Property Fair Tyre Kickers?
I read from the news
over the weekend that newly wed couples and young families prefer to buy landed
properties as compared to condos and apartments. I feel that these people
should really wake up and assess themselves. The problem is not about not enough
affordable properties, it's their wrong mindsets. A 2012 household income
survey found that average household income in Malaysia is RM5k (5,742 in KL).
Take home pay for 5k is RM4,243 and I'm sure everyone drives a car (or 2 per
household). How much would that leave them to buy a new landed property and put
food on the table? Bear in mind it's per household not per individual. I'm not
boasting but if I was earning RM5k a month, I wouldn't even dare to step into a
property fair looking for new landed properties unless I was there to marvel at
how interesting scale models of properties look.
Over the weekend
I read in the newspaper about a property fair showcasing new properties and the
reporter managed to interview some of the visitors and what caught my attention
was how some young couples in their 30s with a kid in tow or newlyweds
preferring to buy a landed property as compared to condos and apartments which
are abundant in supply in Malaysia, particularly in Kuala Lumpur, it’s capital.
Now, in Kuala
Lumpur, the average price for a new landed property (2-storey terrace house
being the all time favorite) starts at around RM400k in least popular areas
like Semenyih or Rawang (30-40km away from Kuala Lumpur via highway). These
once unpopular areas are now hotting up as reputable developers are snapping up
landbank there and developing houses with contemporary designs that appeal to
the younger generation of buyers. With the network of highways all over KL and
the greater KL, nowadays housebuyers are less reluctant to consider properties
that are further way from their place of work for the sake of having a quality
lifestyle. However, all this comes at the price of convenience as they might
need to travel right up to 100km a day to and from work.
In my honest opinion,
90% of those who frequent property fairs that showcase new houses won’t be able
to afford any of the properties showcased there. Why I say so is because every
developer wants to maximize the development value of the land they purchase to
maximize profits so, nowadays if they don’t have to, they would prefer not to
build low or medium cost properties. Unless it’s in a rural or developing area
where the household income is low and they have no choice but to make the best
of their investment in land.
In urban areas
such as Kuala Lumpur (or the Klang Valley) for that matter where even new
houses in Rawang and Semenyih are going for RM400k and above. I’m not saying
that the majority of home buyers who wants to buy their first landed property
cannot afford to do so, but look at the average salaries we earn here in
Malaysia. In a 2012 household income survey conducted in Malaysia, it was
discovered that, average household income in Malaysia is RM5,000 per month.
Around RM5,742 in urban areas. That is gross salary. Take home salary is
RM4,243 after deducting EPF and SOCSO contribution and some income tax
deductions. Minus a car loan, petrol, mobile phone subscription, Unifi, Astro,
electricity and water I doubt that 80% of wage earners earning RM5,000 a month
has anything left to even dream about buying a house. And oh yeah, I missed out
monthly rental. This doesn’t apply to people from affluent backgrounds or those
living at home with their parents because that is a different story altogether.
A good friend of
mine gave me his insight, saying that back then when we grew up in houses
instead of apartments or flats, our parents advised us that it was wise to
invest in landed properties for the capital appreciation or maybe the quality
of lifestyle derived from living in one. This was good advice 20-30 years ago
when jobs were not that competitive and houses was relatively cheap and people
could afford them with the salaries they earned. Today, where property
developers prefer to build more expensive houses because the demand is there
(mainly derived from foreigners, affluent individuals, investors, private
investment clubs and professionals), clinging on to advise given by our parents
20-30 years ago may come across as worrying to say the least.
However, this may
not be surprising in a world where credit is easily obtainable, where anything
and everything can be purchased first and paid for later. Imagine a couple with
a newborn with a combined household income of RM7,000 per month. Take home pay
would be around 5.5k. Minus loans for two cars at say around RM1,500 a month
because everybody likes to drive the latest Japanese and Korean models (or for
some, German marques!) Minus 1-1.5k for rental because of the added security
and convenience. Minus another 1k for credit card debts because everyone has at
least 3-4 credit cards on average and there are minimum payments to be made.
Another 1k goes to petrol, toll, astro, handphone bills, internet subscription,
electricity, gym membership, car maintenance, insurance etc. That leaves the
couple with roughly about RM1,000 for food, entertainment, shopping and other
expenses. Oh, did I mention that the average household earns about RM5,000 a
month? The less consumers spend on credit the nearer they would get to their
dream of owning their own homes. This is not a problem with the Government for
not providing affordable homes to it’s people, it’s about people having overly
unrealistic expectations of property ownership which forms the bulk of people
who cannot afford to buy their own homes.
It’s not a
shameful thing to live in high-rise properties.
I think the
first thing people should realize is that it’s not a shameful thing to live in
high-rise properties. I’m sure the majority of first-time homebuyers who dream
of buying landed properties are the very ones who are currently renting at
flats and apartments who tell themselves every now and then that, “when I
become rich I’m gonna buy a house and never going to stay in an apartment or
flat again!” However, the reality of property prices today quashes that dream,
the very one that holds everything together, a happy family, a better job,
savings and investments etc. I believe that not everyone who start out with a
dream of buying themselves a landed property in KL actually ends up realizing
their dreams, not here at least.
For that matter,
I believe that it is not shameful even to still be living with your parents,
siblings, in-laws, friends, colleagues and so on either in a rented or owned
property. It all boils down to the type of lifestyle you can afford and not
about overstretching youself to achieve your dream lifestyle. It is different
though, if you are rich or come from a wealthy family. But like I said, that is
a totally different story altogether.
Therefore, like
an old saying goes, if you don’t want your dreams shattered, don’t have big
dreams to start with. It is the same ordinary Malaysians who drive big cars and
live beyond their means who end up in a counseling seminar at AKPK, the counseling
agency for financial education and the very same one who will help you
restructure your credit card debts and outstanding loans to get you out of
trouble if you are already knee deep or are just getting into it. A 30 year
loan on a property is no joke. If you’re 25 today, it takes the next 30 years
till you’re 55 to finally pay off that home you have been wanting to buy. Imagine
if the monthly repayments are RM2,000 a month and you’re earning, say RM3,500
to 4,000, it won’t leave you much to get by every month for the next 30 years.
Doesn’t that sound scary?
A couple of days
I read a newspaper article about a woman in Singapore who had 4 or 5 kids and
her husband died in a freak accident at the airport. She got almost a million
dollars in compensation and donations from well wishers but a year later she
was broke without a penny to her name. The most remarkable thing she did was
use 400 thousand to invest in her brother’s business and a few thousand more on
other unnecessary stuff when she should have used that money to invest in
financial education for herself to begin with.
Talk about
spending money you don’t have, buying things you don’t need to impress people
you don’t know. Society looks down at people who like to show off with stuff
they clearly cannot afford or clearly doesn’t need to be shown off in the first
place. This includes owning a house you clearly can’t afford to live in.
