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Price correction in the property market? Happened already… H1 2020.

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Price correction in the property market is not price collapse or price downtrend. A correction may happen because the previous price was too high and thus was not sustainable. A correction may also happen because property markets need to adjust to the needs of property buyers. Many times, this includes the most important factor; PRICE. So, did price correction in the property market happened? According to this latest article, it has already happened in H1 2020. Something like how the eraser below can ‘correct’ what we wrote?

price correction in the property market
Photo by Pixabay on Pexels.com

Article in thesundaily.my National Property Information Centre (Napic) director Aina Edayu Ahmad said in H1 2020, half of the new launches in 1H2020 comprised houses priced at RM300,000 and below (6,657 units), while the RM300,001-RM500,000 houses accounted for 28.9% (4,476 units) and houses priced over RM500,000 accounted for 21.1% (2,161 units).

She said, “So we see that the market has done its own correction. In the past years, we have seen more of new launches in the higher range but now we are seeing more new launches in the range of RM300,000 and below.“

Meanwhile, Aina Edayu said new residential launches has recorded a substantial drop of 43.6% to 13,294 units in the 1H2020 from 23,591 units in 1H2019. She also said, “Residential sector remains as a major contributor to the property sector, accounting for over 65% of the volume and nearly 55% in terms of value.”

Her conclusion for the year? She said, “Although data did show some upturn in market activities earlier in the year, we would see a soft property market for the rest of 2020.“ Please do refer to the full article with more information here: Article in thesundaily.my

Price correction in this case, as explained by NAPIC director Aina Edayu would be new launches which are priced lower than previously. These days, RM500,000 would be considered on the median side for affordability. Anything higher and we would see the developer struggling to attract buyers. Thus, in this case, if I am a developer and I am launching new projects, I would launch it at a price closest or lower than what most people could afford to buy.

More ways to reduce prices further

Recently, I learnt about a 900 sq ft home but it comes with 4 rooms! Of course, there are also a lot of STARTER homes as per what the developers call them. These are usually landed double-storey terrace homes but the size may be 18 x 65. This will maximise the number of units which could be built on the same piece of land and will help to lower the prices too. Brief calculation for your understanding?

Assuming the developer could built 100 units of 24 x 65 superlink homes. This is 100 x 24 ft = 2,400 ft. The homes could be priced at RM940,000. Thus total gross development value (GDV) is RM940,000 x 100 units = RM94 million. The price may be too steep for many people. So how to the property developer induce a price correction in the property market?

Build More Units!

Developer could do this. use the same length of 2,400 ft to build 18 x 65 double storey terrace homes instead. Now, it becomes 2,400 ft divided by 18 ft and the developer could now build 133 units. Assuming the same GDV of RM94 million, the developer could now divide this over 133 units and each unit would now become RM706,766. From a mortgage repayment of RM3,521 per month for a RM940,000 unit (image below), the buyer would now only need to pay RM2,647. This is almost RM900 lower every month! Enough for a new Proton X50.

Not just for landed!

High-rise developers could reduce the height of the ceiling from 11 ft to 10 ft and every 10 floors, the developer is able to save enough to build an extra floor. They could also decide to build a 9ft ceiling versus a 10 ft one. It does make the home look smaller but the price will be made very attractive versus if they were to build one less floor… or two.

These are some of the ways the supply must meet the demand in terms of price. If no one could afford to buy, then nothing happens. As for H1 2020, a lot of things happened yeah. Here’s that official number of actual transactions and what it comprises. Do not be too surprised of it yeah. So, price correction in the property market has already happened and will continue to happen. The type of properties being offered are however different too. Happy understanding versus the never ending anticipating why the property prices refused to drop, yet? (Earlier article here)

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