When is the Right Timing to Invest Property?by, Tony Yap
You might have heard, Property Investment has 3 rules:
However, I personally think there should be another 3:
So, you ask, when is the RIGHT TIME to get a property?
The timing depends on the Supply-Demand Cycle that we are in right now.
The Demand Curve and Supply Curve will affect each other. When demand is more than supply, the equilibrium price goes up, triggering more supply. When supply grows faster than demand, it pulls down the equilibrium market price and causes a decrease in supply. It is a cycle that is continuously repeated, so I can interpret the Property Demand-Supply cycle into 4 cycles shown in the diagram below.
Cycle #1: Demand Trigger Cycle
This was a long time ago, when Malaysia experienced slow growth in development. During this period, property development was extremely slow and there were almost no new projects. Then, as the population started to grow at rates that were faster than that of developments, market supply dried up.
DEMAND = Population growth
SUPPLY = Mostly sub-sale properties
Cycle #2: Supply Booming Cycle
Naturally, some savvy businessmen began to notice the demand for property, so they launched new projects to cater to the demand. At the same time, investors who aimed for Capital Gain joined the demand group because they could see that property prices would keep rising (previous cycle).
With the limited supply of property (previous cycle), people even had to rent instead of buy. That was the best time to SELL, because most properties were selling above actual market value.
DEMAND = Population Growth + Rental Yield Investors + Capital Gain Investors
SUPPLY = Sub-sale Properties + Newly launched Properties
Cycle #3: Price Corrective Cycle
Then, the property supply grew too fast. In this cycle, the supply was way above the demand. So eventually, property price started correcting itself accordingly. Right now (2015), most people feel that property price is falling but it is, in actual fact, experiencing the Price Corrective Cycle after the Supply Booming Cycle
DEMAND = Population Growth + Rental Yield Investors
SUPPLY = Old sub-sale Properties + Newly completed Sub-sale Properties + Newly Launch Properties + Pre-Launch Properties
Cycle #4: Supply Corrective Cycle
Due to the slowing down in demand in the previous Price Corrective Cycle, new project developments also began to slow down. Besides the demand-supply factor, unfavourable currency exchange rates (RM1 = US$4.1, Aug 2015), the implementation of GST and tightening of mortgage loan application also resulted in higher risk and lower profit margin in property development business. So now, medium or small-size developers began pulling out of the market.
Supply of property in the market started to correct the relationship between SUPPLY-DEMAND to reach break-even point. After this, the scenario will then loop back to Demand Trigger Cycle, followed by the Supply Booming Cycle.
DEMAND = Population Growth + Capital Gain Investors
SUPPLY = Mostly new, completed sub-sale Properties
A Looping Cycle
Eventually, these 4 cycles will keep repeating themselves. Due to the increase in product cost and living cost, property prices will keep going up year after year, cycle after cycle. So, theoretically, if you hold on to any property long enough, you will slowly but surely see good ROI (Return of Investment).
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