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Will housing prices ever come down?

November 2nd, 2014 Leave a comment

by Ken Lim

Recently I met up with a friend who is a retiree, owning a semi-detached home in the vibrant neighbourhood of Island Glades. His house could easily fetched more than two million ringgit in today’s secondary market. His daughter now is contemplating to purchase a new property while harbouring plans to get married within two to three years.

He decided to seek my view on what are the possible steps the government could undertake to exert a certain degree of control on the property price. My message to him is very simple – If all house owners would find time to collaborate and reach the consensus to sell their house at the same price as the initial purchased price then the property price will remain stagnant. Therefore I initiate an offer to purchase his semi-detached abode at the original developer’s price with the understanding that one of the units of my condominium at Tanjung Tokong will be released to her daughter based on the original transacted price.

Understandably, he has rejected my offer without even blinking his eyes. :)

So, let us take a moment to ponder.

Would you like to even contemplate about the possibility of housing prices dropping?

If you are a first time buyer and you have purchase your condominium at four hundred thousand ringgit, would you be exhilarated if the next phase is selling at a much lower price with respect to the unit you purchased two years earlier?

In 2005, a 1,300sq.ft. unit at Bayswater Resort Condominium would easily fetch a price of three hundred and twenty thousand ringgit only. If it is still selling at that price currently, I’m very certain that everyone will be extremely excited and would not hesitate to grab one now.

However there are two possibilities for the price to stay at three hundred and twenty thousand ringgit after nine years:

  1. Growth has stagnated in Penang and everything remains at status quo. Property price is unchanged at every nook and corner of Penang. However property developer continues to build condominium and still sells it to the public at the same price.
  2. The condo is so bad in terms of its design and construction that no one would be keen enough to purchase with the purpose of staying . That’s why its price does not appreciate at all.

So, would you be excited with the three hundred and twenty thousand price tag?

It is plausible to conclude that everyone who owns a property, be it for own stay or investment, will be very excited and exhilarated to find their property value gain a measurable appreciation.

The reality is such that whenever we wish to purchase a property we would have hoped that the price at the time of purchase would be so far below prevailing market price yet when we have a property of our own, we would harbour the hope that the price of the property will hit the roof.

This article is not meant to lend credence to the act of speculation however the most likely scenario is that property prices will continue to be on an upward trend.

– Ken Lim
(Founder and Principal Reviewer, PenangPropertyTalk.com)

  1. David
    November 2nd, 2014 at 13:49 | #1

    25 years ago Island Glades is a nice place to live in but not now.

  2. Chuah
    November 2nd, 2014 at 21:25 | #2

    The question of “will house price ever come down” is totally different from whether someone would sell their property at the same price as when they bought it from developer 20 years back

  3. olmed
    November 2nd, 2014 at 22:46 | #3

    There is a property and financial bubble in SE Asia.

    What goes up will sooner or later come down. When it is going to burst and for how much it affect prices, remains to be seen.

  4. Spiderman
    November 3rd, 2014 at 00:43 | #4

    Hello Mr Ken,
    Aiyoh, retiree asked your advices and you pulak pusing pusing him, try to con his SD to exchange with your condo. Cannot like that lah, bro. Luckily, the retiree is smart too, if not kesian nia.
    Ok, serious matter. I think many potential house buyers are merely hoping govt measures are working (and bites !) so that there are pricing correction. So, save 20K, 40K, 60K, etc, etc also good ma. It’s just like Bayan Lepas semicon industries have semicon products inventory correction every few years after heating too hot liow. Also, if price corrected, some ppl hope to afford to buy more houses for long term investment ma. Therefore, it is not the same as someone hope to buy property at same price level as when developer sold them 20 years ago. I don’t think anybody hope or wait for that. Yes, I agreed with Chuah.
    BTW, did you finally give practical property advices to your retiree friend since her daughter harbouring plans to get married within two to three years. Sorry, spiderman still not available, still sad after Gwen Stacy died. Cheers.

