# RM28,888 is an affordable increase. This is why.

What is an affordable increase? Actually this happens daily for all products we buy. The seller is always trying to maximise the profits by slowly increasing the price over the years. My personal term for it is affordable increase.

These days, affordable property is the rage. Transactions for properties continue to happen and that’s because people could afford them. This is despite the fact that total transactions are lower than pre-COVID period. In fact more and more of these affordable units would be built even in 2021 and private developers realise that they need to go for higher number of sales with a lower margin versus fewer sales but higher margins previously. In other words, everyone is working harder than previously just to fulfil the need for a home.

In the future, what are the chances than the home we bought today could have an affordable increase in price? Speaking of affordability, my personal thought is that for the next couple of years, RM400,000 would continue to be that ceiling for affordable home. Perhaps we look at an increase of RM28,888 every year? Let’s look at some calculations then.

Could we save RM113 every month if needed?

Think about it. 30 days in a month. RM113 divided by 30 days is RM3.77 per day. If we used to spend RM25 for a latte and a slice of cheesecake every week and we chose NOT to spend this RM25, then we have saved RM3.57 per day. Actually very close to the need to save RM3.77

For my friend who’s smoking, if he stopped smoking, then he could definitely save RM3.77 per day too.

For someone who had decided to buy that RM1,588 smartphone versus a RM3,000 phone, he would have saved RM1,412 and this comes to RM117.67 per month.

In other words, all these scenarios would have enabled us to save RM113 per month, if not more. Now, let’s look into why we are so focused on RM113 per month.

RM400,000 home, 10 percent downpayment, 30 years and interest rate of 3.2%

If we had bought this home (as per image above), the monthly repayment would come to RM1,556.88 per month. After paying for it for one whole year, what is the chance that we could sell this for RM28,888 higher than the price we paid? Well, if we love the home for the right reasons, there are definitely others who would love it for all the same reasons too. This person may be willing to pay you a higher price for it. Specifically RM28,888 higher. Let’s look at what this new buyer would pay you.

RM428,888 home, 10% downpayment, 30 years and interest rate of 3.2%

The total repayment is now RM1,669.32 per month and this is RM113 higher than what you were paying. In other words, the buyer who will be buying from you would have to fork out an additional RM113 and somehow save this amount of money from the scenarios we spoke about OR his salary increment was higher than this, so he could use some of it for this home. Meanwhile, for the owner, that’s you, you will get an extra RM28,888 for the home.

This is why RM28,888 increase in property price could still be affordable to that next buyer. The payment is stretched over 30 years for the buyer. This is also the reason why if we look at property price on a longer term basis, this is how the graph looks like, even in slow times. (Image below) Property prices would just slowly inch up. Do note that that anything above zero do mean that property prices are strill increasing every year yeah.

DO NOT buy homes for this RM28,888 price increase yeah. Please buy a home because you want to stay in it and many years later, you could be pleasantly surprised by the price which the next buyer is willing to pay for you. Actually it’s the same for you. When you are ready to upgrade, you will also think an extra RM28,888 looks affordable too. It’s just an extra RM113 per month.

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##### Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.