Property Investment 101: Only landed homes will increase in price lah?!

Property Investment 101: Only landed homes will increase in price lah?!

Price of the most popular noodle stall versus less popular ones

There’s a favourite noodle stall in town which everyone loves. Queues are long. There are also many other noodle stall around the area but not as popular. Perhaps the taste is also not as great. The favourite noodle which everyone loves will always LEAD any price increase. If the favourite noodle stall was selling at RM10, every other stall selling similar thing but not as great tasting will have to sell at RM8 or maybe even RM7. 

Now imagine what happens when this popular stall increases their price to RM12. Do you think all other stalls would continue to sell at RM7? Of course not. They will increase to RM9 or maybe RM10. This is because they know if queues remain long, people now can accept RM12 for noodle and surely RM9 or RM10 is fine. This is why as long as the leader continues to increase the price and people could accept it, all the other followers would soon… follow.

Until one day, an even more delicious noodle comes along and sells RM7. Then, everyone would have to reduce their price yeah. This new delicious stall with cheap price is called a disruptive stall.

Prices of the most popular car brand versus less popular ones

Look at the segment B most popular brand in any country. This most popular brand will usually be priced the highest in the market. The number two would just have to price their car slightly lower. This ensures people would have to think twice before deciding between similar cars versus deciding just based on brand alone.

This is why when the most popular car brand introduced a new car and increased its price, rest assured that the number two, when they launch a new car will most likely be increasing their price too but still below the most popular brand. This goes on for the 3rd most popular etc. Now you understand why prices keep rising if everyone kept buying the most popular brand? The rest are just followers. If demand for the most popular kept rising, their prices will keep rising and the followers will follow.

Property prices in the city centre versus suburb

Everyone would want to stay somewhere next to their favourite mall. Or with a view of the Petronas Twin Towers anytime they want. Or maybe even nearby the tallest office tower. Truth is, when many people want this, they would try and buy the properties nearby. This will drive up prices. Even if slowly over the years, it’s a sure thing.

What happens later is that if I cannot be nearby the place via walking, at least I could be nearby via driving. This will then become if I cannot be nearby by driving 5 minutes to my favourite place, perhaps driving 10 minutes is not that bad. This is why when prices keep rising, people keep buying the surrounding areas and this meant that the property prices further away from hotspots also increase in price following the most popular neighbourhood.

Except… of course there is some catalyst in some areas, then that particular area may have some special pricing advantage. Let’s be logical. If everyone can afford to stay in Orchard in Singapore, why would they want to stay in Punggol… If everyone can afford to stay in Melbourne city centre, why would they buy a place 55km away? If you like to argue that there are people who just hate city centre, then I let you win lah. Haha. :) 

Conclusion, show you an image of the Malaysian House Price Index (MHPI)

It’s very clear. If given the same price of whether landed versus high-rise, of course most people (cannot say all), would choose landed. By the way, if it’s the same price, people may prefer to choose semi-detached over the terrace home. However… things do not happen this day. Thus, we can see that as the landed homes continue to increase in price, the high-rise would definitely also increase in price too.

As for the percentage, terrace homes lead in Malaysia. On average, it would have more than doubled when compared to the periods of 2010 versus Q2 2022. Meanwhile the high rise has close to doubled in price. Not shabby at all yeah. If you tell me that the property I bought would just increase by 50% in 10 years, I think it’s already amazing. This one is close to 100%.

What is the lesson that I have learnt from all these?

#1 – If I love that favourite noodle stall, I will buy even if the price is higher by RM2 per pack. (That’s maybe 20% higher). However, I will not eat it every time. I may choose to buy from the number 2 or number 3 as long as their price is slightly lower. This is why the whole market continues to have their dynamism.

#2 – If there is an area I like a lot, I know very well that buying just 10 minutes away will give me a big price reduction. And since I know this area will continue to grow in popularity and thus the prices would also continue rising, it meant that my buy will also increase in price too. I also do not need for it to be the same percentage increase. The popular is up 10 percent, I am super happy with 5 percent. 🙂

#3 – I know landed homes in popular neighbourhood will continue to increase in price because they just do not have the land to build more landed homes in popular areas. That’s why I know that landed homes further and further and later on, even further away would continue to increase in price too. It will just follow the leader. In this case, the landed homes in some super popular and mature neighbourhood which everyone likes to buy into.

PLEASE TAKE NOTE

If we buy a wrong property, whether landed (there are many such examples) or high rise (lots of these examples) will still not have a good ending yeah. In other words, it is not possible to just generalise everything because nothing works this way.

Even when the whole stock market is up, buying the wrong shares will still be a huge risk yeah. Even when the world economy is growing, it does not mean every country is growing at the same pace. Even when the whole country says average increment is 10 percent, it does not mean those who could not demand would also get 10 percent too.

Everything is a risk. In fact choosing NOT to invest is also a risk too. Happy managing and understanding.

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