Dave Chong

The Middle Trap: Why You Must Be The Cheapest or The Most Valuable

| Founder Insights | by Dave Chong

I recently had a realization about the property market in Kuala Lumpur. For years, we’ve often looked at the mid-range market as the “safe” bet—accessible to many, decent volume, standard appreciation. But looking at the data and my own observation, the mid-range properties in KL haven’t appreciated much in terms of price recently. Validated by the stagnant transacted prices, it seems the middle class is squeezed, or perhaps there’s just an oversupply of “average”.

However, the story at the top end of the market is completely different. The high-end properties, specifically those priced at RM3 million and above, are moving. And they aren’t just moving; they are appreciating significantly.

Take Residency 22 in Mont Kiara as a prime example. This property is strategically located right in front of the Garden International School.

A few years ago, you could pick up a unit for around RM3 million. Today, the data tells a striking story. As of mid-2025, transaction data shows units changing hands for significantly higher sums. For instance, a 3,046 sq. ft. unit was recently transacted in May 2025 for RM 3.7 million (approx. RM 1,215 psf). The market has seen a year-on-year capital appreciation of over 8% for this specific development, completely defying the broader market sentiment.

Who is buying? Interestingly, frequent buyers are Chinese nationals, often paying in cash. Their primary motivation differs from the local investor looking for barely-positive rental yield. They are buying lifestyle and access.

They want to send their children to the international school across the street. For this demographic, convenient luxury is a necessity, not an option. They are willing to pay a premium for the best location and the best quality product because it serves a specific, high-value purpose in their lives. They aren’t looking for a “bargain”; they are looking for the best solution.

On the other hand, let’s look at the “middle”. I own a unit at Mont Kiara Palma, roughly 1,200 square feet. When my tenant left recently, I faced a reality check. It was incredibly difficult to rent out.

Why? Because the renovation was old. It was “average”. It was what you’d expect from a standard mid-range rental. In a sea of options, “average” doesn’t stand out. It just blends into the noise, competing solely on price with every other unrenovated unit on the market.

However, I have a friend who owns a unit in the exact same condo, same size (1,200sf). While I was struggling to find a tenant at my previous rate of RM4,000, he managed to rent his out for RM7,000 per month. That is nearly double the “market rate” for an average unit.

How? He spent RM150,000 renovating the unit. He didn’t just paint the walls; he upgraded it to a premium standard—modern piping, designer fixtures, and a layout that felt “new”.

The “Internet” Proof

This isn’t an isolated anomaly. Internet case studies back this up. For example, a case study from Arcoris Mont Kiara showed that a landlord who spent RM18,000 on a targeted interior design makeover managed to rent their unit out at 22% above the market rate within just one week. Another example in 28 Mont Kiara showed units achieving RM10,000 monthly rentals simply by offering fully furnished, high-spec interiors compared to the standard semi-furnished options.

The data is consistent: Unrenovated units in older buildings like Mont Kiara Palma often see yields dip to 4-5%. But optimized, “lifestyle-ready” units can push that yield back up towards 8%, even in an older building.

The moral of the story is clear: if you want to target high-end consumers, you have to be the best in terms of quality.

High-end tenants (and buyers) do not mind paying more. Price is not the primary issue for them; value is. They want something better than the standard, and they have the means to pay for it. They are paying for the result (a beautiful home), not the ingredients (square footage).

This lesson applies directly to doing business as well. The middle ground is a kill zone. This is a phenomenon often called “The Death of the Middle”.

Either you are the cheapest, or you are the most valuable.

The Barbell Strategy

Imagine a barbell. It has big weights on two opposite ends and a thin bar in the middle. Successful industries inevitably evolve into this shape.

  • The Left Weight (Price Efficiency): Massive volume, razor-thin margins, extreme automation.
  • The Right Weight (High Value/Premium): Low volume, huge margins, specialized experience, brand loyalty.
  • The Thin Bar (The Middle): This is where businesses go to die. They have the costs of the high-end but the prices of the low-end (or vice versa).

Case Study 1: The Retail Graveyard (Toys “R” Us)

Take the classic case of Toys “R” Us. For decades, they were the “category killer”. But they got stuck in the middle.

