Property Investment 101: Property price cannot keep rising lah. I agree.

Property Investment 101: Property price cannot keep rising lah. I agree.

Before we start today’s blog, here’s a chart from visualcapitalist.com yeah. This is nominal housing price changes. In other words, it is not adjusted for inflation. Yea, it seems scary for me too. Double digits in many countries. Especially in Europe. However there are also negative numbers too. Look at Hong Kong and China or even Australia and New Zealand too.

After this, we look at the real housing prices which is already adjusted for inflation. Please refer below. Suddenly the numbers go lower. This tells us something very real yeah. Inflation is one major reason why everything increases in price. This includes its effects onthe price of housing too. For some countries, we see that the drop is even more evident. The reason is because maybe the inflation is even below zero yeah. Just do not try and wish it will be below zero forever. Soon, financial crisis will come yeah. Inflation has to be moderate. Cannot be below negative for many years or even too high for a few years. Both are not good signs.

My view is very simple. Please just increase moderately.

We want to earn more money every year. Whether we are working professionals or we run a business, the wish is for every year to be a better year than the year before. As a property owner, I wish that property price will continue to increase every year but I do not want it to increase faster than even the inflation rate. A moderate increase, even 1-2 percent every year is perfectly fine for me. Just continue to do that over the 30 years that I have to pay for the property and it will be just fine for me.

If inflation percentage is higher than the salary increment percentage, then why buy property?

I know some say that if inflation is higher than the property price increase, then there’s no point in buying a property! Haha. Must be some personal finance expert who does not like property investment.

Are you saying that our expenses per year is like the price of a home? Take a look at the below yeah. I assume someone earning RM5,000 per month and spending every single cent every year.

RM5,000 x 12 months = RM60,000 and this someone spends EVERY CENT he earns. Plus an inflation of 3%, that’s RM60,000 x 3% = RM1,800 which is because of inflation. Means every single thing he bought in the whole year are affected by inflation. If he does not receive an increment which is above RM1,800 per year, then he is worse off than the year before.

Now let’s look at the house price and an increase of 1-2% yeah.

RM400,000 home x 1% increase in inflation = RM4,000

RM400,000 home x 2% increase in inflation = RM8,000

I hope everyone understands from this simple calculation why property is the best hedge against inflation yeah. Cheers.

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