Property Investment 101: Are you buying a property which is unaffordable to you?

Property Investment 101: Are you buying a property which is unaffordable to you?

What is considered affordable property price?

In order to know if the property price is affordable, the median property price is compared to the median income. If we earn RM100,000 per year and the property price is RM300,000 per year, that gives a ratio of 3. If the salary stays the same at RM100,000 and the median property price has now moved to RM500,000 then the ratio moves to 5. What does 3 or 5 stand for?

Referring to the data in visualcapitalist.com, here’s the definition of property affordability.

“Cities with a median price-to-income ratio of less than 3.0 are considered “affordable”, while those between 3.1 and 4.0 are considered “moderately unaffordable”

It’s about the availability and not about what the buyer wants to buy yeah

There are many cities where there are NO property prices which are affordably priced. In Kuala Lumpur, there are still properties where the prices remain affordable BUT they may not be the type, size, location which people wanted. Just note that in comparison, this is a small issue versus in cities where there are none at affordable price even if people disregards type, size and location.

Now you may understand why some people stay 65km from the city centre and still happily declare that they love their home. Yet, tell them that they can switch to the same type of home 30km closer to the city centre and I can tell you they will most probably take the offer quickly.

What’s the median price to income ratio like for these unaffordable cities?

It’s not about the currency you earn yeah

You can see above, even if you earn AUD which is more than three times of RM or even the US$ which is 4.7 times higher, the people will still face the property unaffordability issue. That’s because when you earn in that country, you would need to buy a home in that country.

As an example, someone in Melbourne could be earning a median salary of AUD65,000. (Source: seek.com.au) Meanwhile the median property price in Melbourne is AUD1.03 million. (Source: domain.com.au). This is the reason why it’s listed as unaffordable yeah. The repayment for this median price property with your median salary would meant that 80 percent if not more of your salary is spend just on repayment alone. This is why many people would choose to stay in suburbs far away from city centre because the price would be lower.

Lesson to be learnt?

At least buy one property so that you would not face the ‘suffering’ of having to pay rental forever plus potentially having a landlord who increases rental every year. In all these countries, we can see the reason for their high cost of living is simply because of property price yeah. It’s not about the amount spent on food but it’s all about the property price.

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