I shared this yesterday in Kuching under the SHEDA Property Expo 2019. I could see many nodding their heads. Good to know that they understood the rationale. Of course maybe most of them are working professionals too and are thinking of buying that first property perhaps. Let me explain using examples.
Imagine two persons, A & B, both with a salary of RM5,000 per month. A choses to buy a home today at RM300,000 while B said 6 years later is better. 6 years later, when A decides to sell his property to B, would A want to sell it at RM300,000 or would A wants to sell higher? Of course A wants to sell it higher but how high then? Actually, a better question is whether similar salaried people like A & B could actually afford to pay higher for this property 6 years later.
We assume salary increment is 5% per year. Salary (6 years later) = RM5,000 x 5% increments for 5 years = RM6,381 at the end of 5th year. That’s an extra RM1,381 per month. We assume this person is willing to use just 30% of this number for mortgage. That’s RM1,381 * 30% and it’s RM414 per month. RM414 per month is equivalent to a RM90,000 property price. Image below showing the calculation.
This is why Mr. A could sell his property to Mr. B for RM300,000 + RM90,000 (extra) = RM390,000. This is also the reason why it’s not a question of how high the seller is willing to sell or what’s the price which the developer wants to sell. It’s always a question of how much a person could afford to pay and that’s a question of how much salary is one earning after a number of years.
Can the property price be higher? Maybe. Can it be lower? Sure, in a slow market, it may be lower. In a normal market, the increase will be slow which is great for the market. What this tells us is that increase in property price has to follow salary increments over the passing years. As long as the person did not simply spend everything he earns into something useless yeah. Happy understanding that it’s not the seller. It’s the buyer’s salary which will determine if he could pay higher for the same property 6 years later.
<Featured Image is courtesy of Stock Photos from gopixa>
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