  5. Ken (Admin)
    Ken (Admin)
    November 3rd, 2014 at 01:47 | #5

    HI Spiderman,

    Hahaha…of course both of us know that was meant to be a joke. :). Actually, his property is not 20 years old. That example is also true for recent purchases. I don’t think anyone is willing to sell their property at the original developer’s price even it is just after 1 year.

    The examples given in this article are mainly to explain people mindset. I fully understood that many potential buyers are hoping to see some pricing correction. In fact it may have already taken effect. But because every piece of land and condo is unique, there is just no way we can quantify the amount of the correction from their selling price. Unless there is a specific line item in your S&P says “2014 pricing correction = -RMxxxxxx”.

    Lets come back to reality again. Are we talking about continuous correction? because there will always be some potential buyers hoping to see some pricing correction.

    Yes, i gave him my usual advice – Don’t ask for the best time to buy a property because that is always yesterday. Instead, think of the right time – the time that you are ready for it. Source for one within your budget. Don’t just focus on new development, there are also many choices in the secondary market.

  6. Fiona
    November 3rd, 2014 at 10:10 | #6

    I have a friend (Friend A) who bought her Gurney Park(970sqft) back in 1997 for RM300,000. Today (after 17 years), you can probably fetch RM750k. You can rent it out for RM2500 per month.

    There is another common friend (Friend B), who bought her Brezza (1250sqft) in 2008 for RM350,000 (she bought 2 units). Today (after 6 years), you can probably fetch RM750k a unit. You can also rent it out for RM2500 per month.

    Friend B actually nearly bought Gurney Park in 1997, but she thought the market was too high at the time. Instead, she invested her RM300k over the period of 1997-2007 in stock market, and ended up with RM800k in year 2007 (a compounded return of ~11% per year).

    In summary, Friend A made a compounded return of ~6% per year over the last 17 years with her RM300k. Friend B made a compounded return of ~12% per year over the last 17 years with her RM300k.

    Friend A is probably getting poorer with just 6% return over the last 17 years, taking into account price inflation + lifestyle inflation. So, don’t anyhow hantam when it comes to buying properties. Put your greed aside, use your common sense.

  7. Ang
    November 3rd, 2014 at 11:11 | #7

    @Chuah

    You are spot on Chuah ! I could not agree with you more !

  8. Mike
    November 3rd, 2014 at 11:20 | #8

    Singapore housing price already came down considerably for the last 2 years, next is Malaysia since we started late on the control. This is the most likely scenario, else you won’t see property fairs every week…

  9. Ken (Admin)
    Ken (Admin)
    November 3rd, 2014 at 11:56 | #9

    Hi Mike,
    Agreed, if we are just looking at property report, numbers and transactions.

    In my next article, I’ll share some common misperception about down trend and property bubble, from a realistic point of view.

  10. Mike
    November 3rd, 2014 at 12:31 | #10

    @Ken (Admin)

    Enlighten me on how you conclude the price will continue to be on upward trend as your most likely scenario. Let’s talk about next 1-2 year instead of 10 years from now, which is more meaningful…

  11. Ken (Admin)
    Ken (Admin)
    November 3rd, 2014 at 13:21 | #11

    Mike, stay tuned for my next sharing.. perhaps in two weeks time. :) You should be able to find some answers from the article..

  12. shin
    November 3rd, 2014 at 14:26 | #12

    Just as we speak, someone just offered to sell his Maritime @ Karpal Singh Drive at RM580k for 950+ sqft. The same unit was asking for RM700k just a few months back. So much for someone’s article to justify the “theory” of upward trend! Hahahaha.

  13. shin
    November 3rd, 2014 at 14:33 | #13

    By waiting for just 2 months, it just saved me RM120k. If I use the same “linear” calculation that a property optimist would use to annualize the yearly return, that translates into a 102% annual gain, or in other words, a property crash is imminent. Hahahaha!

