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Property price on a downtrend, right?

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Do we see property price on a downtrend? We are talking about the (Malaysia House Price Index a.k.a MHPI) and we can base it on the property price movement trend for the last 10 years. (Chart as below) Before all the homeowners start to protest and reiterate that they will NOT sell their property for a lower price or all the buyers start questioning all the homeowners why did they refuse to reduce their asking price let’s understand that the MHPI is based on transacted prices. Please take a look at the image below.

property price on a downtrend
Image source: https://tradingeconomics.com/malaysia/housing-index

The price is not going down. The increase in property price is the one on a downtrend.

The chart shows that the INCREASE in property price continue to reduce over the years. For example, the increase in median property price in 2012 was double digits; 11-12% and as the property market continued to slowdown, the increase in property price starts moving down. In 2018, the increase in property price is close to 5% and there was even one quarter where the property price was actually negative! Based on latest quarter, the property price seems to have stayed close to zero. In other words, a stagnating property price.

What does this tell you about property price movement?

The trend is usually above zero. In other words, usually an increase. The reasons are not hard to see. Homeowners would not want to sell lower than the price they bought. The developers would do best to maintain or increase the selling price and when it becomes harder to sell, they may just throw in a renovation package or even furnishings instead of reducing the price. As for the buyers, well, they only want to push for lower prices until they got the property. After that, they would prefer for property prices to move upwards too.

Does this mean property price will never fall?

It’s incorrect to assume so. During the 1997/8 ASEAN financial crisis, property prices fell by double digits just within one year. This would be repeated when the next financial crisis returns. The reason is a simple one. As soon as there are many desperate sellers, then property prices could drop quickly. Everyone is trying to attract the few remaining brave buyers during a financial crisis and thus they would have to keep reducing their prices.

Staying focused is the key to ensure we did NOT overpay for any property

Property price needs to be compared and benchmarked against similar properties. If there are many replacements, then the property price must not be higher than all these similar properties. Else, even if there was a big discount, we may still be paying a high price for the property. For example, RM500,000 high-rise within the city centre versus a RM500,000 landed property in the suburbs. If both are similar, then the choices become a personal preference.

Now imagine if the high-rise in the city centre is sold at 20% higher or RM600,000. Suddenly, the attractiveness of the landed home increases tremendously if the price difference is now RM100,000. Hope you understand that comparison need not just be with similar properties within the same neighbourhood. It’s always the availability and the affordability too. Happy understanding and happy choosing yeah.

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