Price vs Value – Part Three

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Sr Khaidzir A Rasip is a Chartered Valuation Surveyor by profession with over 29 years of working experience in the United Kingdom and Malaysia.

He is a Fellow of both the Royal Institution of Surveyors Malaysia (RISM) and the Royal Institution of Chartered Surveyors (RICS), United Kingdom; and a member of the Association of Valuers, Property Managers, Estate Agents & Property Consultants in the Private Sector (PEPS). A Senior Vice President at Iskandar Regional Development Authority (IRDA) which he joined in 2009, Sr Khaidzir has been assigned to various positions in Social Development, Flagship Development, Economics & Investment, Strategic Communications and now, Urban Observatory divisions whilst maintaining a specific role as the subject matter expert in property for Iskandar Malaysia.

Now that you have a better idea on the difference between price and value, let us go back to the consequences mentioned at the beginning of this article.

Imagine you bought a house from the primary market where the current very trendy so-called creative marketing techniques on the part of the developer allowed you to be able to afford not just the house, but also renovation package, some home appliances and even partial or full furnishings that are all lumped into the selling price and thus covered by the 90% end-financing! Plus a rebate equivalent to 10% of the price, it means that you virtually did not use a single sen of your own money, especially since all the legal costs too are borne by the developers, right?
Wrong!

All of these costs of freebies, incentives, packages or whatever they are called are not really borne by the developers but by you, the purchaser. So what’s the big deal? You got it covered by the bank under a single home loan. Well, this is where what you paid for the house as stated in the Sale and Purchase Agreement is the price and not the value.

For instance, from the price of RM700,000 you bought the house for, the original price of the house could possibly be RM600,000 only and the additional RM100,000 mark-up represents the cost of all the add-ons. So, the value of your house is only RM600,000 actually. And what if due to economic recession (which also affects the property market), you decide to sell off the house. Potential buyers will look at the value of your house only, san all the goodies that only you enjoyed when you bought from the developer. Then, it dawns upon you that you paid RM700,000 but can only sell it off at RM600,000. You have lost RM100,000 in just a matter of months on top of the RPGT and the legal costs that you have to bear now out of your own pocket. So, the difference between price and value does make a huge difference after all.

Price is fixed by an interested party to a transaction whereas value is derived at by an independent party who is a professional. Even though both can be subjective, price tends to be biased but value is always neutral. The former can be independent of market trends but the latter is always reflective of the prevailing market conditions. Therefore, there is no such thing as market price, only market value.

That is why even though I am not currently a practising valuer, I will always advocate the use of valuers to add value to your property assets. Not just in valuing any kinds of property in any type of transactions, but also in managing any property for value enhancement unless you are contented in having your assets just being maintained in the physical sense – which any non-valuer will be able to do as they also stake a claim to be recognised as legitimate property manager.

Property management is a profession, not a business.

An edited version of this article appeared in the July/August 2016 edition of Homefinder Malaysia.