Saturday, July 17, 2010

Supply vs Demand

Everyone know about Supply vs Demand teory

When Demand > Supply, you can demand higher price for your product
When Supply > Demand, you need to lower your selling price for your product

The same teory is apply to property. Sound simple, but how ? A friend of my just call me asking opinion about a property. The case as below:

1. The property able to fetch rental income, just good enough to cover expenses ==> Rental based income
2. His intension is to sell it after few years, hope to earn "some money" by flipping it ==> Capital appreciation

I ask him: What do you think of the area, is there any potential for capital appreciation?
He answer: How do I know? I can't predict future right?

This answer immediately strike me. He is correct, how he know whether there is potential or not?

Then how does those investment expert see the future? It is back to the simple theory above : Supply vs Demand.

Just try to think of what factor will boost the demand in an area? There are many actually, and it all depends on what are you looking for. For example:

- Usually expatriate like to live near school, international school I means; that's explain why Mont Kiara is one of the pulling factor for them
- Usually middle income group like to look for kanded house with gated community + facilities, that explain why Desa Park city is one of the main pulling for them
- Usually fresh graduate like to look for house/condo near LRT, that explain why condo near section 14 LRT is in high demand

If you can spot those factors that can boost up the demand, somehow you should be able to predict the future.

Lastly, you also need to apply some mathematics in your prediction. For example, the Casa Residence case, for sure this condo are targeting

1. Students from SEGI College
2. Nurses from Tropicana Hospital

Demand: How many student can SEGI bring in total? How many nurse are there working in Tropicana Hospital?

Supply: How many condo are there at that area now? You may roughly estimate by calculate how many units are there x 5 person stay in a house. In that area, there are 3 condo in total:

1. Cova Suite
2. Cova Villa
3. Casa Residence

If total of Cova Suite + Cova Villa + Casa Residence < SEGI Student + Tropicana Hospital Nurse, then this may means the landlord can rent it at higher rental. Once rental income is exceeding expenses by 20% or more, this would automatically make the property the target for those looking for rental income. This also means you can demand higher price when you want to sell it.

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