Someone showed me an auction property which is supposed to be a branded property and in a supposedly good location. How low could the auction price falls to? In fact the auction price has fallen to a level not seen before, especially if compared to the original price. It’s a small unit, less than 500 sq ft. The latest price is now below RM400,000. The question is, how long could the prices go before the property is auctioned off?
Auction market is just another property market.
It is not about how low the prices are. It is how low in comparison to similar properties or replacement for that auction property. If we need a place to stay and we could find a secondary unit of 500 sq ft at RM400,000 and there’s that newly launched new property of 428 sq ft at RM400,000 and there’s an auction unit of 550 sq ft at RM400,000 then the choice would most probably be the secondary unit so that we could move in quickly.
Some may also choose the new property because the facilities are new, the feeling is good since even the paint is still new and more. However, that auction unit which is bigger in size and same price will not be attractive enough unless the price is 20-30% lower. This is because no one knows the inside condition of the unit and would want to have buffers in case any renovation is needed. This is why it is not about the auction price but it’s about a comparison of all the available choices too.
If the market wants it, then the price could still go up again
Before COVID-19, I was the auctioneer for a double-storey terrace unit located in Puchong. It was the 4th auction. 4 bidders came and the final winning bid equalled the price during the 2nd auction. This is market demand. The winning bidder says that he will be using it as a hostel for his workers and he could then save from renting some other place and at the same time, just wait for the price to slowly appreciate again. He was in no rush. I personally think his strategy is a good one.
What if the price was overpriced from the beginning?
The current price on offer or even on auction is now 20% below market value. It may even be 30% below market value. Please remember, market value may have been based on transacted prices a few years ago. Transacted prices then may have been due to much better market sentiments then. It does not mean the current transactions will follow the previous price. By the way, banks may also be valuing the property differently from the developers’ price yeah. This is why they may not loan you up to 90% but it may be lower. They want to manage their risks too.
This is why when we buy any newly launched property, it’s important to compare it to the secondary property prices and not other newly launched properties. The newly launched property may be priced a little higher versus the secondary property market because this is future price but usually a checking of the typical rental rate would already be the second important fact pointing out that perhaps the newly launched property is overpriced. Never mind that the developer is a very good brand whom you love, those are secondary yeah.
Property Investment is straightforward but never think of it as easy money. Go for others.
The 80s was the time my parents bought their first home. It was super tough. Loans were hard to get and they struggled. 90s was the time when my parents bought their Ipoh home. Again, it was a struggle because the price was considered high. Today, they knew if they bought another unit then, the profit would have been in hundreds of percent. In the 2000s, I bought my first few properties. Again, if I look back, IF ONLY I was braver and bought a few more…
This tells us one thing. Property investment is a straightforward thing. There’s no uncertainty because housing is a need. However, it is not easy because we need to ensure we do due diligence. We need to ensure we are not over-stretched to the limit because circumstances such as COVID-19 is unforeseen. We needed to pray that the developer completes the project on time and many more. However, this is not a low risk and low profit investment yeah. I can safely tell you that if we use Return On Investment (ROI) calculation (read here if you like), property investment is a super investment. Happy investing.
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