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Remember. Property transactions happen only when property is still affordable

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Remember. Property transactions happen only when property is still affordable

Are property prices too high already?

Many years ago, someone asked me if property price is too high here in Malaysia. My answer was a simple one. Once people could not afford to buy, then property transactions stop and of course even property developers will stop building. Property transactions will only happen when people could afford to buy.

In actual comparison however, Malaysia’s property price versus median salary is still considered positive whether we compare it to advanced property markets or less advanced ones within ASEAN for example. Briefly, people could still afford to buy. It’s just a matter of type, distance, duration or even preference. As for actual transactions, every year we do have probably around 300,000 property transactions. Or probably a little lower than 300,000 for 2021 total.

By the way, there are just two ways when property prices went up too high. One, the whole market collapses. Two, the market readjusts itself via a downtrend in transactions and maybe a little on the price side. I always hope it’s the latter. One market is showing that when it becomes unaffordable, property market has to adjust itself accordingly.

Article in edgeprop.my Seoul’s unaffordable housing market show signs of cooling down. An average apartment in Seoul is estimated to cost around 18 years of South Korea’s median annual household income. (Means one has to work for 18 years, save up every cent and that’s the amount for a median home price) In 2017, it was only 11 years.

In December 2021, property transactions dropped by 62% to 53,774. This was the lowest transaction recorded since the global financial crisis in 2008.

Park Hab-soo, a professor of real estate studies at Konkuk University said, “A sharp downturn is unlikely, but it does look like the market has turned a corner with interest rates set to rise further.” Article in edgeprop.my

Seoul property market is not the only one

This was predicted for the Australian property market which has been super hot in 2021; property prices will drop by double digits for 2023! Read the full article here: Prediction for property price to fall 11% in 2023

NZ House price has dropped. Do take a look at what the average price is to understand why adjustments are necessary. NZ Price Dropping.

Hong Kong property prices have been the highest in the world versus the median salary for more than 10 years. HK sellers cutting their asking prices because of Covid-19.

Would prices rise again?

The answer remains the same. Property transactions happen only if people could still afford to buy. Just look at Hong Kong as an example. The property price is already the highest in the world and yet transactions continue to happen. Property prices in some of the mature neighbourhoods in KL / Selangor are already higher than the less popular areas but the prices continue to rise because some people could still afford to pay for it.

One day, when no one could afford to buy anymore, then the property price will suddenly drop… until a certain point when people start to buy again. Then, the property market will slowly recover. Happy understanding.

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Next suggested article: Bankruptcy in Malaysia during the MCO period. High or low?

Header Image by Mikes-Photography from Pixabay

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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