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Wondering why property prices are not going down?

Image Source: housingwatch.my

Statistically, the availability of property price numbers for the Malaysian property market are usually 2 quarters behind. In more advanced countries, this is usually faster. Anyway, as long as we have some updates, we would still know the direction that the property prices are going. According to housingwatch.my, the Housing Price Index (HPI) shows a drop in Q2 2017 versus Q1 2017. This is quite significant because the drop which is actually still an increase is now below the average increase for the past 26 years. Take a look at the image. For the past 26 years, the average HPI has been 6.5 percent. Notice the double digit quarters in 2013 and the continuous 8 percent or above for the many quarters after? Yeah, those were the years when everyone started shouting that the property prices were rising way too fast.

Wondering why property prices does not seem to be going down? Instead of an overall median property price view or even the usual statistics that many experts are saying, how about going back to the basics? The question about whether property prices could go up or come down depends on the buyer and seller equation.  Can buyers afford your (seller) selling price? Would sellers agree with a lower price that the buyer wanted? Actually, this is the most basic reason why property prices would fall or rise. Look at the HPI, it is still showing that property prices are rising, even if the rise is now lower than the average. Actually, if majority of all buyers are buying the newly launched affordable homes, the HPI will trend downwards from the contribution from these lower priced transactions. It is not the case currently. Majority of all transactions are from the secondary market.

In essence, it tells us that most people are still buying because they are buying in mature places. In mature places, assuming there are 1000 units of secondary properties, how many would be in the market at any point in time? Perhaps 5 or 10? Yes, this tells us that the supply is indeed smaller than potential demand.
When demand is by far higher, then the prices inch upwards. This is the reason why HPI is showing an increase even after years of slowing down in the market. Perhaps since 2013. The HPI is based on the number from transactions. It is not based on the prices on offer in the market. Okay, for the final question of “BUT my salary is rising slower than even the HPI of 5.6 percent!” How could people still afford to buy? Here’s an earlier article. Property prices rising higher than income, true. Why can we still buy?  Happy believing (home owners) and happy anticipating (home buyers). For the rest, happy reading!

written on 8 Jan 2018

Next suggested article: Buy what others did not think, see, view, yet

 

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kopiandproperty.com is everything about property related writings and news. Enjoy reading with a latte.

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