for 3 major reasons, she can use these 3 major reasons and see if there are cheaper areas which fulfils the same 3 reasons too. She could not yet identify the most important three reasons but she laughed and understood. It’s always a question of want which involves more money or need which means more objectivity is needed. She asked for another lunch next week. Will update if there are any new discussions then. Cheers.

written on 9 Dec 2016

Next suggested article:   Any investment is a good business. Diligence needed

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