Property Prices Heading North in Ipoh

By: Lim Ben-Jie

Based on an article in StarBiz dated 24^th September 2012 with headlines ‘Ipoh Property Boom by Manjit Kaur, Ipoh’s housing market is usually geared towards locals and outsiders from across thirteen other states in Malaysia who have plans to retire or live in a tranquil and slow paced city. Ipoh has excellent infrastructure and amenities similar to that of bigger cities like Kuala Lumpur and Penang. In the article, Manjit Kaur backed her article with strong facts that the prices of landed and high-rise properties surrounding the city of Ipoh are increasing steadily over the past three years and is showing no signs of declining. Ipoh was a booming mining town back in the late 19^th and early 20^th century. Kinta Valley was where the world’s largest deposit of tin ore was found. The city was also known to have the largest concentration of luxury Mercedes Benz vehicles found anywhere in the world outside of Europe due to the large numbers of high net worth individuals who profited from the massive mining activities within Kinta Valley which spans 248 square miles. Demand for housing was great and property prices were relatively high compared to the rest of the country back then. However, a worldwide recession hit Malaysia back in the late 1970s and wiped out a large portion of Ipoh’s economy as a result of falling tin prices in the commodities market. Tin mining activity seized and the city became a sleepy town that has retained its charm till today with moderate to low levels of economic growth.  

Recently however, the market trend seems to contradict the perception that Ipoh has lost any possibility of a major appreciation of its property market value. In fact, Oriental Realty agent Gladwin Agilan described a particular single-story semi-detached house in Ipoh being transacted at RM144 per sq ft which is relatively high in the state. Based on this news, demand and supply of housing in Ipoh can be used as a topic of discussion.  Demand is very strong for properties in Ipoh as seen from the rising prices of homes which showed appreciation values of up to 30% in the last three years. This illustrates an average appreciation of 10% a year which is higher than any fixed deposit account whose returns are based on minimal interest of around 3%. One reason why demand for housing is rising which translates into higher property prices is the improved accessibility and connectivity from Malaysia’s federal capital and from the city-state of Singapore. KTM Intercity train services recently introduced their fast electric train service from Kuala Lumpur to Ipoh which hastened the journey between both cities to around two and a half hours. Also, Ipoh is receiving direct flights from Singapore’s Changi Airport through daily flights on Firefly Airline. Improved accessibility and connectivity results in more investors or homebuyers who intend to stay in Ipoh, now giving the well-known ‘bougainvillea city’ a second look as it has become more ‘reachable’ in their opinions.  

We can also examine the apparent boom of Ipoh’s housing market through the economic theory of price elasticity of demand which illustrate the responsiveness of the quantity demanded of a good to a change in its price. Housing is relatively price inelastic as housing is required by man to obtain shelter from the elements and also to act as a safe haven to rest and recuperate. Therefore, should there be any increase in prices of homes in Ipoh or anywhere else, the quantity demanded might drop very slightly but not drastically. Quantity demanded will definitely remain strong. In addition, houses in general do not have equal substitutes. Houses are built for people to live in and there are no other similar places built for this specific purpose of allowing people to live in a familiar habitat on a permanent basis. Thus, houses are deemed relatively price inelastic if we do not differentiate properties into many types or categories. Occasionally, a perfectly inelastic demand for housing might occur as people might buy houses from the open market at any price due to a property being located in a more prestigious area within Ipoh.  The utility that the buyer experiences is greater than the cost of buying the home therefore they are more than willing to buy properties in Ipoh that are priced way above or below the equilibrium demand and supply price if they find the location right.

In terms of income elasticity of demand, housing is considered as a normal good as the general population will purchase more properties when their income rises and purchase fewer when their income levels drop. Over the past few years, the Mr Galdwin mentions of Ipoh born locals who migrated to other growing cities like Kuala Lumpur in search of better jobs elsewhere when they were in their early 20s now returning to the Ipoh in large numbers to purchase properties as they have found better employment opportunities in Ipoh and other surrounding areas due to the growth of new industries in the state that require highly skilled employees. These locals are now in their 30s and 40s. This resulted in many Ipoh born citizens who now possess higher disposable incomes due to better employment opportunities, returning to Ipoh and purchasing properties in the city to live in. Wealth of the locals in Ipoh is growing at a steady rate.

To sum up, Ipoh has seen and gone through its worst period since the fall of tin mining which stripped the city’s title of being the world’s largest extractor of tin ore. Ipoh-lites are seeing a more positive picture of their city now more than ever as the state government is striving hard to rejuvenate the state and its capital from its weak and gloom period not too long ago. Climbing property prices is a good indication that the city is heading to the right direction once again when seen from an economic point of view as locals are bound to benefit from its 10% average appreciation rate that is three times more than our nations inflation rate of 3.2% in 2011.