Is our salary growing faster than property price?

Is our salary growing faster than property price?

What’s your answer to this question? Is our salary growing faster than property price? Briefly, except for the exceptional professionals whose rise up the corporate ladder is faster than majority or the business people whose business growth far exceeded the ones whose business ventures failed, the answer to this question is a firm, NO.

This is why we have the following headlines in the news titles all over the world and it will continue repeating.

Why can’t majority have higher income growth versus property price growth?

Let us look at middle-income Malaysians, okay?

Median income for a M3 is RM7,800. If this person has a salary increment of 5 percent per year, then this person will have an extra RM390 per month or an extra of RM4,680 per year. The next year, if the person has another 5 percent increment, then it will be slightly higher than RM4,680 due to the 5 percent calculated on a higher salary.

How about a typical RM400,000 property? Perhaps we look at just 2 percent growth per year? Actually the real number is higher but it’s okay, we just use 2 percent yeah.

RM400,000 x 2 percent = RM8,000 increase per year. What about year 2? What about year 3? Can we now see very clearly that when both are rising, the property price rises faster. We have yet to include the years when the property market was in a booming market. How many of us would have a booming salary growth for a few years?

How high can property prices rise then?

We can ask the same question to the working people too. How much do we believe the salary can rise? Perhaps it could double every 10 years? RM2,500 becomes RM5,000 in 10 years. RM5,000 becomes RM10,000 in the second 10 years. RM10,000 becomes RM20,000 in the third 10 years. It looks like a wow. RM20,000 x 12 = RM240,000 per month!

We can assume that the property price will double only once in 30 years, okay? Same house price at RM400,000 will become RM800,000 at the end of the same period; 30 years. Well, salary wise, we now have RM240,000 per year. However, property price has already increased by RM400,000. Of course, it’s still possible to buy a property because people could get home loans. Not many people pays cash for a RM400,000 property yeah.

This simple calculation already showed you why salary increase will never be able to keep up with property price increase in amount.