A QUESTION OF WHAT MALAYSIANS CAN (OR CAN’T) AFFORD IN 2016
BY Ernest Cheong
In addition to the economic recession, there is no denying that the property bubble vis-à-vis the Malaysian property market has burst as evidenced by:
i) Rapid increase in property prices from 2010 to 2014
ii) Property prices having reached unsustainable levels and peaked in 2013 and 2014
iii) Property prices starting to decline since January 2015
With this kind of progress, or rather, decline, what kind of properties can Malaysian families afford now? To answer this question, we will examine the monthly incomes and expenses of three hypothetical Malaysian families living in the Klang Valley, Penang and Johor Bahru in 2013 and 2015 and compare and contrast their ability (or inability) to buy properties over the last three years.
To best illustrate this, the tables below have been formulated so you can better understand the scenario from a “big picture” perspective.
Table 1: Typical monthly family income and expenses in 2013 & 2015
These three families are high-income, middle-income and low-income with RM14,000, RM8,000 and RM3,000 monthly incomes respectively. Their typical monthly expenses in 2013 and 2015 are listed here in Table 1.
Based on the above income surpluses of the three families listed, the property types available in the Klang Valley for them to purchase are shown in this table.
Table 2: Property options according to income groups
Table 3: Standard price for KL Property 2012-2013
Property prices in KL over the years have escalated to levels beyond the reach of the majority of Malaysian families especially those with monthly incomes of RM14,000 and below.
Standard prices paid in 2012 and 2013 for terrace houses and condominiums in typical middle-class residential suburbs in KL are shown in here.
So, who could buy properties in KL in 2013?
Table 4: Typical pricing of KL property 2013
Based on the listed property prices paid in 2012 and 2013 in these six KL suburbs, only families with monthly incomes ranging from RM8,663 to RM25,826 (based on 2013 cost of living) can afford to purchase the properties as listed in Table 4.
Table 5: 2013 prices of low-cost flats in KL originally sold at RM25,000 each
Table 5a: 2013 Prices of medium-cost flats in KL originally sold at RM50,000 each
So in reality, in 2015, what could 80 per cent of Malaysian families living in KL, who earn monthly incomes of RM14,000 and below, afford to buy? The answer is low-cost flats priced at RM140,000 as listed in Table 5.
Table 6: Changing fortunes of typical Malaysian families
Fond memories of a bygone era
It was only in the 1970s and 1980s, not long ago, that a Malaysian family with a monthly income of RM14,000 was classified as a rich family. This “rich family” was able to purchase and own a two-storey detached house in Damansara Heights in KL, an up-market residential neighbourhood and with a Mercedes Benz car thrown in.
Today, in 2015, this same RM14,000 monthly income family, if they do not already own a property in KL, can only afford to purchase a RM140,000 low-cost flat in Taman Tasek.
To have a glimpse of how the fortunes of Malaysian families have declined over the years since the “good old days” of the 1970s and 1980s, a comparison is listed in Table 6.
It is a painful and unpalatable truth. At least 80 per cent of Malaysian families in 2015 were worse off and poorer than their fathers and grandfathers who lived in the 1970s and 1980s.
In 2016, the situation has further deteriorated. Many families earning RM3,000 and below monthly in the Klang Valley are facing negative cash flow every month, so buying a property is out of the question.
What does the future hold for generations of Malaysians to come when, with a monthly income of RM14,000 (considered the income of a rich man in the 1970s and 1980s), these families can at most afford to purchase a RM140,000 low-cost flat at 2015 level of living cost?
With living cost rising almost every day, what can Malaysian families afford to buy in 2020? Your guess is as good as mine. It can get worse.