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No transactions, no changes in prices lah.

Posted in Property, KL / Selangor, and Starting Property Investing

Last year (okay, only a few weeks back), a friend in Penang said, “Charles, you see lah, the property market is so slow, yet the property prices still show an increase. Makes sense kah? I think this figure is not real. Just look at all those advertisements, some condos are showing nothing less than 20 percent drop in asking prices.” He even told me the name of the said condo. 🙂  Anyway, I shared with him that dropping prices, especially for condos in certain areas are quite real. It is true even when those condos are nearby some established neighbourhoods. However, there are still areas where the condo prices have not moved much and there are certainly areas where the prices are still inching upwards. Yes, I shared with him some names too. Below would be my answer based on just numbers yeah.

Source: https://sbhshgovapmacro.wordpress.com/category/determinants/

Everyone should note that the median property prices, whether up or down depends on the actual transactions and not the advertised selling price. This is why the price would usually inch upwards even if the total transactions are not really moving up. This is true for all countries, usually unless there are some special circumstances. For example, owners seldom sell lower (If you are the owner, would you sell lower unless you have no choice?) and buyers are more prone to buy in mature neighbourhoods. (This is why hotspots are usually premium priced)  In brief, assuming there are 10,000 homes in the mature neighbourhood (some favourite hotspot whether in Penang or KL), how many units would be up for sale at the same time? Perhaps 50 units? (SUPPLY) Well, how many would want to buy into that same area? (DEMAND) Surely more than 50. Demand vs Supply, it always show in the final transacted price; who is more powerful, the seller or the buyer…  That’s the reason why the Demand vs Supply chart is a famous one. Here’s a brief explanation in WIKI. As for the image, take a look at the left side.

When supply increases and the demand follows, the prices would continue along the same line. If the demand slows down and the supply increases, then the prices would drop. Of course, this assumes everyone is rational and everything is perfectly ‘competitive.’ In real life, this seldom happen. That’s why there are areas which will move up much faster than the less favourable ones. Ask the PJ folks or even ask the real Penangites and you would understand my meaning. Of course, these days, the number of non-Penangites in Penang as well as new migrants into Greater KL is increasing at a very fast pace. Not everyone may think so highly of some traditionally favoured areas and many may not be able to afford too. That explains the growth of new areas and why some huge developers are into areas over 50km away from KL city centre today. Happy following.

written on 29 Jan 2018

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