What drives up property prices? Will it still go higher?

This is the question that has been playing in our mind these past few months.

How could the average income earner afford a home nowadays? Let alone investing in and growing their hard earned cash through real estate. And if we do buy now, will the price trend higher?

I did some reading and summarize some of the factors that cause property price to increase. These same factors will also answer the second part of the questions, will the price go higher?

Scarcity of Land

Penang, being an island, is bound to face land scarcity. Development on the island is bursting on the seams. Take a look at the Penang Map and you will know what I mean. Property prices in prime location are already demanding at historical RM1000 per sq ft. And we have witness land reclamation in both north and south of Penang. With every project being sold means less one piece of land for development. At the rate we are going, where do you think the property price will go – up or up?

Development Costs

This factor ties in with the above factor. Once upon a time, the cost of laying the electrical cables and water pipes to developments lies with the relevant authorities (Tenaga Nasional Berhad and Perbadanan Bekalan Air). It is now the responsibility of the Developers to bear these costs. This would invariably make the property prices more costly.

Economic growth of the Island

Information from MPI (Malaysian Property Inc) and InvestPenang (www.InvestPenang.gov.my) reported that Penang has received a total of RM12.2 billion worth of capital investments in 2010. Penang is also top on the list in terms of attracting foreign direct investments with a whopping RM 17.7 billion in 2010-2011. Penang Island also sits high on the world ranking for the places to see, making it a key tourist destination in Malaysia.

Penang Airport is also now the 2nd busiest transit point, after KLIA, whilst Penang Port is the 3rd largest cargo seaport in Malaysia.

With such vibrant economic growth and inflow of population, I would be surprised if the property prices will go anywhere but up.

YOU

Yes, YOU, and me, the consumer. The home-owner. The property investors.

Property is a supply and demand market. When the “demand” (that’s us) accepts the asking price, the “supply” usually delivers it. And if at each asking price, there’s a SOLD OUT tagged to it, how much do you think the developer will ask at the next launch? Higher? Or lower? Your guess is as good as mine.

This brings me to the next exciting topic.

With the escalating prices, which property sector should you buy or invest in? Both markets seem to be “hot” now. My take is that both sectors are a good bet if you know how to do it fundamentally instead of speculatively.

Properties from secondary market or better known as sub-sale, are viewed as ready to be occupied and based on “what you see is what you get”. In Malaysia, both primary and secondary property markets offer many choices in terms of property types and range of prices.

On the other hand, primary markets are project developments not yet build up but are already sold and marketed by property developers. If you look around, you will notice that developers are building up more and more new development in the market. Is it good to buy from primary market? Some may perceive it as higher risk compared to secondary market; i.e. risk of developer abandoning projects, fraud, and uncertain economy that will affect the completion of these projects.

According to statistics published by National Property Information Centre (NAPIC), the total residential property transactions in 2011 was 30,674 unit with a value of RM7,722 billion. Half of these are from the primary market and half are from the secondary market.

The condominium market in Penang Island has been bullish. Prices continue to be on an uptrend with brisk sales for most of the newly launched projects. With rentals remaining stable, yields have decreased further amidst the increasing market prices. In the near future, market resilience will be tested as more units are expected to be completed in 2013.

As the property prices increase and the government introducing different new measures to “cool” the market, I tell myself that I need to learn how to navigate through the industry. Is there a formula I can use to guide me?

And that is when I meet my Property Coach. After knowing him, I bought my first property from the Penang market based on fundamental information and research. And at the same, I make almost RM10,000 from this deal (I still own the property) plus some monthly income.

And I’ve been using that same formula ever since to accumulate my property portfolio until it is enough for me to have the options to quit my day job? Is this something that you may also want to plan for yourself?

Let me know your thoughts.

Kaygarn Tan

Kaygarn Tan is the Founder of Freemind Works, a Property Investment Coach and Property Investor. He is also Author of the best-selling book The Master Key Method to Unlock the Secrets of Property Investment.

He is a Biomedical Scientist by training and holds a Masters in Pharmacy majoring in Toxicology. He is an organized and systematic person. Applying the same principle in doing scientific research to get a desired outcome, he has the property investment system down to a science. He calls it The Master Key Method.

After accumulating a portfolio of properties that gives him passive income, he decided to quit his 9-to-5 day job and started mentoring others to invest in properties. He has since adviced and personally mentored thousands of people to buy their first, second, third and more properties at 20% below market value with 6.5% rental return, using a time-tested system.

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