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Rising demand means rising home prices. Caused by insufficient supply?

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Rising demand means supply must rise quickly to meet the demand. Else, the prices would rise to cut off some of the demand and sell only to the ones who could afford to pay higher.

Demand for a smartphone or a car?

When a new smartphone model is launched and the demand for it was better than anticipated, the manufacturer of the phone could probably be able to ramp up production and deliver more supply within 2 weeks depending on the availability of parts and the logistics. If it is a new car model, it may take weeks to produce and deliver it all over the country but generally what would happen is that the supply will start to cater to the demand within weeks or at max, probably months. What about the demand and supply for properties then?

Demand for property? (causing rising home prices?)

This is the tricky part. When the demand in the property market goes up, developer could ONLY be able to deliver homes years later. Of course, when the demand slows, those supply which was already halfway being built would still have to be completed even if it’s unsold yet. This is why overhang property happen after every booming property market. What will happen next is that developers start to be very careful with new launches and many may choose to sell whatever they have versus buying more land and building ever more units.

Article in nst.com.my China’s home prices grew at the fastest pace in six months in February 2021. One reason cited was because of the the lower supply of projects during a holiday season aided by the fear of missing out among buyers. National Bureau of Statistics figures showed that new home prices in 70 major cities, excluding state-subsidized housing, rose 0.36 per cent in February 2021 versus January 2021.

In 29 key cities monitored by China Real Estate Information Corp., new-home sales more than tripled in February from a year earlier, when the health crisis seized up the economy. New-home supply in those cities plunged 63 per cent by area in February from January, it said. The article has a lot more information. Do read it here: Article in nst.com.my

Speculation may also be at play, does not necessarily due to demand and supply

If we look at the property transactions, it’s super important to understand the composition of those transactions. Are those transactions concentrated only among the typical investment type of properties? Or are those transactions for homes which are purchased by families? Are the purchases because many of the purchases which should have happened earlier did not happen because of restrictions? For example, a nationwide lockdown due to the COVID-19 pandemic?

Or are the purchases because everyone believe that they buy today and they could sell tomorrow for higher prices? Just need to continue to look at the government’s actions as well. For example, we have read recently that the Singaporean government felt that low interest rates may be distorting the property demand. Earlier article here: High interest with property market because of low interest rate is a big issue

Do not read too much about China’s property market.

Truth is, when we read a little more about the property market in China, we would realise that there remains many cities where the property demand was too speculative. This has perhaps changed for the better but even if it has changed, our property investment decision here in Malaysia must be based on what we really understand about our property market. An overpriced property is STILL overpriced and if we bought, then we better hope that the rising tide will carry all boats. Else, it’s going to be hanging on for a long time to come.

Staying focused remains key

Overhang property is meanwhile NOT a reason to stop buying too. This is because not many would want to buy that overhang property which has been hanging around for years. Earlier article here: How many of us are looking to buy overhang properties in 2021? Happy deciding but only after a thorough evaluation yeah. This is a hundreds of thousands decision. Risky and rewarding at the same time.

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