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What if everything becomes unaffordable? Affordability will find itself..

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A friend who’s very worried about property prices asked me this question. What if the property prices become so expensive that no one could afford them? Interesting question. Well, I guess I can answer him that when prices get too expensive that no one could afford them, then the market crashes.  Seriously, property bubble bursts when no one could afford a home anymore and the one who has a home could not even afford the mortgage payments. Else, if everyone could still afford their mortgage payment, then the the bubble stays the same. However, it may just burst anytime since no one could afford to buy anything. Here are a few signs about situations when the property market would burst. The potential property bubble bursting in Malaysia. Signs to look out for To answer my friend, below should happen when prices become way too high.

Developer builds smaller sized homes. The key consideration is affordability. If you cannot reduce the price, then reduce the size and the price would continue to still be affordable to come. We do not need to look too far away. Just look at Hong Kong’s newest new flat launches for some signs. This is the latest: Buy a Tesla or buy a micro-flat? Both similar sized Even for Malaysia, the sizes are now becoming a little smaller to ensure prices are maintained below that RM400k line.

Buyers start to accept smaller sizes. No buyer would prefer smaller sized homes but if that’s what makes it affordable, they would rethink their options. Actually, if one does not keep too much rubbish, does some clever renovations, even a 700 sq ft apartment can be an awesome place. My first apartment was just 730 sq ft and my wife and I were happily staying there for 4 years. Upgrade can come later after we worked harder.

Developer builds further away. Exorbitant land prices meant that developers buy further away. With the new MRT SBK and followed by the current construction of MRT Line 2 and the next upcoming MRT Line 2, the options remain aplenty. Further away is relative actually. Duration matters more. Jams of 1 hour or a comfortable 1 hour in an air-conditioned MRT coach? Of course, sometimes one may have to stand.

Buyers accept to buy further away. Come on, until today everyone still wants to buy in those few places that everyone wants to buy. Funny but true. Prices up because of location supply scarcity In the future, when the choices nearer becomes extremely unaffordable, one would start to accept a little further, then a little more and would start to accept the fact that some walking is better for the health. Just look to Singapore for signs. They are surely healthier than most Malaysians.

So, the answer is that the prices would not become so expensive that no one could afford them. In fact many more things would happen just to make it become affordable. More units in terms of density. Subsidies for affordable units from the government. ‘Forcing’ developers to build the units within their usual developments. Many more measures are definitely possible. I hope my friend are not too worried but also would not take too long to buy his first property. Certainly, buying earlier is slightly more advantageous as long as we are a bit more objective.  Cheers.

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written on 28 July 2017

Next suggested article: When rental falls, so too would property price

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