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When we are 60, just have a RM1,000,000 property, possible?

Posted in Personal Finance, and Starting Property Investing

My parents bought a RM85,000 property in Ipoh 30 years ago. It is currently RM540,000. It took 30 years for that home to reach RM540,000. Still worth buying? The answer in short is, YES. Imagine if my parents chose to rent instead of buying that semi-detached property (which was not that common even then) in a popular neighbourhood (which was not that popular then). At the time, there were many cheaper choices of terraced homes too but my parents was adamant that if they have to spend lesser, they would and they did. By the way, Ipoh is still not known for high-rise units even till today except for a few more popular ones like The Haven or even the one managed by my good friend called The Octagon. Let’s assume we bought a RM400,000 property today then and that we are just 30 years old. We assume we are fit and could work until 60 before we decided to leave our full-time job.

Average house price increase. The house price increase on average is around 6 percent for Malaysia. It’s much higher in some advanced property markets but we assume for the next 30 years, the price would only increase at half the pace which is 3 percent per annum. So, what happens to the price of our RM400,000 property by the time we are ready to retire? It will be very close to RM1,000,000 by the time we say bye-bye to our job. Yes, by then, the value of money would have reduced tremendously due to inflation. Salary would have also increased but for the majority, it’s usually below the pace of the house price increase. Sorry yeah, it’s the same in advanced countries and not just in Malaysia. Look at the CEO’s salaries in some countries and stop feeling shocked but this is the world we live in today. If we rely only on salary and we are not investing or in the top 20 percentile of the working population, we will be stuck in the middle; neither here nor there.

Affordability in the market. Fortunately perhaps that we have a lot of these affordable units being released to the market today by the federal, state and private developers. Usually these units are subsidised and thus, the prices are below RM400,000. However, without any subsidy or assistance, the typical prices for these units should be around RM400,000. (Assuming RM500 per sq ft and a 800 sq ft unit). Based on the many announcements thus far, these units would continue to flood the market for many more years. Developments with direct accessibility to the MRT station will be majority in the near future. MRT Line 2 (SSP) would bring even more potential choices where areas are concerned. Those popular areas will not be getting cheaper in the future, regardless of how many years we want to wait.

RM1,000,000 property is sold off. The proceeds are divided by the next 20 years. We assume we can live to 80 years old and are retiring at 60.  That’s around 240 months. It’s thus RM4,200 per month if we put the RM1,000,000 under our pillow / bed / in cupboards etc and slowly take out some amount every month. If we decided NOT to touch the RM1,000,000 and instead put it into a FD which pays us 4 percent interest per annum, then it’s RM3,333 per month. If we save RM500,000 into the FD and another RM500,000 under our pillow, than it’s RM1,666 per month from FD and RM2,083 from the remaining RM500,000 divided by 240 months. That’s RM3,750 per month which is the middle of RM4,200 and RM3,333 per month. No further assumptions but I think it’s quite clear that it’s best to buy at least one RM400,000 property today and start paying for it if we intend to have a couple of options in future.

Yes, I know that if we sold that property off, we would need a place to stay right? Actually, there are plenty of options in future because by 2035, Malaysia would become an ageing nation. By 2040 for example, there would already be lots of options for the senior citizens, not just from the private sector but also the government of the day too. By the way, we can even choose to live in some cheaper countries too. Please stop thinking that the ringgit is the weakest currency in the world lah. 😛  Let’s not worry too much with this for now. Just concentrate in getting that RM400,000 property first yeah. Or… a few instead of one. Happy thinking.

written on 29 April 2018

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