One day, property prices could become fully and totally unaffordable?

One day, property prices could become fully and totally unaffordable?

Is delaying property purchase a sound choice?

Buying wrong properties is fatal. Buying overpriced properties will mean a long time to recovery for this financial mistake. Waiting too long just meant that someone else is getting richer but just not the one who’s renting…I believe buying a property should be as quickly as possible if our financial capabilities allow. PLEASE REMEMBER, BUYING THE WRONG PROPERTY IS STILL WRONG yeah. PLEASE ALSO NOTE THAT OVERSTRETCHING FINANCIALLY IS DANGEROUS yeah. Due diligence is needed for all types of investments. Understand what we buy and do not blindly follow any friend or any property guru who’s a very good presenter.

One day, NO ONE can afford to buy a property, true?

These days, it seems that the property price has stagnated. Gone were the days where people share how much their property price has risen etc. At the other end, home owners would want to believe that the property prices will rise again in the near future. They (the homeowners) would hope that the property they are holding today will increase in price in the near future. Have we ever wondered what will happen if one day, the property price becomes too high; totally unaffordable to the working population.

If no one could afford to buy, then these will happen:

#1 – Developers stop building and do other stuffs instead

Developers would already stop building any new properties as soon it realises that no buyers were interested with their pre-launches. In fact, it may be better for them to return the deposit payment cheques to the few buyers versus starting to build and struggling to fund it. The property developer may do something else altogether. Perhaps buy up some other smaller listed companies and venture into a new business. Anything but property development since no one could afford to buy a property anymore.

#2 – Everyone’s waiting and thus, renting. That’s a great idea.

By the way, people will still need to find job after they graduate. The urbanisation from smaller kampungs, towns to bigger cities will continue. Just look at advanced nations for clues. When they arrive at the new city, they need a place to stay. Let’s assume none of them will ever buy because everything is so expensive, then where would they stay for their whole lives? Renting a room when they are single and renting one whole unit when they get married?

Are we very sure there’s ENOUGH such one whole unit for people who are getting married? Oh… perhaps all of them will just continue renting rooms even after they got married and have children? Or perhaps no one will get married and no one will have children and therefore the demand for homes will not increase since people will rent that same room from the day they start working until they say good bye? Hmm…

#3 – Current owners will become super-duper rich

When no new homes are built since no one could afford them anyway, demand for homes will be centred on existing units. In other words, it will be easy for current owners to get tenants and in fact if the tenant refused to accept the extra 5-10% increase in rental every year, just give them notice and move them out. The next one will be willing to pay since the supply has now been limited.

Yes, these owners of these homes will just become super-duper rich as their rental is likely to yield them high returns. Do wake up yeah, if everyone believes they can keep renting and housing supply does not increase because no one could afford to buy.

#4 – Never ending subsidies from the government?

Okay, let’s be realistic. Any government of the day would have to take care of the people and if the people need a home, then the government will have to build more homes or force someone to build more homes. Since the price is just too expensive, the government would have to subsidize them. I do wonder where would this subsidy money come from and whether they would ever have enough if they have to subsidize majority of all units being built… since one day it will become too expensive for everyone?

#5 – UNEMPLOYMENT numbers go up.

Look around the sales galleries. These days, many developers are using real estate agencies to sell their properties. They find just using their own sales staffs are not sufficient anymore. When the building of new properties stop, the commission stops too and all these sales people would have to find new jobs. By the way, when their commission stops, they will stop buying nice cars… what will happen to the new car sales…? When more of these sales people stop spending as they just do not have money, do we think no other sectors will be affected? This is why we should not hope for less supply of new homes…

#6 – Banks lose a huge portion of their business

Did you know what’s the amount of lending which the bank gives to the borrowers for property purchase? Majority of all property related transactions would usually be via bank loans. I do not know that many transactions using cash. Here’s one information about potential loss to all the banks if everyone stops buying.

“Malaysia’s property transaction value hit RM196.83 billion in 2023 — the highest ever recorded by the National Property Information Centre (Napic).

The figure was a 9.91% year-on-year (y-o-y) rise from the previous all-time high of RM179.07 billion logged in 2022, Napic said in a statement in conjunction with the release of its Property Market Report 2023 on Wednesday (March 6)..” Source: theedgemalaysia.com

Conclusion

Maybe in order to increase the supply, connectivity could be built so that land supply can increase and property price can be lowered. Maybe the government could build pass new laws so that they could force redevelopment of the city centre. Old buildings torn down to build better, higher and more spacious ones on the same spot. Maybe get everyone to take the LRT, MRT and BRT and the allowable density could be higher.

Maybe developers will just build smaller units but with many of the built-in comforts so that a smaller space does not mean fewer conveniences. They could also build further away, sell the benefits of having bigger homes and forget the 45 minute journey to work everyday.

Maybe banks could provide longer repayment periods for loans. They could even be more flexible like smaller repayments in the first few years and higher repayments later when the person gets higher salary as he is promoted in future years.

More maybes but we should see that there is no way that property prices will become so unaffordable that no one could buy. Personally, I do not believe that properties will become too expensive for everyone in the future. It just does not make financial and logical sense.

Happy believing if you still think one day no one could afford to buy a property or that renting is the best strategy of saving money.

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