Property prices? Following inflation is fine. What’s the number?

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Whenever people ask me how much will property prices rise these days, I always tell them that it is okay for the prices to just follow the inflation numbers. The reason for saying so is very simple. Yearly increments could be 5% but that’s based on monthly salary. Thus, RM5,000 x 5% = extra RM250 per month. 5% inflation meanwhile meant household expenses x 5%. We calculate household expenses as 80% of the income of RM5,000? That’s RM5,000 x 80% x 5% = RM200 per month. What happens however to the house price rising just 1% per year? Assuming it’s an affordable home of RM350,000 then it’s RM350,000 x 1% = RM3,500 or RM292 per month. It is still higher than the increment or even the effects of inflation. This is why a property is a great hedge against inflation. 🙂 How’s the inflation for Malaysia for 2019?

Article in thesundaily.my Economists say that inflation will be up from 1% in 2018. AmInvestment Bank said they believe underlying inflation could stay fairly muted in the near term underpinned by softening domestic sentiments as well as due to the volatile global crude oil prices. It expects full-year inflation target for 2019 to be 1% and says it expects Bank Negara Malaysia to maintain interest rates for the year after a 25 basis point cut this month.

PublicInvest Research said there is a fair chance that the Consumer Price Index (CPI) may rebound in the near term, driven by a combination of factors, including the increase in electricity tariff for businesses, which is expected to be passed on to consumers. It said that the higher minimum wage as well as the weakness with ringgit will support rebound of the CPI. It said, “However, we also think that the CPI may get more lift from global conditions especially the outcome of US-China trade negotiations. A favourable outcome may spark a rally not only in commodity but also other asset classes, a preamble of wealth creation and spending activities.” Article in thesundaily.my

In brief, inflation numbers for 2019 is likely to be on the lower side than 3% if that’s what we usually expect. Let’s not expect property prices to rise faster than inflation numbers. Let’s expect it to just stay in-tandem with inflation rate. With this assumption, it’s still better to buy a good property and well stop renting one. Remember, inflation happens because of a good demand for goods and services. Deflation need not be good even if it seems that prices do not increase. Earlier article here: Deflation better than inflation, right? Happy understanding yeah plus happy viewing prospective properties too. As for taking actions, that’s up to you.

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Article written and edited by Charles. News article summarised by Dina Batrisyia.

<Featured Image is courtesy of Stock Photos from Doubletree Studio >

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2 thoughts on “Property prices? Following inflation is fine. What’s the number?”

  1. The calculation is misleading, did not consider the interest that need to be paid.
    If property price raised by 1%, but the interest is say 4.3%, so is -3.3%.

    Should not kept on mislead people

    • Thanks for the inputs Foong. I think when we buy a property,it’s for two reasons. Own stay or rental income. If own stay, we must also include the rental if we did not buy into the calculation. This rental amount is likely to be substantial even if we can say that it’s renters market currently. If it’s for rental income, the rental is likely to cover the interest portion even if the rental may not cover the full mortgage amount currently. This is why property investment, as long as prices are increasing over time following inflation, it is fine. As for historical numbers, 1990 – 2016 showed property prices rising by an average of 6.5% per year. If we now assume that for the next 20 years, it is halved, it will be 3.25% per year, still a healthy number. Hope this explains. As for buying overpriced property or wrong property or the developer did not complete the projects, that’s a totally different story. Happy holidays Foong!


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