Property Prices Have To Fall By 51% To Be Considered Affordable. So, Do We Still Wait Before Buying Property?
I would like to share my thoughts about housing unaffordability in this country and how this impacts first time homebuyers and even investors who feel priced out of the market. What options are available to them? And, should they be resigned to this predicament?
Firstly – some context. The average household income in Kuala Lumpur averages approximately RM7,600 per month. According to Khazanah’s statistics, for a house to be deemed as affordable, the housing loan should not translate to more than three times one’s average annual income.
As such, an affordable house in KL should be priced around RM274,000 (RM7,600 x 12 months x 3)
However, guess what? The average actual price of a KL property is about RM560,000 based on data obtained from NAPIC.
Therefore, for properties to be considered affordable, prices need to crash by 51% (which is the difference between RM560,000 and RM274,000).
However, there is a need for a reality check. After all, about 60% of home ownership in the Klang Valley would likely result in residential owners not wanting their property prices to fall by 51%.
The sad truth is that should house prices fall by 51%, there would be other problems to worry about. Increasing unemployment, plummeting business confidence, consumer spending being at a standstill that can result in a precipitous drop in the economy.
Assuming that property prices will remain stagnant or may just increase conservatively by about 5% per year, what can first time home buyers or aspiring investors do? It may seem easy to ask them to buy at the outskirt areas, leverage on the light rail transit (LRT) or other modes of public transportation. However, given a choice, most people would want to stay closer to where the action is at residential enclaves located not too far from the urban hotspots as they would want to be close to their friends and other amenities.
Some suggestions for those who are priced out of the property market:-
Here’s my two cents take on what I perceive is a balanced view. We are not going to see super-explosive growth in prices anytime soon. Granted, the super bull years from 2009 to 2014 are over. However, prices will still increase moderately around 4.5% to 5.5% per year.
This may not appear too exciting, but prices will be sticking upwards.
My advice to young, aspiring investors is there’s nothing wrong with wanting to invest in KL, PJ, Subang or other “happening areas”. However, perhaps it’s time to lower one’s expectations on how our first property should look like.
After lowering those expectations, do whatever you need to do to get into the market. In all humility and with due respect, you have to find a way to get into the market because if you don’t, the opportunity to do so is going to run away from you.
Learn to save. Rent first if you must. Consider borrowing from one’s parents and work hard to increase one’s savings. Do not indulge in a Jho Low inspired lifestyle.
Times have changed and property prices are higher, but the methodology towards attaining property is still the same – save, sacrifice and devise a sound financial plan. Lastly, be a fighter. Don’t give up.
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