A friend remarked that with the current fall in oil price due to COVID-19, the next one to fall would be property prices. Oil prices has dropped to levels last seen in mid-2017. (click for latest news) (Erm… 2017 is not that long ago, really) In my opinion, oil prices should be less volatile and it should not be dictated by all these speculative buys all over the world. If it’s just based on the production cost plus logistics and a profit margin is added, then there’s not even a need for all these ups and downs. Then again, if it’s that straight forward, then none of these ‘investors’ in the oil market would exist and they would have to play their games of buy and sell oil futures elsewhere.
This is also the same for the property market. What is the chance for a property to be priced ONLY by adding a certain agreed industry profit margin and then every year, the prices will move upwards by a fixed percentage across the industry? If no one could control oil prices and it’s considered a commodity, then what are the chances for property prices to be controlled? Different sizes, different locations, different available amenities and even different developer brands? Some carrying a higher premium than the rest?
Okay, now that oil prices have fallen and it was said to be affected by COVID-19, would property prices be affected by COVID-19 as well? Actually it’s not such a straight forward answer yeah. Very briefly, COVID-19 will cause people to stop spending money since they will not be going to malls. This will affect businesses which may have to retrench people and the people would then be earning no salary and thus could not pay their monthly home mortgages and then the banks will move in and auction those properties, usually at a lower price than the market. So, yes, if COVID-19 is prolonged and it affects the economy of every country in the world, there’s a chance that it will cause property prices to fall. At least for a small segment, the ones which were affected the worst by COVID-19 such as tourism. Earlier article here on COVID-19 and how it will affect the Malaysian economy.
Short answer to the title of this article is Yes, COVID-19 will affect property prices, somewhat. It affects the sentiment and sentiment affects the owners and well, the prices too. Long answer is that it will only be for certain segments and not for all and everything depends on how long COVID-19 will stay. I certainly do not foresee Desa Parkcity people all suddenly thinking of selling their properties with a 10 percent discount… Or owners of properties within KLCC for that matter. Happy identifying the potential but be realistic and opportunistic about it. Waiting and doing nothing will amount to nothing.
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