Condo prices, bank valuations and neighbour’s parked cars.

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You have just paid RM800k for a condo somewhere. Your banker tells you that the value that the bank assigned to the condo is slightly over RM800k and thus you are getting a good deal. It’s an awesome place. The facilities are top-notch and even the name of the condo sounds so special. In fact, where size is concerned, it’s bigger in built-up than some of those small landed double-storey homes for the same price.

However, when you drove into the car park, you suddenly noticed that most of the cars parked inside are ‘inferior’ compared to the car that you are currently driving. You may be thinking that these neighbours must have saved every ringgit and sen that they have for this home and thus they needed to drive cheaper cars, or perhaps older ones that they still could not afford to replace.

Actually, this need not be the case. The first batch of buyers (the bulk of all the buyers) might have bought the same condo unit for less than half of what you paid, today. At the time (many years back), most of them may be earning much lesser than what you earn today. At the time, they would have only been able to afford a cheaper car which they are still driving today. By the way, I read somewhere that the average lifespan of a car ownership in Malaysia is over 10 years. So, that explains a lot about those cars parked inside the car park of your RM800k condo. Oh yeah, in case you want to know, most Malaysians can afford only condos below RM800k. Take a look at the image.

The more recent buyers of your RM800k condo, usually just a couple of transactions or less every quarter for the past year or so would have paid almost the same price as you. The prices have gone up over the past many years and the bank’s valuation department has accepted the new price as the ‘right’ and current price.

The fact is, the value that the bank assigned to the condo does not mean every unit in the whole condo would fetch the same price. Imagine this. What if everyone in the condo wanted to sell, at the same time and many are desperate? When this happens, even if in the beginning the bank would not want to assign a lower value but what if a few units were sold at 10 percent lower than the market price? The next couple of transactions would follow the 10 percent lower prices as a benchmark.

Yes, brickz.my would then start to show a dropping property prices trend. If banks still valued the condo at much higher prices, they would expose themselves to much higher risks. If some unforeseen circumstances required that property to be auctioned off and the price it could fetch is by far lower than the loan, then the bank’s bottomline is hit. There’s no need to be alarmed. This is just to tell you the usual reason why even for RM800k condos, the older ones I meant, the parked cars are usually the cheaper ones. Happy buying yeah.

written on 29 Jan 2018

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