When the tide lifts all boats? When the followers willingly follow.

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Still remember those crazy double digit growth years? Image attached. Look at the growth / drop in transactions and value. Both numbers are in percentage for easier reference. The two years highlighted basically shows that the VALUE dropped MORE than the drop in transactions. In other words, other than these two years, even when the transactions actually drop, the prices were still going up. Of course, potentially it may also because the drop in transactions may be due to the lower priced ones. Thus, overall value is still up. What this tells us is something we know all along. Property prices are still up even under current sentiment situation.

Looking at those years when the demand for properties was double digits, it showed that the demand suddenly jumped. Suddenly, everyone needed a home because everyone they knew was buying a home. Let me repeat since some did not catch my meaning. Everyone NEEDED a home because everyone they knew was buying a home. In brief, not everyone was buying because they needed a home. They were buying because everyone they knew were buying and they feel that they must buy before it’s too late. This has caused the property prices to move up very fast. In fact, the prices went up far too fast that in recent years we have seen some of those in slightly less popular areas dropping in prices. So, what should happen in the near future? Okay, sentiment is still negative, that’s quite sure. Overhang seems to be up and not down. Will prices drop then? Let me share my view.

In a competitive world, we should expect the number two to be challenging the number 1, whatever the product or services it may be. In fact number 2 would always be trying to do better and always charging lower. However, this is not true all the time. For example, the property market. Developers building in lesser attractive areas would have to price their products lower. Developers building in hotspots can price their developments higher. What happens when these hotspots keep increasing in prices? The developers in secondary areas benefit too, they too can increase prices in tandem. Property prices could not rise forever. At max, it would be based on what the salaries could afford. Any higher, no one buys, market crashes and we get back the affordability based on what salaries could afford. In Klang Valley, looking at the property prices meant that the same situation is happening. The hotspots would move up first, then the secondary areas follow. If only we can increase the number of hotspots…. Anyway, when the market sentiment improves, all areas would have price increases. As for now, it would depend on how strong those few hotspots / benchmark areas are. As long as they hold up well, the property prices for secondary areas may just continue to hold too. So, the tide may well lift all boats but usually, the followers would just follow the leaders. Here’s one such ‘follower’ too. Cheers.

written on 13 Aug 2017

Next suggested article: KL’s luxury condominium market? An update

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