When the property market crashes…

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I hope many of my good friends do not get their wishes come true. They are waiting for the property market to crash so that they could buy a property at a fire-sale price. Has anyone given any thought about what really happens when the property market crashes? Some say the prices are too high. I think that’s true for some and if Malaysia’s property price to income ratio is considered high, I am really scared for many other developing ASEAN nations. Many have prices per sq ft higher than Malaysia today. Reminder, median income Malaysia in ASEAN is ranked second. If there are nations where the property price is higher than us based on property price to income ratio, let’s pray for them. Anyway, that’s the topic for another articles. Today, let’s start by looking at why property prices could suddenly fall.

No one would be willing to sell their properties at a lower price than they bought unless they were out of their mind or they were desperately needing the money. In this case, property prices being sold at ever lower prices meant many people are having issues in repaying their home loans. As many of these sellers are working professionals, issues with repaying their loans meant that that they may have lost their jobs.

If they have lost their jobs, it meant that the organisation they were working for has closed down. This meant that it affects all their colleagues, all their friends and virtually everyone working including even the security guards! From needing a total of 8 for the whole factory when it was in operation for example, once it has shutdown, just one or two is needed to guard people from entering…

By the way, if people have started to miss home loan repayments, it meant that their consumption powers have gone down tremendously. Many of the shops selling goods and services will start to suffer lower sales and soon, they too could not keep up with the rental for their retail units. When they move out, then it will affect the owner of those units too. (Earlier article on what happens when an important tenant moves out.)

It is not just the convenience stores yeah. Parents will stop sending their kids for tuition, for piano lessons, swimming lessons, karate lessons and no one will think of buying a new car, not even a second-hand one if their current one works. Some may even sell theirs to buy a cheaper second-hand one. Pity all those car sales people. It does not end there. Car sales down meant there’s little need to keep manufacturing. So, some lines will be shut down and people will be asked to leave. Even more people will be faced with financial difficulties and more will have issues in paying for their home mortgages.

Everyone, this is what happens when a property market crashes. There are no property market crashes when people continue to be able to repay their home loans. There are no property market crashes when people continue to have their jobs and they could continue spending and the businesses who got money from their consumption could then continue to contribute back to the economy.

Please stop pretending as if a property market crash meant you get to buy great deals and nothing else happens. Happy understanding and well, waiting if that’s what you are doing.

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<Featured Image is courtesy of Stock Photos from jamesteohart>

Next suggested article:  4 factors to watch out for. Property Market Crash.

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