When property prices go up, the main reason is usually due to supply issue. There are not enough, thus prices go up. How true is this? Of course, there are also the issue of too much demand on certain areas while there are insufficient demand on other secondary areas. I wrote an earlier article about this and call it Location Supply Scarcity. So, I also disagree that it’s due to just supply vs demand. It’s more like targeted demand vs supply. By the way, supply is also not the issue for sudden reduction in property prices. Well, unless of course supply in the whole country is already at a crazy level. You see, if there is an oversupply in Damansara Damai, it will affect Damansara Damai prices tremendously since there are way too many units. It may also affect areas which are within 5km radius away but this oversupply has nothing to do with Bangsar or Cheras prices….
Another scenario, if the oversupply is for over RM600,000 properties, it will definitely reduce the prices for units within this price range. This will not hit the affordable apartments which are already priced at RM250,000. There’s no way that a RM600,000 property dropping to RM400,000 and pushing a RM250,000 to drop to RM150,000……. If it does, I think the richest people will be getting much more richer because they would own may more units during this period. This is the reason why it’s not usually the overall supply versus demand that is affecting the prices. This is just an opinion of a working professional in the real estate industry. So, how about if we listen to someone much more prominent, Professor Philips from the Australian National University who analysed 15 years of Census data and building approvals. He has found out that Australia has OVERSUPPLY of 164,000 units. Here’s that article in news.com.au
He shared, “I don’t think anyone fully understands what the drivers (of housing prices) are. He explained, “They don’t appear to be strongly correlated to housing supply. I think investment will continue to push up prices, taxation arrangements are an issue and low interest rates are also increasing prices.” (In one sentence, he has also just confirmed that supply versus demand is not the main reasons for property prices. He said it’s because people sees property as an investment that is pushing up prices. (Think about it. If you buy a property and the prices stay the same throughout the next 30 years, would you buy a property?) Another reason is also because of taxation advantages. (Rental income exemptions are happening in Malaysia too.). Last but not least would be low interest rates. (When mortgage repayments are low, people can afford to take a higher priced property. It does not mean that the property is a bigger and better one. It can just be because they like the unit and thought an extra RM30,000 is not that much because over 30 years, it is really pretty small indeed. Yet, as soon as they agree to this extra RM30,000 the house prices of ALL other similar homes have also risen because it is now a new benchmark..) Please do read his full comments and the article here.
Now perhaps we are clearer about demand vs supply and property prices? They are not really within the same equation. 🙂 More demand may mean higher prices but we should also note where the demand really is. More supply may mean lower prices but we should also note where the supplies are because if the supply is at the wrong places, the property prices at those right places will STILL be going up. Unless and until people starts to be savvier about choices, plenty more of them really. The MRT and properties nearby? Remember though, Malaysians are just as savvy as Hong Kong people or even Londoners as well as people in Sydney or Melbourne. That’s why areas WITHIN the city or selective areas are already very expensive today. Haha. Even in Hong Kong, a HK$4 million may still get you a decent second-hand apartment in NEW TERRITORY (which is still Hong Kong) versus a Tesla parking sized flat in some places within Hong Kong. Would prices become too unaffordable then? Here’s my thought. Happy deciding.
written on 11 Dec 2017
Next suggested article: More investments, more jobs and more property demand