  14. cl
    November 3rd, 2014 at 16:10 | #14

    580K may more reasonable price compare to 700K… Seller can just simply put on the price they wish to sell. But 580k already gain for the seller.

  15. David
    November 3rd, 2014 at 16:24 | #15

    Must rush to sell because it is leasehold and only 900 sq. ft. to be exact.
    Selling RM 580k is too high the price. It comes to RM 610 per sq. ft.

  16. cl
    November 3rd, 2014 at 16:53 | #16

    Admin Ken, pls help advise what is the market value per sqft for Relau and Sungai Ara area. Do you foresee there are oversupply in Relau and Sungai Ara area now or future?

  17. Potato
    November 3rd, 2014 at 17:35 | #17

    As neutral as possible without siding anyone …

    Subsale transaction does not account to actual value as different transactions can transact very differently. This is caused by the desperation of seller and neediness of buyer. A very desperate seller may even sell way below market price if terms can be met, such as cash buyer etc.

    On developers side, new properties will always be increasing. How much it increase depends on demand. If people kiasu and buy buy buy, then price will go up up up. If no demand or somehow all the potential buyers can gang up and withheld until developers sell at lower rate then price will go down. I find the second scenario impossible as human nature is greed and at least one fellow in the “conspiracy” will betray the gang and buy buy buy when he sees the price reached a mark that he/she finds right. Also, everything in related to constructing a new home is increasing including the leng lui’s salary that serves you during sales launches.

    Best pricing to follow, I think is bank/valuers price +10%. Why +10% is just that banks will not finance the full property value and will finance 10% – 20% lower to safeguard their investments while valuers will value properties lower as a prudent guideline for their profession.

  18. cheong
    November 3rd, 2014 at 18:12 | #18

    @Potato
    What you said is not way off. Don’t buy from developers now. It’s expensive. For investment, this is not the right time. For own stay and no choice have to buy now, buy from subsale, plenty of desperate sellers out there.

  19. @klsg
    November 3rd, 2014 at 18:39 | #19

    Your fren is asking the right question but no one except the government knows the answer. Sg price has dropped over past few months due to some new goverment regulation to protect first time home buyer. Thus you can get cheaper if is first time buyer. Sadly no such regulation being imposed in Malaysia. Anyway, agree that there will be no drastic drop and price continues to increase in long run. This apply to Sg too.

  20. Spiderman
    November 3rd, 2014 at 19:26 | #20

    Hello Ken,
    Yes, I know you were joking and I’m joking with you also nia.
    Anyway, good advices and looking forward for your next article.

  21. Ken (Admin)
    Ken (Admin)
    November 4th, 2014 at 09:33 | #21

    cl, are you referring to condo or landed? condo price in Relau and Sungai Ara is now between the range of between 500 psf – 650 psf, depending on location, type and size. I think the condo price is going to be slow, especially those along Jalan Fettes, due to the fact that many units will be completing soon in the next 1-2 years. However, the landed properties has higher potential to continue moving upward. Particularly those guarded scheme in Setia Pearl Island and One Residence.

    Spiderman, thanks! :)

  22. Potato
    November 4th, 2014 at 11:32 | #22

    @cheong

    Depends on buyer also. Subsale can be cheaper but people being people especially Chinese always think alot and pantang this and pantang that. Also kiasuness that wan to show off to friends that own new property.

    But without a doubt, old properties surely can be cheaper when compared to new properties direct from developers as their construction cost years ago were way cheaper too … but, design, layout, facilities etc. may be of the olden days as well.

    So, it all depends on the buyer. If purely wan cheap and don’t care about anything else, there’s a tonne of options out there. If pickly, wan cheap, high end, big size, new … as we Hokkien people say “ban ban tan” … 😛

  23. jen
    November 4th, 2014 at 11:44 | #23

    Bayan Baru (eg. Elite Heights) @RM430psf, still have tonnes of units in the market, expected to touch RM400psf if slow market persists. Only a short 5 mins drive to work in Bayan Lepas….:)

  24. jen
    November 4th, 2014 at 13:06 | #24

    @Potato

    Elite Heights is very new, plenty of subsale units going at ~RM450psf, and the price is trending down. I think that is what cheong meant. Not the very old ones.

