Saturday, 12 September 2020

When Is The Next Property Boom?


Property gurus say: "Property price will double every 10 years". Is it true?

My parent bought a house which cost RM40k back in 1983. If the theory is true, then in 1993 it will cost RM80k, 2003 RM160k, 2013 RM320k and 2023 RM640k.

I don't know at what price similar houses in that area were transacted in the past, but now I know it's worth around RM450k.

This 10-year property price theory looks good as it successfully predicted that after 2013 its valuation will be more than RM320k.

However, we only have 3 more years to reach 2023 and I don't think it can appreciate another RM200k to reach RM640k in such a short period of time.

If we give it a few more years may be in 2025 it might reach RM640k. It's still within the 10-year property cycle and this theory stands.

Of course different location has different rate of price appreciation. My parent's property is not located at property hot spot and it only represents the average.

How I wish my parent bought the house in Penang island, it might be over RM1mil by now.

I was lucky to have bought my first property in 2009 for RM348k. Within 10 years its valuation has really doubled to RM700k only to drop to around RM650k now.

Why is that so? It's simply because of inflation. We can see the power of property hedge against inflation.

Back in year 1980, a bowl of curry mee might cost 50sen, then in 1990 it was RM1, year 2000 RM2, year 2010 RM4 and year 2020 RM8.

These prices reflect the true price except in most places, the price in 2020 has not reached RM8 yet but it's definitely over RM4 now.

For my parent's property to play catch up from RM450k now to RM640k in 5 years time, we need to have another round of property boom, just like what happened between year 2008-2012. 

Property-Growth - Vision Creative Group

Property sector has been in down trend for almost 8 years since 2012 and it should brace for another up cycle soon if 10-year cycle is the rule.

Are Malaysian ready for another round of hike in property price? Will our income rise in tandem with property price?

I feel it's hard for our income to catch up, and property will become less affordable. 

Last time our property boom was triggered by low interest environment after the global financial crisis in 2007-08.

Currently our OPR is at 1.75% which is even lower than 2.0% which was our previous low in 2009. 

That means the property loan interest rate might fall below 3%, compared to around 4% during last property boom.

We already have a record low interest environment, and now the Home Ownership Campaign (HOC) 2020 from 1/6/2020 to 31/5/2021 will definitely encourage more people to buy property.

Among the benefits of HOC 2020 are stamp duty exemption (transfer & loan) and 10% discount from developers.

Besides, there are also RPGT exemption until Dec 2021 and the 70% financing limit for third residential property onward has been abolished.

The HOC will surely help to reduce the ever increasing vacant units under the developers. However, will it encourage the developers to launch more projects because of the increasing demand?

I'm not sure as I don't study property market in depth. I just think that in short term, giving 10% discount to buyers might erode developers' margin significantly which is not a good thing for them (and shareholders).

That's part of the reasons I sold my Matrix shares, even though Matrix's properties are selling like hot cakes now.

The income of many people are said to be negatively affected by this pandemic. How long can this property buying spree last?

Property stocks have suffered for so many years and I gave up buying more property related stocks even though I know that their earnings will definitely grow.

After so many years ignoring the property market, now I have a bit more interest in it because of low interest rate, HOC benefits and more importantly, the 70% loan limit termination.

Property Investment & Stock Market Investment, which do you think is better?


  1. To answer your question on if property or stock investment is better, i would need to mention one big positive point about property investment, that is its high leverage.
    One needs to come out merely RM10k to buy a RM100k worth property. If the property appreciates RM5k after one year, the return of investment is not 5% but 50% because 5k/10k initial investment amount = 50%. This is the power of leverage which cannot find in stock investment.

  2. However, when that property appreciates from RM100k to RM200k after say 10 years. Assume the price of the property appreciates another RM5k in the 11th year, the return is merely <4.5%. This is because one's invested capital has became RM110k (RM10k initial payment + RM100k appreciated value). In this aspect, the property investment becomes not as attractive as stock investment because one can easily get more than 4.5% return if he picks the right stock.

  3. I think the interest rate environment and amount of hot money now are quite similar to what have seen in year 2009. In 2009, global interest rate was low, many countries were printing more paper money and central banks bought bond to pump in more money into the markets.
    What lacking is our bank's lending policy is not as loosen as in 2009. Maybe that will change in times to come.
    I learned that property market is always lagging the actual market by about half a year. This means our actual economy needs to recover, and about half a year later, we can then see property market starts running. Thus, if our economy can recoverby end of this year (with vaccine developed), we may see appreciation of property price from mid 2021 onwards ? hopefully :)

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  5. BTW, i was valuegrowth88 (i have changed my username to value88 now), if u can still remember me :)

  6. Yes I still remember value88, I guess you must have lots of properties on hand :)
    Anyway, I have less worry on my property investment than stock market. In stock market, our portfolio can suddenly decline but in property market, it's like autopilot and almost sure win in long run.