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When affordable homes are too many, would this cause property prices to drop. Scary for owners and Happy for buyers?

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When affordable homes are too many, would this cause property prices to drop. Scary for owners and Happy for buyers?

Dilemma for me

By the way, I am an owner. I hope prices continue rising. I am also a potential buyer. I also hope prices would drop so that I could enter. What a dilemma, right? This is why I smile when property developers issue press releases saying that property prices will rise and I also smile when there are good opportunities appearing because of the current market circumstances. You see, I love to smile. Haha.

What if hundreds of thousands of affordable homes were built?

Anyway, there are announcements about many thousands of new affordable homes or even hundreds of thousands when we stretch over a few years which will be built here in the Klang Valley. If it’s really hundreds of thousands of units, it would flood the market and then the market would turn negative. Then, surely property prices will start to drop since the supply is just too many. Like the overhang issue which people say would cause property prices to drop! (Here’s the earlier article about this)

Now, let’s answer the question of whether affordable homes would cause the whole property market to be feeling ‘just too much’ and then start to have a ‘landslide’ in property prices.

#1 Are the target markets the same?

For product A to impact product B’s pricing, then product A would have to appeal to buyers of Product B as well. When there is competition, then there will be a pressure on pricing. There are certainly differences between these simple and new flats versus the many apartments priced from RM400k and has facilities. They are unlikely to be appeal to the same group of buyers.

If they did, I think this is good for the market. More people who may be renting those RM400k properties with a rental of RM1,300 per month may now be tempted to buy instead. Positive for the market as a whole yeah.

#2 Are there really such a Demand when we look at the population without a home?

Let’s understand that within H1 2020 itself (of which two months were under MCO), the total residential property transactions topped 75,000 units. This meant that the demand is still super big and one main reason people could not buy is that the properties were unaffordable. When we look deeper, then we would know that many of these lower income households within the M40 (click here to know what is M40) are renting.

They are the ones who really need a property instead of keep paying for rental which will mean they remain poor for generations after generations. A simple calculation? RM600 (rental) x 12 months x 30 years = RM216,000. These are their money which they are giving away to the home owner… Their next generation would still have to keep paying this. Help them move away from this for their future please.

#3 Property market is well supported… lah.

Since 2014, we have always been having predictions after predictions that property price for the whole market is about to drop. There were even forecasts with details such as the exact time for it to happen and even the actual % which the price would drop to. Fortunately, all these forecasts did not happen and we still have a stable market.

Looking deeper, we would realise one major reason is because it’s NOT EASY to get a home loan approved. Ask around and one would understand that the banks are super conservative before they approve any new home loan applications. When the quality of borrowers are not just any Tom, Dick and Harry, they will also not suddenly stop paying the their home loans become non-performing loans. (Take a look at the actual NPL status in Malaysia here)

#4 Property prices will drop IF …

These new flats / apartments become an eye-sore in just a few years. This is why MAINTENANCE is essential. This is why MAKING SURE the people pay their maintenance fee is essential. Please put these in place BEFORE the buyers are allowed to buy a unit. TAKE FAST action as soon as someone’s not paying their maintenance fees. This is not the time to be SLOW in acting and in the end, all the owners who paid suffered. It’s actually already possible under law yeah. (Read here)

Conclusion

Just building more of these affordable units will benefit the needy. There are many Malaysians in need of a home. Please do not ignore them. We somehow must help them so that they could stop making the owner rich. Remember, no landlord will tell them to stop paying rental if they have paid rental for the last 30 years.

Property is already a cause for poverty in many advanced countries. In the old days, people continue to be poor for generations simple because they were not land owners. Today, people will remain poor when 30-40 % of their monthly salaries are given to the owner of the home they stay for years after years.

What I hope is that these affordable units are PLANNED based on available demand for that area and not simply building it when there are NO buyers! Thank you.

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

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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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