  25. W
    November 4th, 2014 at 13:47 | #25

    Commercial title ok?
    Assessment higher also ok?

    if so why not?

  26. cl
    November 4th, 2014 at 14:15 | #26

    Admin Ken, Thanks. As per your advise 500 – 600 per sqft looks like is good price, but we still have many units of Condo in SG Ara and Relau area not able to sell as this price such as Golden Traiangle and Sierra Residences that going to get OC soon. Can you share your idea what you are saying 500-600 sqft value for Condo in Relau and Sungai Ara area. Do you refer to current or future price? Is there any infrastruture upgrade or any hypermarket will be buildin this area ?

    Appreciate your valueable advise.

  27. David
    November 4th, 2014 at 14:19 | #27

    Commercial title with water and electricity charges will be high !!!!

  28. Penang Lang
    November 4th, 2014 at 16:46 | #28

    Admin Ken, same concern with cl regarding that are of Sg Ara & Relau in terms of infrastructure, since so many Condo TBC in 2 years time plus those completed Condo & Apartment.

  29. John
    November 4th, 2014 at 17:05 | #29

    @Penang Lang

    Not to mention the chronic floods in Sg Ara & Relau. In order to keep the water from Sg. Ara (the river) from overflowing into the town and residential area, the cost was estimated to be around RM300mil.

  30. Patrick
    November 4th, 2014 at 18:24 | #30

    Sg Ara & Relau are in progress transforming to be better township as a lot access road and basic infrastructure in upgrading progress….

  31. W
    November 4th, 2014 at 18:41 | #31

    Govt is finally listening…..refer to this link as posted by Ken

    https://www.penangpropertytalk.com/2014/11/penang-may-freeze-new-development-projects/comment-page-1/#comment-310265

  32. lala
    November 4th, 2014 at 19:48 | #32

    Bayan Baru flood has spread to Sg Ara/Relau. Will this become a norm?

  33. David
    November 4th, 2014 at 20:11 | #33

    It’s just like the traffic lights will be accepted by Penangites at every
    junction and pedestrians. crossing So flood should also be no problem !!!

  34. lala
    November 4th, 2014 at 21:10 | #34

    @David

    Traffic light still ok, better than paying toll. But flood?

  35. Ken (Admin)
    Ken (Admin)
    November 4th, 2014 at 23:17 | #35

    cl, Penang Lang…

    In my recent webinar, I have shared my view on Penang market trends with official data from NAPIC (National Property Information Center). I hope this is helpful :)
    https://www.facebook.com/video.php?v=818242981531366&set=vb.191459117543092&type=2&theater

    By the way, RM500-600psf is the range where a deal can be easily closed. You may be able to find someone who is desperate enough to sell below RM500, or your unit must be special enough to sell at more than RM600. Then again, there are also some less popular unit selling much lower.

  36. richard
    November 4th, 2014 at 23:20 | #36

    Traffic lights at every junction will be accepted ? Haha. Not for me man! I refuse to look like a donkey waiting for the green light at an empty junction. I would normally just GO regardless green or red as long as the traffic allows. I refuse to get cowed into doing something that doesn’t make sense. St**pid rocket!

  37. james
    November 4th, 2014 at 23:29 | #37

    @richard

    Toll toll toll.. where got people prefer to pay toll one.. no traffic light? you tot the road belong you one meh?

