Anyone has this thought on their mind? What happens when property prices become higher than ‘severely unaffordable?’ Basic idea is that when the median property price is 5.1 times the median household income, it becomes ‘severely unaffordable.’ Calculation as follows:
Median Income per year (RM100,000) x 3 = RM300,000 (This is affordable but usually not achievable)
Median Income per year (RM100,000) x 4 = RM400,000 (Moderately unaffordable)
Median Income per year (RM100,000) x 5 = RM500,000 (Seriously unaffordable)
Anything higher than 5.1 is Severely Unaffordable. Prices in different states in Malaysia? Please refer to image. The numbers at the bottom is the multiple of median home prices versus the median income. Having seen that, in comparison Hong Kong is at 20.9 times. Here’s one latest report. Sydney’s median home price is at 11.7 times. Latest article here. London’s median home price vs household income is lower than both Hong Kong and Sydney. It’s at 8.3 times. Latest article here. In all these markets, the governments continue to assure everyone that a property market crash is unlikely to happen. One latest article posted yesterday on JLL’s prediction for 2019 says the same thing.
What this tells us is that property prices do not correct itself just because it’s under the severely unaffordable category. It will only correct itself when the economy is in trouble which will cause loss of jobs and thus, the rise in number of mortgage defaults and then the selling from desperate home owners start. It also tells us that just because property prices are above 5.1 times the median income does not mean people stop buying properties. People may choose to buy SMALLER sized units to make it affordable or people may choose to buy FURTHER from the city centre in order to make it affordable. This is why some suburbs in major Australian cities are 45km or more from the city centre. This is also why developers will continue to build and will not close shop just because the multiple is already above 5.1 times. Remember. That Mamee pack that was 20 sen when we were much younger is around 20 sen today. The difference is the size. Mamee is still selling today. Happy understanding.
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written on 23 Jan 2019
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