Penang Properties the bright spot in uncertainty

I read in The Star that RHB Research is bullish about Penang properties. It gave two reasons, the opening of the new Penang Bridge as well as the potential of many good news. Actually, I do not think the second bridge would suddenly bring up prices within 2014. It is definitely a good thing but to expect properties in Batu Kawan to suddenly appreciate seems far fetched unless there are any huge catalysts being announced by the state government or federal government.
Nevertheless, the property market in Penang would definitely be strong moving forward simply because of continuous demand. The chart shows the completed units in Penang by type of house. Total units in 2012 was 9,371 units. Is this sufficient? Actually, it is still very far away from satisfying the demand. Nevertheless, with so many uncertainties arising from the cooling measures, the sentiment in the market is more bearish and thus contributing to the current buyers’ market.
According to the projected population growth of Penang, by 2020, there would be a total population of 2 million which meant that the total growth of 400,000 is expected from now till the year 2020, just 7 years to go. In developed countries, typically, one property is inhabited by around 3. In Malaysia this is higher. If we assume 4:1 ratio, it means Penang would need an additional 100,000 units within 7 years or a total of about 14,000 units per year. Developers have better build faster or buyers should buy earlier because when shortage happens, the prices have no way to go but up.
Note though that if you are thinking that if I buy a condo for RM750,000 today it will rise to RM1 million, think again. There is a limit to the affordability of such properties. This is especially true when the said condo is also of a smaller size than 1,000sf because if it is for a typical family of 4, a condo with a size of above 1,000sf would be more comfortable compared to a 850sf one. If I am a first time buyer, it is highly likely that I would not be able to afford such a price. However for those expecting the prices to drop, I can only wish you the best because unless the world goes into another mortgage crisis, it is unlikely to happen. Note that even if prices increase by just 1% per year and you pay 10% downpayment for it today, after 5 years, your ROI is actually much higher than even FD interest rate. To be exact, based on simple calculation, the return is around 10%.  3 times better than FD, even if we assume property prices will increase by just 1% per annum.
written on 8th jan 2014.
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