Down 20% up 45%, down again by 20% and up again by 45%

According to Raine & Horne Malaysia (Penang) senior partner Michael Geh, during the 1986 recession, property prices dropped 20% over a two year period but during the seven year upturn after that, prices went up 45%. This was seen again during the 1997/98 Asian financial crisis where prices went down 20% but rose by as much as 45% after that for a continuous seven years or so. We could see this again during the periods of 2008-2010. Property prices again went down by 20% but beginning 2009, it has been rising and even up till the latest date, despite transactions dropping continuously, prices kept rising.
These trends mirror the demand and supply. During tough times, majority of everyone would not want to take up additional risk, thus demand softened and this caused prices to go down even if supply also went down due to the tougher times. However, as they said, it is during these times that many opportunities exist. Imagine someone who happened to have some money and braved himself to buy one unit 20% below its usual price. As soon as the economy recover, prices quickly went up and this lucky man has just gotten huge returns beyond his wildest dreams. Imagine paying RM40,000 downpayment for a RM400,000 property which used to be RM500,000.  As soon as the recovery started, prices went back to RM500,000 within 2 years. Total gross ROI would have been a massive 125% per annum!
The latest data still showed prices moving up despite lower transactions. However, one reason for this is also because during these uncertain times, those who are still buying properties are definitely those who can afford it instead of the borderline cases. With stricter guidelines, think objectively, whose loan applications would be rejected? These would be those who are trying ti buy affordable properties. Without the inclusion of these more affordable secondary properties into the national average, we can see that the overall prices continue to go up. If the affordable homes start to flood the market beginning next year since all the huge affordable schemes were started only two years ago, we would see a moderation of average prices.
Therefore, it is important for buyers to buy if they need a place to stay. This is not the time when you simply buy, buy, buy because you fear the mortgage going up by another 25 basis points. Some fear GST and thus are buying now. Do remember, GST is a on-off increase. This one off increase should not be your reason to buy as well. Statistics are for our reference. Any interpretations from any parties should always be cautiously examined. No developer would tell you that property prices will drop. Happy buying your home sweet home.
written on 17 July 2014.
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