By: Lim Ben-Jie
Based on an article in StarBiz
dated 24th 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 19th and
early 20th 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.
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