  38. richard
    November 4th, 2014 at 23:37 | #38

    @james

    No lah. Not mine lah. But there are better ways of doing things. It saddens me how the town planners can be so senseless. And it shocks me even more seeing how people conform to the senselessness…:)

  39. simee
    November 5th, 2014 at 08:47 | #39

    Potato :As neutral as possible without siding anyone …
    Subsale transaction does not account to actual value as different transactions can transact very differently. This is caused by the desperation of seller and neediness of buyer. A very desperate seller may even sell way below market price if terms can be met, such as cash buyer etc.
    On developers side, new properties will always be increasing. How much it increase depends on demand. If people kiasu and buy buy buy, then price will go up up up. If no demand or somehow all the potential buyers can gang up and withheld until developers sell at lower rate then price will go down. I find the second scenario impossible as human nature is greed and at least one fellow in the “conspiracy” will betray the gang and buy buy buy when he sees the price reached a mark that he/she finds right. Also, everything in related to constructing a new home is increasing including the leng lui’s salary that serves you during sales launches.
    Best pricing to follow, I think is bank/valuers price +10%. Why +10% is just that banks will not finance the full property value and will finance 10% – 20% lower to safeguard their investments while valuers will value properties lower as a prudent guideline for their profession.

  40. james
    November 5th, 2014 at 09:24 | #40

    @richard

    Only know how to say people. For me same lo.. Traffic light, roundabout, or toll? Unless everyone is taking public transport la..

  41. wj
    November 5th, 2014 at 09:27 | #41

    RM400K to 600K will maintain for the moment since it is still affordable but daily expanses will be tight like hell and no longer have the freedom to do other things. The property price is rising too fast for the salary to chase. Pity for us, is like human killing human itself haha jk.. sooner i think there will be alot “container” house in island and stay like bangala~

  42. Potato
    November 5th, 2014 at 09:37 | #42

    @jen

    Yes. But I’m doing a comparison with “new” means direct from developer at the moment. Elite Heights was soft launched 4 years ago. Ie. for the original buyers to sell even at RM450psf. they are already making a profit from their initial buying price that was about RM350psf. back then.

    Look at new properties that are under-construction and newly introduced properties by developers. Unless its a LMC or Affordable Home project, there is nothing below RM450psf. unless you go really far away from Daerah Timur Laut …

    But I won’t argue with you that Elite Heights is going downwards in pricing. But developers are still launching new projects at Sungai Ara and Relau at above RM450psf. … more importantly, there are still many takers and buyers.

  43. sing
    November 5th, 2014 at 19:53 | #43

    Many say Singapore property market drop. However it is just minor.. Best google for their price index and see the overall graph from 90’s to 2014. Then make an informed decision yourself.

  44. Kent
    November 5th, 2014 at 23:48 | #44

    @richard

    Your Quote ” I would normally just GO regardless green or red as long as the traffic allows. I refuse to get cowed into doing something that doesn’t make sense.

    There is no reason for you not to follow the traffic light. It is better to look like a donkey than to cause injury to other. Accident happen because of someone like u, who think u can take control by not following orders or abide by the rules. What a shame and still dare to brag over here over this type of attitude. It will be a very bad example for your kids, you may make them killed over this.

  45. cl
    November 6th, 2014 at 11:08 | #45

    Hi Admin Ken,
    The info is great help. You advise if the RM500-600 per sqft easily can be closed. Not sure do you have the transaction data that shown the happenning.

    Appreciate your expertise advise.

  46. richard
    November 6th, 2014 at 13:01 | #46

    @Kent

    You are right. That’s a very bad example for the kids. So I don’t do that in front of them, at least for now. I even forbid them from using the word st**pid as they are not ready yet to fully understand that word.

    But when they are old enough, they must be taught to live with a sense of purpose, to question prevailing wisdom, to mock senselessness and to speak up against unfairness. The UNLAWFUL protest by students in Hong Kong now will not promote CRIME in the future, but instead promote liberty. A society will not thrive if there is no critics (after you bring every single one of them to court!!)…:)

  47. cornelius
    November 8th, 2014 at 13:30 | #47

    Was intrigued with the question posed on this article and decided to read through and I must say, with all due respect dear admin – you have just wasted 10 good minutes of my time.

