Article was originally written for and published in Malaysia’s leading Chinese medium property magazine; Real Estate Malaysia (REM) for month of June 2019.
Last weekend, I gave a talk in Malaysia’s largest property expo (MAPEX) organised by REHDA and there were 72 developers under the same expo. After the talk, a couple asked me why am I so sure that property prices will rise. I smiled (wanted to laugh but I did not) and asked, ‘how sure are they that the teh tarik price will stay the same for the next 10 years?’ My second question and more importantly, ‘how many of us are sure that our salary increments for the next 5-10 years will be zero every year?’
Price rising for no reason? We always think property prices rise for no reason. Or we blame the developers for launching their newer phases at higher prices (except currently due to the slowdown in the market). Or we could blame the government for not building affordable homes fast enough so that there are lots of supply and people do not need to push up prices by loving the same few properties. Or we could also blame the foreigners because Ringgit is too weak, so these foreigners came, saw and bought even when prices are high because their currencies are stronger. Any other reasons I missed? Yes, we could also blame my brother for agreeing to buy a semi-detached home in IPOH for RM540,000. (But… Ipoh has so much land!!).
When there’s no margin? Seriously, prices of homes depend on cost (land, construction) + profit margin. If prices are now equal to the cost of building a unit, no developers will build. Even charitable organisations need profits to survive. That’s why they are called not-for-profit companies but they need profits too to cover their people cost and other fixed costs.
Developer control prices? However, developers control property price only at the very beginning. After that, everything is determined by the transaction which is owner vs buyer. If owner is more powerful, they get higher prices. If the buyer is more powerful, they get lower prices. The price is usually up because until today, I do not know of any owner (without any reasons) who always buy high and sell low when it comes to property.
Why not blame the buyer? Buyer usually willingly pay higher than what the ownerpaid for the same property many years ago. Why did the buyer buy if the seller is selling them more expensive than the price they bought many years ago? 🙂 Simple. They COULD AFFORD it. Why could they afford it? Simple. They have HIGHER PAY. A RM20,000 up in property price?That’s just RM100 or lower in monthly mortgage instalment. Even if RM100,000 up after 5 years, that’s just RM500 in monthly mortgage. Surely the buyers’ salary increment is more than RM500 per month after 5 years… If it’s not, something is wrong with them!
Seriously No Idea as to WHEN. So, yes I am very sure prices will keep on rising. The thing I am NOT SURE at all is whether it’s next year, 2 years later or 5 years later. For that part, why worry so much? 1986,1998 and 2008 came (all crisis years) and they have all gone too. The good properties bought during these times? Well, it has all appreciated too. By the way, different investors buying the same product will have different results yeah. Here’s that article. Happy understanding but remember, I have NO IDEA how long you will need to hold yeah.
<Featured Image is courtesy of Stock Photos from Andrey Popov>
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