Property price and inflation have something in common.

Property price and inflation have something in common.

There’s a long article with this title, “Property price hike inevitable?” here: Article in Please do read the article for all the numbers and opinions why the people tell of reasons why property prices would be rising. Among the reasons include hike in raw material prices, unfavourable logistics cost and even construction costs. Here is that article again. Article in

Now here are some articles about inflation. Article in “UK executives expect inflation to squeeze profits”

Article in “IMF economist sees risks that inflation expectations climb upward — Reuters interview”

Article in “Expect inflation to worsen, not lessen”

Whatever happens, inflation is always present

In good times, inflation is seen as a menace. Central banks would do best to keep inflation at a moderate level. Increase the interest rates so that people reduce their spending and thus demand slows down. This will allow prices to be stabilised. In theory, this is how it works. In reality, inflation is ever present.

Remember that bowl of noodle we love? It used to be RM5 and then it became RM5.50 and then it became RM6 and so on? The seller would say the cost of materials have increased. However, the actual reason why the seller could price higher is because the customers could and willing to pay higher. Imagine if the customer just could not afford and chooses to eat something else…

The vendor to the noodle seller would say that the cost of raw materials have increased, so that’s why the vendor had to increase the prices. Again, if the noodle seller could not sell the bowl of noodle higher, than the noodle seller would stop buying from the vendor. In other words, because people could afford to pay, the prices would continue to rise. This is why inflation is always caused by demand vs supply. If demand is higher than supply, the pressure for prices to go up higher will start.

Too high price means nothing gets sold…

Property price is the same. Imagine a property developer selling properties which are priced out of this world. The properties would become overhang and just stay there forever. However, property prices continue to move up slowly because as people earn a little more, as people aspire to move into popular neighbourhoods, as the population keep growing, they would be willing to pay slightly higher for the property. That’s why property prices will continue to rise.

Owner’s mentality on property price

Add to the fact that once someone buys a property for RM500,000 this same person would not sell the property lower than the price he / she bought. This is why it’s not easy for property prices to fall. If a financial crisis do arrive and the person is now willing to reduce the property price, what has happened is that there are also fewer takers and banks also become much more conservative and does not lend money easily anymore.

Inflation happens. Property price goes up. It is normal and is happening all over the world except for the time when a financial crisis strikes… After that, the property market recovers. Cheers.

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