    And now I can’t help but write this response because I am rather annoyed an experienced admin such as the one administering this forum would publish such a poorly written article. While many would agree that it is highly unlikely that housing prices will come down, the analogy used to justify this point (about prices “will only remain stagnant if owners collaborate to sell at original prices”) is illogical, if not downright silly.

    Housing prices are driven by supply and demand, and perhaps some speculation and other factors such as government regulation, NOT “property owners collaborate to sell at original prices”! How did the admin even get this idea? Where has this scenario ever happened in any open property market, at any time, in any country?

    So please, dear admin, on your next posting I expect some useful insights and a decently thought-out analogy, if you’re ever going to have one. And in real world situation, that fictional retiree friend of yours will not even have to reject your offer. He will simply ask you “Are stupid, or insane? What kind of twisted, nonsensical offer is that?”. Go ahead, put yourself in that fictional retiree’s shoes and tell me how silly do you find that logic of yours.

    Nevertheless I look forward to your next posting, and I know you can do better dear admin.

  48. Ken (Admin)
    Ken (Admin)
    November 9th, 2014 at 17:27 | #48

    Hi cornelius,
    Thank you for your feedback! Actually my friend knew very well that i was just joking with him. We knew very well that house prices are driven by demand and supply, and that no one would be willingly sell their house at the original developer price.

    Sorry that the article has wasted your 10 mins. Hopefully my next article can save you some time :)

    Hi cl,
    Overlooked your question earlier. I don’t have any official data yet. But I knew few units were transacted at above RM500psf. In most cases, you will see higher price psf in a smaller unit. Because the final sale price matters.

  49. Leo
    February 23rd, 2015 at 09:07 | #49

    @Chuah
    Totally agree with Chuah here. The question is “if the price will ever go down” not if someone would sell the property for the same price they bought from developer. Nobody would do that, especially not when they have kept the house for 20 years. How long did you keep your Tanjung Tokong condominium for? Prices of material and many other things have grow since 20 years ago. A plate of char koay teow is now 8 bucks, compare to just less than 2 ringgit 20 years ago. But that is besides the point. The point is that most people buy houses for investment or speculation around the world but that does not prevent the property bubble to burst in recent years especially in the US & UK. Nobody over there would want to sell their house for the price they bought but still they suffered depreciation. It is not as though it never happen before. It happened here in 1997 when property prices went down by 10%. Funny that, then people were willing to sell their properties for below market price because cash was king back then. It happened before, it can happen again. It is not so much what people are willing to do. It is what the market force them to do. If I have it my way, I wouldnt have paid for the price of property nowadays. I felt they are all overpriced. But the environment force me to do so. Because if I dont, property price will continue to rise. By then my money would be too small to buy anything.

  50. laksa
    May 20th, 2015 at 08:20 | #50

    @Fiona
    Hi Fiona,

    Your ROI calculation for the 2 property investment is wrong. It’s with the assumption that they do not put their property at work (collect rental). With the assumption of average RM1.5k rental throughout 17 years, friend A is fetching ~10% compounded gain. Also, not accounting the cashflow generated from the rental for other investment.

  51. David
    August 10th, 2015 at 11:20 | #51

    Who want Bayswater or even Platino around TNB station ? The facade of Bayswater
    is just like an ordinary “flat”.There is nothing left to be desired.

  52. ryu
    February 10th, 2016 at 15:57 | #52

    @Fiona, you cannot compared in such a way, If your friend (A) bought the house in 1997 and continue to rent to outsiders, the rental income must take into consideration, imaging if 30K rental income per year (it should be increase every year), the overall benefits for friend (A) will be much better than friend (B). Stock market cannot live or rent, house do. Another scenario, if your friend (B) got no place to stay and choose to rent another place, that will be another cost for him as well.

  53. Ivan555
    June 19th, 2016 at 10:09 | #53

    I agree to this article. Only when everyone agrees to sell at a lower price then only we can see lower property price. Sadly human nature is greed and hence we have us owners to blame for the high price for our kids.

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