Perhaps this is an article for some of us who are worried with the property market post COVID-19.
This article was first published in Real Estate Malaysia (REM) magazine which is also Malaysia’s leading Chinese property magazine. If you like to read the full English version instead, it’s right after the two Mandarin pages. Basically it discusses the potential happening of the property market post COVID-19.
Should I be worried about property market post COVID-19?
The oil price has been falling for a couple of weeks now. My wife told me that she was surprised that the price of a litre of petrol is now so low. I laughed and told her that with the world oil price affected by COVID-19, we will get to enjoy cheaper petrol for a while more
A good friend told me the other day that COVID-19 has affected the oil price so much that the next thing it will affect would be property prices. Well, if we are to really read into the oil production versus the oil consumption, it is very clear that the supply continues to be far higher than the demand.
However, prices have always been much higher than currently because the oil price was also dictated by a few huge oil producing nations too. This oil price ‘co-operation’ has been temporarily halted. Go online and read more about it if you want to. Very interesting theories and stories too.
In my opinion, oil prices should be less volatile and it should not be dictated by all these speculative buys all over the world. You buy oil because you need to use it. You do not buy oil to trade… If it’s just based on the production cost plus logistics and a profit margin is added, then there’s not even a need for all these ups and downs. Then again, if it’s that straight forward, then none of these ‘investors’ in the oil market would exist and they would have to play their games of buying and selling oil future contracts elsewhere.
Coming back to the property market, it is also the same. Imagine the chance for a property price to be determined ONLY by adding a certain agreed industry profit margin and then every year, the prices will move upwards by a fixed percentage across the industry? In other words, all developers have the same profit margin and perhaps building almost the same product then? All owners would also find that their property increases in price just like every other property in the whole nation!
Oil is a commodity. Yet the price fluctuates. Controlling property price will be impossible because of different locations, different sizes, different available amenities and even different developer brands? Some carrying a higher premium than the rest? Since the oil price is said to be affected by COVID-19, would property prices be affected by COVID-19 as well? Actually it’s not such a straight forward answer yeah.
Very briefly, COVID-19 will cause people to stop spending money since they will not be going to the malls. This will affect businesses which may have to retrench people and the people would then be having no salary and thus could not pay their monthly home mortgages and then the banks will move in and auction those properties, usually at a lower price than the market. If we look at this as a story happening often, then yes, COVID-19 can indirectly affect the property price
Short answer to the title of this article is Yes, property market post COVID-19 will be affected somewhat. It affects the sentiment and sentiment affects the owners and well, the prices too. Long answer is that it will only be for certain segments and not for all and everything depends on how long COVID-19 will stay.
Truth is, if people still have a job, they will not be willing to sell their properties at lower prices and they will prefer to hold on to it instead. This is even more so for some owners who have rented out their properties. For them, it is even more unthinkable to sell their property for lower prices simply because everyone is scared of COVID-19. To them, if the rental continues, nothing changes.
Last but not least, happy identifying the potential properties to buy especially during current buyers’ market. Just be realistic and opportunistic about it. Waiting and doing nothing will amount to nothing.
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