  • On the Low End: Wal-Mart and later Amazon undercut them on price. Why drive to a store to pay $20 for a toy when Amazon delivers it tomorrow for $15? Toys “R” Us couldn’t compete on efficiency.
  • On the High End: Boutique toy stores offered curated, educational, high-quality wooden toys with an “experience” (play areas, workshops). Parents seeking premium quality went there.

Toys “R” Us was left with the “average” experience at an “average” price. And they went bankrupt. They were too big to be nimble (Value), but too cost-heavy to be the cheapest (Price).

Case Study 2: The Airline Industry

Look at the skies. Who makes money?

  • The Budget Kings (Ryanair, Spirit): They are unapologetically cheap. You get a seat and a belt. Everything else is extra. Their profit margins are often double-digit percentages because their costs are brutally managed.
  • The Premium Elite (Emirates, Singapore Airlines): They sell an experience. Shower spas at 30,000 feet, private suites, lobster. They charge thousands of dollars for a ticket, and people pay it happily for the status and comfort.
  • The Struggling Middle (Legacy National Carriers): Many old national carriers (like Alitalia or other state-backed airlines) struggle for years. They can’t offer $20 flights, but they don’t offer the luxury of Emirates. They survive often on government bailouts or by frantically cutting costs to try and become budget carriers, usually failing.

Case Study 3: The Coffee Wars (Starbucks’ Middle Trap)

For years, Starbucks was “Premium”. But in 2024, they are showing signs of the Middle Trap.

  • The Value Competitors: In China, Luckin Coffee is eating their lunch with massive speed and lower prices, growing 4x faster. In the US, drive-thru chains like Dutch Bros offer speed and fun at a better perceived value.
  • The True Premium: Artisan “Third Wave” coffee shops (Blue Bottle, Intelligentsia, local roasters) offer a far superior product and atmosphere.
  • Starbucks’ Problem: They are becoming “Fast Food Coffee” at “Premium Prices”. They are losing the “Third Place” experience (Value) but are too expensive to be a daily habit for budget-conscious consumers (Price). This “stuck in the middle” position resulted in a 7% drop in same-store sales in late 2024.

The Blueprint: How to Escape the Middle

If you find yourself in the middle—providing average value at average prices—you are in danger. Here is your escape plan.

Step 1: Audit Your Position

Be brutally honest.

  • Price: Are you the absolute cheapest in your market? If the answer is “No”, you cannot win on price alone.
  • Value: If you doubled your price tomorrow, would anyone still buy? If “No”, you do not have enough brand equity or differentiation.

Step 2: Pick Your Path (You Cannot Pick Both)

Path A: The Efficiency Monster (The “Amazon” Route)

  • Goal: Be the cheapest.
  • Strategy: Radical automation. Cut every non-essential cost. Use technology to scale volume.
  • Sacrifice: Personal touch, customization, high margins.
  • Metrics: Cost of Goods Sold (COGS), Volume, Speed.

Path B: The Value Architect (The “Residency 22” Route)

  • Goal: Be the most desirable.
  • Strategy: Radical differentiation. Niche down. Improve quality (like the RM150k renovation). Build a brand story. Offer white-glove service.
  • Sacrifice: Mass market volume, low-end customers.
  • Metrics: Customer Lifetime Value (LTV), Brand Equity, Net Promoter Score (NPS).

Step 3: Eliminate the “Average”

  • If you chose Path B (Value): Stop discounting. Raise your prices to fund better service. Fire your worst customers who drain your resources (the ones who want premium service at budget prices). Use that time to over-deliver for your best clients.
  • If you chose Path A (Price): Stop trying to be “custom”. Standardize everything. Remove options. Streamline.

Summary

The market rewards the extremes. It punishes the average.

  • Cheapest: Wins on efficiency.
  • Best: Wins on experience.
  • Middle: Loses on everything.

Don’t be the landlord with the unrenovated unit hoping for a tenant. Be the one who renovated (Value) or the one selling the cheapest entry-level unit (Price). Pick a side.

So, whether you are investing in property or building a business, ask yourself: Are you aiming for the strategic high ground where quality commands a premium? Or are you optimizing to be the most cost-effective solution in the market?

Pick a side. Invest in the renovation. Upgrade the product. Or streamline to be the most affordable. Just don’t get stuck in the middle waiting for the market to lift you up—because the middle isn’t rising anymore.