Economic Downturn and the Opportunity it Presents


Written on 10/30/2008 07:19:00 pm by sikapitan

Despite what our Government is trying to portray, Malaysia is not immune from the global financial crisis. This is evident by the battering our KLSE has taken since the turn of this month. However, I believe there is some truth in the statement that Malaysia will be relatively stable economically.

Again, just take a look at the stock market. Despite reaching lows not seen in years, you don’t see en masse retrenchment or excessive decline in consumer spending. Heck, every day at KLCC I see people trying out goods like there’s no tomorrow.

Unlike the last big drop in the mid-90s, where scores of individuals turn bankrupt, this time most Malaysians are not actively and directly involved in the stock market. Retail investors (meaning you and me) make up only a small percentage of holdings in our equity market.

Strict lending rules imposed by the banks have also restricted individuals from excessively borrowing money to finance stock purchases. Therefore, the losses in the stock market, in general, will not impact individuals like you and me directly.

Another plus factor is our own conservatism in relation to our savings. Malaysians in general tend to be conservatives and keep the majority of their money in fixed-deposit or open-ended government trust fund (eg. ASB). The more adventurous would venture into mutual funds, and even then I see reluctance to throw away their savings.

At this moment, most of us are suffering from paper losses with regards to Mutual Funds. But as the investment horizon clearly states between 3-5 years, perhaps we shouldn’t be unduly worried.

The last form of savings/investment for most Malaysians is Real Estate Investment. This is becoming increasingly popular as historically here in Malaysia, Real Estate is almost equivalent to capital guaranteed fixed deposit. At the very least, you’ll lose a few thousand from your purchase price. Not too bad considering the potential yearly yield of 7 – 10% or capital appreciation of 20% - 40% from purchase price.

This is especially true if the property is purchased from reputable developers.

However, as I’ve been surveying some properties, I noticed that sometimes there are a lot of investors as opposed to actual purchasers. This means that properties are being picked up at inflated prices based on inaccurate demand. The demand from investors does not necessarily correspond to demand from people who actually want to live there.

It’s a chicken and egg situation. The investor would go to the sales gallery, and then realized that units are being snapped up quickly. The investor equates this to demand from purchasers. They will then put in money without realizing that no one wants to stay there upon completion. In fact, even if there were, upon completion, there will be a glut of investors ready to rent out their units, which makes it harder for you to set the price you wanted.

In any case, I predict that in 3 months time the property market will follow the path of the stock market. Once the stock market bottoms out, and start its recovery upwards, start tracking the property market as it will lag a few months from the stock market. But if there’s no real recession (increase in unemployment, negative growth y-o-y etc.), then perhaps there will only be a slowdown in demand, but it will not adversely impact prices.

Especially as developers are also slowing down with new launches. The shortage in supply will balance out the decrease in demand.

Next year will be a great year for those willing to take risks. Go figure!

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