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When property prices rise too quickly, please worry.

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We should be afraid if property prices rise too quickly

Personally, I am against double digits property price growth every year. I do know that if prices rise very fast, I would be very happy because my properties would give me faster capital appreciation. When the property price goes up and I sell the property, I will be smiling all the way to the bank. However, I still do not wish for property prices to rise too quickly.

Property price increase vs income increment

My reason is simple. Majority of us do not get a double digit income increment every year. For those who did, you are doing awesome but majority really do have just the typical few percentage increments every year. It could be 5%, it could be 3% and in some years it could be 7% but that’s about it. Thus, property prices rising by double digits meant that very soon the home prices have been inflated too high. We better be ready for it to burst some time in the near future.

The chart for the top 15 Countries with Highest Housing Price Growth

Double digit price growth is scary yeah

Example. RM500,000 home with 10% increase every year will be over RM600,000 in just 2 years… Another 2 more years and this same RM500,000 home will become over RM730,000. This is a whopping RM230,000 increase in just 4 years and if we include the home loan interest for a 30-year loan, it meant that the same property would have added in more than half a million ringgit into only the interest just in 4 years!

When price is way beyond the salary for a few years?

What is the typical increment of people after 2 years? Assuming our salary is RM5,000 per month. Even IF the company provides us 10% increment every year, that’s just RM500 extra per month or RM6,000 per year! Compare that to the home price increase. Then, compare that to the home price increase after 4 years. Yeah, now you know why double digit price increase every year is very scary for house prices. Once this happens, rest assured, the people will not be able to support the property price, we will have a bubble and the bubble will burst. This is why property owners better not be too happy when prices move up too quickly.

BNM will need to take stricter measures if there are signs of this happening

There was a time when everyone could just buy a property without any down-payment whatsoever. I happened to know that even university students were buying properties at the time. The increase in property price was quick and everyone was sharing how much they earned within a short period of time. This has been stopped BUT better be vigilant if there are signs that this is becoming rampant again. We really do not want to destroy the market as it will affect everyone. I do think Bank Negara Malaysia (BNM) will always be monitoring. If ever they needed to consult some feedback from the market, they could contact kopiandproperty.com too.

Happy investing people. Property market is not a casino.

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