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Price to drop? Yes, if we sell lower than the price we bought.

We bought a new smartphone 6 months ago for RM1,600. Today, a new model is launched and is also priced at RM1,600. We fell in love with the new model and wants to get one to be ahead of everyone else. (I do not encourage this yeah.) When we sell our 6-month old smartphone, we will have to sell it at a lower price than what we bought. Could we sell it at a higher price than the time when we bought? The possibility is definitely there. Imagine the critical parts for the smartphone suddenly doubled in price due to a shortage in the world market and everyone ONLY wants that new model but not others. This meant that the new model could be launched at RM3,200 instead of RM1,600.  Our older model could actually be sold at RM1,600! Maybe higher.

Everyone says that property is an asset, so perhaps it should have a different story than the smartphone? (which is definitely not an asset based on the depreciation). We bought a new property for RM400,000 today. We stayed in it for 5 years and a new property nearby our neighbourhood was launched and the price was exactly the same as what we bought which was RM400,000! If we look closer however, that new property no longer shares the same specs as our 5 year old property. It is most likely smaller in size. The same price of RM400,000 was solely because the income has not moved a lot for our juniors. (younger workforce). However our juniors still want to stay nearby an established neighbourhood. Thus, they have to be willing to pay the same but get a smaller unit instead.

The question is, are we going to sell your 5-year old property for RM400,000 then? The answer may determine the success of the developer’s latest project. If they sell at RM400,000 for a smaller sized unit and you sell at RM400,000 for a bigger unit, then their latest project would just fail. Oh yeah, if they launched 500 new units at RM400,000 there has to be 500 sellers like us; willing to sell at RM400,000. If there are just a few of us, then the developer’s new project will be a success while that few people who sold at RM400,000 all sold at a loss. The answer to that question is therefore a strong NO. We will not sell our property at the same price we bought many years ago. This is exactly the reason why the property prices has not dropped for attractive areas despite the unsold and completed units having hit over 35,000 units all over Malaysia today. Earlier article here. Happy enjoying that new smartphone yeah.

 

written on 5 Nov 2018

Next suggested article:   Is house an asset or a liability? 

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