September 9, 2018
Someone told me the other day that it’s best not to buy an affordable home. I think he meant those homes below RM300,000. The reason is because there may not be much property price appreciation for them. The reason? There’s just too many of these affordable homes in the market now and there’s more coming in the future. Our new government says they will build 1 million new affordable homes within next 10 years. I think his argument may have some logic but it’s good to understand a little beyond just the quantity itself shall we? Four questions for us to ponder.
1) Are we buying an affordable property solely to wait for price appreciation? If this is the case, the only time that we can do so would be when the property bubble bursts and the best time to sell would be when the property price is at the peak; before the property bubble bursts. Well, anyone here wants to advise me when are these periods in the future? If however we are buying for own stay, then buying one is definitely better than renting one. This is because the price is already a subsidised one and we could afford them.
2) Do we assume that land prices, construction costs and even salaries for the construction workers and the buyers to stay stagnant for the next 10 years? I say this because even with subsidy, there’s a limit because land prices will still be going up while the construction costs are usually trending upwards because of material prices and labour costs. I also do not think the CEO or the GM of these developers are willing to have the same salary for the next 10 years too.
3) Will everyone be staying in the same place they are staying today. When I was born, I stayed with my parents. My brother and sister too. Today, my parents are still staying in Ipoh. My brother, sister and myself, we stay in our own homes. Demand for homes will continue to increase because Malaysia remains a relatively young country. Graduates will flock to bigger cities to work and they will need a new place to stay. This is why the demand for homes will continue and usually in the first few years of their working life, they could only afford an affordable home.
4) The property prices in Malaysia has been going up by an average of 6.7 percent for the past 26 years. (1990 – 2016.) Let’s be much more conservative. What if property prices would now only be rising by 3 percent for the next 30 years? (on average). If this is the case, then an affordable home of RM200,000 will become RM500,000 after 30 years. Assuming one starts working at 24, bought a home at 30 and retired at 60 one would have a RM500,000 home fully paid for at retirement. Not too bad, really.
In conclusion, would most Malaysians be able to save RM500,000 by themselves through their monthly salary when they retire after 30 years of working? I think the answer is, No. However, if we save slowly by paying for a RM200,000 property and even if we assume the price to be growing just 3 percent per year for the next 30 years, it will become RM500,000 after 30 years. When we think about inflation, it is very true that RM500,000 at that time may be equivalent to just RM200,000 today but it is still going to be a good sum of EXTRA money which the owner could sell and use if he wishes to. If he had rented for the past 30 years, he would have nothing to fall back on. So, buy or no buy when one could only afford an affordable home? Happy deciding.
written on 7 Sept 2018
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