Is there oversupply or not?
Someone posted this question recently. Someone in the real estate industry. He was referring to one particular new township (below 100 acres) and asked if there would be oversupply since we have many of these new townships in progress of construction or being announced and launched. Since I have my personal opinion, I will write an article about this today.
Demand vs Supply? That’s usually influenced by …
If we look at the economics of demand and supply and even Marketing 4Ps, 6Ps and even 7Ps, then we could see one common word. That word is called Price. The best product in the world, if priced incorrectly will not provide the right value or even the affordability for people who knows that it is good but does not have enough money to buy it. If we shift this to the property market, then before we actually buy a property, could we determine these 4 things first?
#1 – Are there similar properties at the same price or lower?
This could easily be done these days. Look at all the nearby properties and look at the prices. Look deeper into the price per sq ft. Compare all the typical features. Just note down all the necessary amenities. Then, look into OTHER townships. We need to note that just because the township we are considering is 10km away from KL city centre does not mean all other townships are further away yeah. Some townships may even be linked by public transportation too and not just expressways.
#2 – Look at the typical rental today.
If the rental for the similar properties currently are already in negative and the similar properties are priced almost the same as what we are about to buy, then think again. What would be the rental of our unit when it joins the total supply in the market. Of course, if we are buying for our own usage, then the rental will be secondary because the monthly repayment we pay is actually going back to us, after deducting loan interest. This is usually better than to rent a unit and losing 100% of whatever ever paid every month.
#3 – Are we buying without knowing the reasons?
Someone told you that it was worth buying? Ask them for all the reasons why. The answer cannot stop at, “it’s worth buying.” Someone told you that this is the chance of a lifetime? Ask them for the reasons why. Chance of a lifetime is usually not a valid claim because this person did not come from the future and would not know the future. Someone told you that they were buying and told you excitedly about their purchase? Do remember that they may also have heard of all these great reasons to buy from someone else and may not have done enough due diligence too.
#4 – Could we HOLD?
When we really like the property for many valid reasons but the price per sq ft is higher than similar properties nearby or elsewhere, we could still buy. If we have viewed enough, the decision should be alright even if not everyone could agree. Many times, this is also how we identify gems in the rough too. Assuming we do proceed for this kind of property, ask ourselves ‘how long could I hold.’
Circumstances do change, thus sometimes, we may have to continue paying but not able to use it (EMCO meant you cannot renovate and move…) or we may not be able to rent it out fast enough, thus we needed to continue paying without any income for months and possibly even up to 12 months or more. This is why the same property bought at the same time may still yield a totally different result for different buyers.
Price will always rise, this is true as well.
We need to realize that there’s something called inflation. Value of money becomes smaller year after year. That’s why we are paid higher salaries every year as well. For this reason, the price of property will go higher even if it’s actual value may have stayed almost the same. This is also the reason why property is always a hedge against inflation. it’s a proper hedge yeah. This is not like some other hedge where the price would go up or come down by double digits every other day. Happy buying.
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