Property price because of demand and supply, explained.

Property price because of demand and supply, explained.

Property price because of demand and supply, explained.

Depending on whom we ask, property price will always be rising or falling. The same person who kept telling you that prices are rising may want the price to keep rising for his benefit. Property developers would also continue to tell that property prices will always be rising. There are many reasons for them in saying so.

At the same time, the same person who kept telling you that prices are going down may want the property price to keep going down or perhaps the person is suffering because he could not sell the property at a price he wants. Let’s look at the actual reason based on the economics theory of demand and supply.

Property Demand and Property Supply

Property price is affected by the demand and the supply of property. More demand than supply, the prices move up. More supply than demand, the prices go down. However, we need to note this. It’s not the total demand versus the total supply though. It’s usually specific demand versus specific supply.

I give you an example. Someone wanting to buy only into neighbourhood A or B does not care if supply in all other neighbourhoods are increasing, unsold or even already under overhang. They just want the properties in neighbourhood A and B.

Thus if the supply of property in neighbourhood A and B is not increasing, then the demand outstrips supply and prices would move up because the sellers in these two neighbourhoods; A and B has better bargaining power. Meanwhile the prices in all other neighbourhoods where supply is higher than demand may fall because the buyers have better bargaining power.

This is why property overhang does not mean the whole market will suffer from price drop

I give you three questions for overhang property and price.

#1 – Are people rushing to buy the overhang properties? Probably not, that’s why it’s in the overhang category.

#2 – Are there other properties on sale beyond the overhang properties? Probably yes, both new ones from developers and also existing ones from the secondary market

#3 – Are there still neighbourhoods where people continue to think highly and neghbourhoods where people still think lowly of? Probably yes and this will remain forever since this is also the same in all advanced property markets.

Property price is also supported by inflation

With inflation, cost of goods go up. Thus cost of construction goes up. Cost of food goes up. Thus, salaries would also move up with yearly increments. This does not mean that the value of money is going up. It means that the price we are paying for the property will go up but in actual fact, this is just to cover for inflation. It means that the seller could maybe sell at a higher price than what he bought many years ago but the amount of money he gets does not mean he can buy more things. He may only be able to buy the same number of things.

Would everyone get rich from buying a property?

I think majority may not but they will not be worse of unless as usual they bought something overpriced. This is also why property is just a natural hedge against inflation. Basic idea is that we do not get poorer due to inflation if the property we own increases in price following inflation. Not so much of getting very rich from it. I have repeated this like 988 times but hey, let me repeat one more time. If we intend to rent versus buy, renting is forever… and ever. Period.

If it’s SURE profit, we may already be too late

Happy understanding and remember to do due diligence when buying. If it’s too easy, someone would have gotten to it before us, usually. There are also no other links below for you to click and buy certain properties too. is not a property listing site yeah. Cheers.

Property News Malaysia? Sign up for daily investment news updates (FREE since Nov 2013 and FOREVER). Alternatively, Follow me on Telegram here.

Please LIKE FB page to get daily updates about the property market beyond articles. Else, follow me on Twitter here.

Next suggested article: Property Investment? Some good advice for property buyers


Leave a Reply

Your email address will not be published. Required fields are marked *