Property Investment 101: What if property price rises only by 1 percent every year?
1 percent is sustainable. I am fine with this too. 🙂
This is how much your home price would become at the end of 30 years if the home price rises by just 1 percent every year for the next 30 years.
RM500,000 house price would rise to just RM673,924 at the end of the 30 years. Wah… so little. Haha. Only an increase of RM173,924 right? technically you are right but actual number wise, you can sell your house and take back RM673,924 and not just RM173,924.
Next argument, but that RM500,000 is also my savings!
Yes, you are also right. If you are able to save this amount without buying a property, staying in it and saving on rental, then of course, please do go ahead and save this amount. I actually do have friends who can save even more than this amount. However, I have more friends who believe property investment makes more money sense. Let’s see why they think so when home price increase of 1 percent is compared to saving money plus interest rate alone.
FD rate is based on savings amount
Let’s illustrate this quickly. Perhaps you can start with RM500 per month? At the end of the year, you will have RM6,000. Your interest would be based on this amount.
We assume somehow the bank pays you in full for this amount. It’s 3 percent (current FD rate) x RM6,000 and this comes to a paltry RM180.
At the end of the second year when you managed to save up to RM12,000 in total, then your interest return becomes RM360 per year.
1 percent is on HOME PRICE and not the savings amount
Please remember that the 1 percent increase is based on your HOME PRICE. It’s not based on your savings which at the very beginning would be a very small number.
1 percent of RM500,000 is equal to RM5,000 per year. RM5,000 is really not a lot of money. However, RM5,000 trumps most other investment returns because if we want to get RM5,000 by investing into an annual return kind of investment, we must invest RM5,000 divided by 0.03 (3% return) = RM166,667. most Malaysians may not have this amount to start with.
What happens then if it’s just 2 percent on home price per year?
Let’s just show the number. At 2 percent, a home owner of a RM500,000 home would become almost a millionaire at the end of 30 years.
Hello, will this be a certainty?
If this is your question, then I ask you lah. “Hello… is there anything which is certain in this world except for death and taxes?” Haha. Every investment, whether stock market or whether some kind of “investment” which you have zero ideas about or even when you invest into your own business, what is certain? Nothing is certain. This is why it’s always a projection or estimation or a probability of what’s the final number may become.
Everyone needs a home, that’s a certainty
You would have heard or read of people in some countries where they do not have a proper place to take shelter every night. Some may be staying with 20 others in the same 400 sq ft room. Even these people would need a shelter and cannot just simply drop down anywhere they want and fall asleep every day. Life does not work like that. This is why everyone needs a home (or perhaps a place to just sleep every night) and that’s a certainty yeah.
When the need for home is a certainty, then taking right actions is a certainty too
There are no links to go and buy a property in this article. If you have decided you like to buy, go to the property listing sites and search for them. However, if you think buying is not needed, I can agree also. Just need to make sure you earn enough to continue paying rental. That’s a certainty as well unless your landlord suddenly becomes generous and tells you to stop paying rental and can continue to stay in his / her home as long as you like.
Happy deciding.
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