Personal Finance 101: What happens when prices rise?
My rich friend does not care much
It’s quite clear that there are wealthy people out there. It’s also very clear that a RM50,000 rise in property price is seen as super huge for many people but may not mean much to the ultra-wealthy. There are also the super-wealthy that does not own any property. They just move to anywhere they like, they buy things they do not have and they eat food they like by flying there in the morning and coming back in the afternoon. Majority of the people are not within this category.
What happens when prices rise? (For majority of us)
What do we do when things become expensive? I would find a cheaper alternative or I would not buy the item for now. What would happen is that when demand slows down, the price would have to drop so that people like me would consider buying it again. So, if things get expensive, demand will just slow down.
In many countries, the parking rates are so expensive that people are forced to take the public transport. Some would argue that it’s because their public transport is super efficient. Yea, I am very sure many people love to walk to the nearest bus stop, take the bus to the train station, walk from train station to office and then walk from office to the train station, then arrive nearby home in a bus and then walk back home.
Now imagine you are not alone but with a new baby…. (strollers… baby bottles… hot water… lots of baby wipes etc…) would you still think it’s convenient? Imagine it’s raining… Imagine going grocery shopping and you have 3 large bags of stuffs. I know, now the argument would switch to taking GRAB / UBER lah. Haha. It’s always a PUSH and PULL factor yeah. I am still driving and I would continue to drive until the government increases the petrol price and the parking rates to something unacceptable to me.
This is also why smartphone brands have their luxury model, followed by their mid-range models and then followed by the base models. This is why car brands have their luxury brands, followed by the D-segment (Deluxe), the C-Segment (Comfort), the B-Segment (Base) and so on… When things get expensive, people choose something cheaper.
When property price rises?
It’s the same with buying a property. When property gets expensive in the city centre, people consider properties within a 5km radius. When these got expensive, they consider the properties within a 10km radius. This would just continue until the radius now turns into a word called suburb. The distance may now become 54km away, or further. This is why new townships are also flourishing and transactions and interest are also rising too.
When land and cost of construction was cheaper, homes were usually landed ones. When everything starts getting more expensive, they build upwards; high rise. However the typical sizes are still above 1,000 sq ft as people need more space to feel comfortable. When the price of all the inputs rise, then the high-rise units would get smaller in order to maintain the same price level. If a 1,000 sq ft high-rise was RM300,000 10 years ago, the developers could still offer RM300,000 price today. The difference is that the size would be smaller and the number of units within the same development would go higher.
By the way, this is not something applicable only to Malaysia. In most countries today, the only way for developers to build homes which are affordable enough in the city centre is to build high-rise units and increase the number of units by building higher and smaller. Just look at what Housing Development Board (HDB) of Singapore has done. Starting from the mid 2000s, it started to build flats taller than 40 storeys high. Based on construction technology and the population growth, there is nothing to stop the buildings to go higher. The prices of these flats have also kept going up, especially the ones within in-demand neighbourhoods.
Conclusion?
Rising prices will happen because once you and I bought a property, we are unlikely to sell it at a lower price. We will hold on to it until we get a better and higher price. Imagine buying the latest smartphone and the next model goes cheaper followed another cheaper model. Would you still want to buy that latest model? Of course not. That is why the next model of similar range will be priced almost the same or higher and the company would launch a lower-end model and price it lower.
Imagine our salary staying the same every year… It will not happen. This is why after some years of increase and we wanted to buy a property, we could offer to buy the property at a slightly higher price. The movement continues. Cheers.
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2 Responses
Once upon a time, I was a real estate agent with a decent income. Then I had kids, and suddenly, the affordable prices I used to sell were gone.
Diapers, baby food, and college tuition fees were more expensive than the homes I was selling! So, I had no choice but to improve my personal value in sales skills and work harder to earn more money.
But as demand for homes continued to rise with every new family and their growing kids, the property prices went up and the cycle continued.
It was like trying to catch a falling diaper, except the diaper was a home and it was getting more expensive by the minute! But, as a seasoned real estate agent, I knew the tricks of the trade. I worked tirelessly to find the best deals for my clients, and to sell their homes for top dollar.
The price kept going up, but I found ways to make it work. Moral of the story? Property prices will always go up, but with the right real estate agent by your side, you can still find your dream home and sell your current one for a great price. Kids are expensive, but they’re also a great excuse to improve your sales skills and earn more money (just don’t tell them that).
So, if you need help selling your home or improving your sales skills, give me a call. Together, we can make your wallet (and your kids) happy.”
Things will surely get more expensive. Salaries surely would increase even if everyone is saying salary increment is not high enough. Inflation will come and eat away a lot of our wealth. A property meanwhile keeps us balanced. At least, we are not losing out as it is a natural hedge against inflation.