Factors Affecting Property Prices
Barring any sudden or unforeseen circumstances, property prices usually move in the following manner:
SIDEWAYS Movement from A to B
What happens is for a long while, which could be anywhere from 3 to 5 years or even longer, property prices consolidate and remain more or less flat. There could be minor fluctuations up and down which may range around 5% to 10%. Most of the time, properties will maintain and preserve their inherent or intrinsic values.
During times like this, an investor may favor a strategy of buying properties for rental returns with the best choice being apartments and condos where the average yields range between 6-8% pa. This is sufficient to cover the monthly service charges and bank installments where the interest cost is around 5-6% pa. Another viable investment strategy during this time is to find motivated sellers and negotiate to buy below 10-15% market.
SHARP Movement UP from B to C
The sharp appreciation upwards (depending on the property type, location and other factors) may be between 20-40% and it usually happens within a short period of 1 to 2 years. Thereafter, property prices normally consolidate and are once again flat for a few years.
In order for a sharp upward movement to be triggered, something has to occur. The factors that can possibly spark an upward movement in property prices are:
1. High Economic Growth rate of over 8% pa or Foreign Direct Investment (FDI) into the country. Look at what is happening in places like Singapore, India and China where they are enjoying high GDP growth rate and high FDI which has translated into sharp increases in property prices especially in the major cities.
2. A Consistent Stock Market Bull Run of at least 6 months. It’s a well known phenomenon that the property market cycle usually lags behind the stock market cycle by a few months. Smart investors who have made a killing in the stock market are not going to leave their funds in stocks. They will pull out their profits and lock it up in properties. In Malaysia, we have had the good fortune of enjoying a good bull run in the stock market since 2010 even though the volatility has increased tremendously due to various macro and microeconomics factors.
3. Changes in Government Policies are likely to create most instantaneous changes in the market, for instance:
a) the abolishment and re-introduction of the real estate property gains tax (RPGT)
b) the rules for foreigners to buy properties and take loans from local banks have been made easier to encourage foreigners to invest in Malaysia and to encourage them to retire under the Malaysia my 2nd home program.
c) salary increment for public servants. The cost of living allowance has also been revised.
4. Malaysia is a popular tourist spot for tourist from the Middle East countries, India, China and others. This will lead to increase in prices of hotels thanks to the high occupancy rates and prices of shop lots in shopping centers that are patronized by tourists.
5. The tight supply and rising cost of Construction Materials like sand, steel bars, cement, etc will mean that new launches by developers will be at higher prices. This will automatically put upward pressure on prices in the secondary market.
These are some of the factors that affect property prices in Malaysia.
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