Will Property Bubble Burst in Penang Island?

People talked about property bubble burst in Penang Island 2 years ago. Some said it had already the peak and today the history repeats itself. People is still saying the same thing, the property in Penang Island is already peak and going to burst soon. So, how true is this?

You get all kind of answers depending on who you ask. :D Generally, these are the answers that you can get:


Yes, It Will Burst Soon

• It is about supply and demand. The supply has already more than demand. You can do your own research especially at night especially for those luxury houses that has already obtained the OC. Try to count how many of the houses have their lights on. You will only see < 30% occupied on majority of the ready house development. Thus, it is going to burst soon.

[My Comment]: This makes sense but the location is the key here. Not all location have the similar symptoms and it also depends on when you do the research. A ready housing development takes 1 to 2 years to have > 80% occupations. Probably 1.5 years is a good time for you to such research. 

• I just don’t afford to buy and I hope it will burst soon. So, I am waiting for that moment and tell everyone that the property is going to burst soon.

[My Comment]:  I guess just need to ignore this because no supporting data. Many people are telling that property bubble will burst and in reality is they “hope” it will be burst. Not a smart argument anyway.


No, It Will Not Burst

• The property is in good shape. Generally property in Malaysia or even in Penang Island is still a lot more cheaper than our neighbor countries. Thus, it will not burst anytime soon because we have a lot of foreign investors.

[My Comment]: About 30% are foreigner investor including those Malaysian who worked out of the country. This is what the most developers told me. However, assuming if you do your own research and found out that only 30% of houses being occupied. So where does the 40% go? Yes, speculation but it still doesn’t mean the bubble will burst.

• Penang property was undervalued in 5 years ago and  it was not appreciating as it supposed to be. Therefore, the recent past few years rapid appreciation was just catch up with the past. So, it will not burst.

[My Comment]: Yes, it makes sense but it also depends on how long the appreciation goes. If it still continue appreciate like crazy, it may burst. However, you have seen government and the banker have taken steps to control the peak by slowing it down. When it is slowing down, the burst won’t happen.


What Should I Do Now?

I know you desperate to know the answer but from my comments above, you can kind of can guess that I”m more bias towards to say there will not burst in Penang property market. In my opinion, when the supply more than demand, it will not burst but it will only be stable down for probably 2 - 3 years. This is because most investors including speculators are rich (I believe) and they will not easily to let go to sell at lower price. After the property market correction, it will then catch up again.

However from a personal finance perspective, you should always plan for the worst. You should always assume the property bubble is going to burst. Let’s say if you’re buying a $1M house, you should expecting of losing of 35%  (based on the US sub-prime crisis data – refer here: worldwide house price trend till 2010).  So, if you afford to lose $350K, then you can go for it.


P/S: If you interested on looking at the average transaction property market in other states of Malaysia, you can refer to here.

Paid Stuff May Not Be Useful and Cheap

I just feel like want to respond to an article titled “Free Stuff May Not Be Free” by Azizi Ali that I read few weeks ago in the local Personal Money magazine published in Feb 2012. He is a writer, speaker and coach on money matters and a lot of useful personal finance tips have been given by him either his seminars or his books. In fact, I learn a lot from him!

Let’s see what are my responses for some of of key summary messages by him in that article:

Azizi Ali: I’ve learnt in life is that free things can be expensive!

[My Comment]: I’ve learnt in life that paid things can be even more expensive as well! You pay but you get nothing and you also waste your time.


Azizi Ali: Most things that are free will cost you a lot in non-monetary term.

[My Comment]: Is this true? I found that it happens to most thing that are NOT free too. In fact, I think the chances of paid stuff costs even more is higher because you pay both monetary and non-monetary term!


Azizi Ali: Free things are almost always not convenient. You get second-rate treatment when you get things for free.

[My Comment]: Maybe true but this is an opportunity cost that we’re talking about and the most important thing is it is vary from one to another. E.g. Not convenient but it gives you lower opportunity cost than you pay, you may still want to go for free things!


Azizi Ali: By willing to pay, you get to choose the best (people, place, gadgets and environment), get to choose the time and place, and can be in control and get far better treatment.

[My Comment]: Best people? May not be. A lot of best people doing free stuff! or maybe I should say the other way round. A lot of worst people doing paid stuff too and if you pay them, you will get cheated by them!

Best place, gadgets and environment? Yes, most likely but it won’t be cheap. Get to choose the time and place? Yes, I agree too but for “BEST” time and “BEST” place, you will have to pay more. Can be in control and get far better treatment? Yes, sure as long as you can pay. Again this is all about opportunity cost.




What do you think?

Free stuff may not be free but paid stuff may not be useful and cheap as well. From my point of view, you should always try to get the free stuff first if possible. There are a lot of useful free stuff out there. The question is whether you can make those free stuff become the useful one? A smart person usually can do that. If you can’t (doesn’t mean you’re stupid by the way), then probably you can start to consider paid stuff. Also, everything is about opportunity cost if you want to get a paid stuff. E.g. For this amount of payment, is it worth? 

What is your comment? Do you think paid stuff are usually good one or the other way round?