Perhaps this is a chicken-and-egg situation? Is it right to believe that the higher our income, the more affordable properties will be? Then again, is it affordability that drives property demand instead?
Of course, if we earn salaries in the T20 range, and home prices are usually targeted at the M40 and the B40 groups, then of course the higher the income, the more affordable the home becomes.
This is assuming that those in the T20 group do not aim to purchase homes targeted to the T20.
If that were the case, homes will definitely be priced much higher and in the end, the percentage of a T20’s salary needed to pay for their homes will be almost the same as those buying affordable homes.
In brief, if the income of Malaysians are higher today, the number of properties unsold and completed should be on the decline. If this is the case, should demand also be picking up?
The current issue of unsold units are due to three things.
FIRST: Property prices have become truly unaffordable to many who want to buy homes but have had the bank reject their loan applications. Fortunately, this pattern is changing. The launches of new properties are now much more affordable even when compared to just a few years back.
SECOND: Households are still stretching their home loan limit to the peak; and are not viewing cheaper homes. That’s embarrassing (in their minds). They view homes which they believe are the BEST MATCH to their current income level.
It’s like, “I will buy just ONE home in my lifetime anyway…(untrue!)” Thus, it’s either they barely scrape through the loan application or they get rejected by the bank. It’s really important to just listen to our former Bank Negara Governor and buy within your financial means.
THIRD: There’s this prevailing thought that since property is already so expensive, best not to think about purchasing any for now. However, these same people go for holidays and spend their savings. They buy the latest gadgets to earn their peers’ praise and refuse to be seen in a cheaper car because that would give the impression they were not successful.
Are Malaysians watching too many movies about the super-duper rich? By the way, in all countries, the majority of the population fall in the B40 and M40 groups as far as earnings are concerned.
Think about it. This is not something new. Many personal finance gurus say we should spend within our means. If we can afford a RM500,000 home, buying a RM400,000 one would give us space to save more for future upgrades. It’s easier to get the loan approved too.
Not buying that RM4,800 phone since our current one is still usable will save us RM400 per month for the next 12 months. RM400 is enough to pay for a property which is RM80,000 higher.
Last but not least, that 1.3 litre, second-hand car will not just be cheaper by RM15,000 over the next seven to nine years but will also mean much lower expenses for petrol too.
Conclusion? Clearly the issue is not just the property market but our spending behaviour too.
This article first appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.