Malaysian Property Market 1 | Economic Issues! (Kuala Lumpur)
( I previously wrote this in response to a query, and decided to expand it and combine it with other relevant postings for an interesting read. There is a bit of humour peppered, so do enjoy it.)
1. Protected content and Protected content
Suresh, the malaysian elections wil not dampen the sector in property of your interest. I wld imagine it affecting construction projects, development projects, financing of projects, the general supply of projects, but not property.
The opposition needs to win the hearts of the nation, so you will see more populist reforms in the market that benefit the people. Or in other words, if either government is formed, they would ensure stakeholders wealth is enhanced and managed better. Stakeholder being the majority and not the minority of people.
So if u happen to want to invest in malaysia say in a hydro power plant, a bridge, put up a town, then yes, the economic climate must factor changes in the political climate, ie Malaysia Inc.
Our property industry works different here compared to say countries with similoar property laws like singapore and hong kong. Ifproperty prices here are low, its because here is too much supply or banks are not lending because of credit risk, not economic risk (cos they too have to/had lend/lent monies to get these properties developed). Unlike in singapore and hong kong, its demand driven. Our yields are more or less the same, whilst the cost of finance here is marginally higher in view of the weaker exchange rate for the same basket of commodities.
Hence worry not, that if you choose wisely and invest wisely, you will be ahead of the market. Choose a safe product that u know if at worst case scenario has a lost of value equivalent to your one years salary to be pegged at 15% of yor total purchase price, and you should be fine. Never extend your investable credit on one purchase of property, i typically would recommend half. Keep the other half when the down turn happens to buy something cheaper. In the meantime deposit yhat half in a fixed deposit account giving you 4% nett yield.
So dont worry too much about the elections, the klang valley still short of Protected content , and developers are flooding the top end of the market to max the cash out, the allow supply and demand factors to determine if proces come down or not. The beneficiaries are consumers, because we now can upgrade to a bigger or better or more affordable property. Now if u had money in the stock market, i would be concern about the elections. If u are stil uncertain, rent now and buy later.
2. Protected content
Suresh, the Malaysian economy is somewhat insulated (but not entirely) from global issues. Since Protected content , the Malaysian budget was balanced on the basis of the price of rubber and tin on the London bourse, and today mostly of oil and gas.
Between that period, Mahathir has "re-engineered" the economy, such we have gone through an age of industrialisation and moving up the value chain of many verticals in the industry; and since Protected content , Malaysia has started to close off its economy by controlling its currency. This is known as "Mahatherism".
Since Protected content , and with all the inefficiencies this country has, we are still the 17th largest economy in the world and the 14th largest trading partner, with the third largest Asian bourse and many many more strategic importance for a country as small as us and of only 28.5 million people. Domestic consumption today drives the economy accounting to over 64%.
Our economy mimics more like Brazil, Russia, or India, than say Singapore or Hong Kong, where today we are quite self sufficient in many areas. Our balance of payments are very positive and healthy, ensuring all imports are offset my our mega exports. Therefore it allows our cost structures are very very different compared to its counterparts in developing and developed countries, and to our advantage.
This Malaysia, Inc. economic model is somewhat working, and whilst we have lost lower end industries to Bangladesh, Vietnam and so forth; and higher value industries to Thailand and Singapore, we have carved a niche in the middle. In Protected content , Malaysia was only affected by its external businesses, but not internal, and it was left unscathed by the global issues. September 11, had a greater impact on most manufacturing concerns here, and lessons were learnt how to shield such traumatic and impactful issues here.
Malaysia's lending rates are as they are, because it needs to offer better savings rates to ensure no or minimal outflow of capital/liquidity to other countries. It is also priced at the risk this country offers, and at 3.5-4% its healthy and adequate for a sustainable growth. Our national inflation rate is about the same. In Protected content , Singapore offered deposit interest rates in MYR denomination nearly twice more than what was available here, and we had a liquidity crunch when the outflow of billions of usable development currency. Today's market reflects excess liquidity, and you now see higher property transactions for development land, healthy volatility in the bourses, IPOs, and acquisitions and newer projects.
Malaysia has earmarked infrastructure development as a catalyst for growth for the next 15 years. With over MYR159 billion being financed from future earnings, there will be sufficient liquidity in the marketplace thereafter, that technically we can grow on domestic consumption. Malaysia has the third highest savings (35%) in the world after Japan (42%) and Singapore (39%). Malaysia can finance its growth as it has twice that spending bill in cash savings and twice that in assets with recurring income.
What will hurt our economy is the price of oil & gas, two major economies having issues, say China and the United States going through a depression, or another September 11 domino like scenario. Whatever happens, this economy will feel it 7 to 15 months later. Right now with issues in China, our exports to China is still growing because Malaysian exports target the more affluent Chinese segments, and not the lower. We had issues about Birds Nest, and now that is resolved.
In property we look at 6.5% yield as trigger point to buy, and 5.5% to sell. Generally, market punters here look for capital gain then yield based income for housing and the opposite for non-housing. So if yields are such in those countries, you can understand why Malaysians are buying those key assets in Australia, Canada, and so forth. Outflow of capital, and future inflow of recurring rental receipts. With issues in those countries, investment opportunities look even more promising.
I am not unfazed by the 60% plus general vacancy in rented property, as I am more socialist than a capitalist, and feel the lower rents driven by supply/demand allows ordinary businessmen like me to live and work more economically. Our operating costs here are now at 20% than Singapore. I am also unfazed by this because new developments like the high speed bullet train will be a game changer. I cannot understand how Singapore will benefit as much as KL or the rest of Malaysia, but even if take up doubles here, we have sufficient capacity to/for further grow/growth and keep costs affordable. Malaysia may not rank high on quality of living, but certainly high on affordable quality of living.
Also remember that our cost economics allows for developers to have a 60+% occupancy or sales and still be extremely profitable, unlike in Singapore, where its in the higher 70 to 80 percentile just to break even. In effect, we are booking our construction cost at today's prices than tomorrows. We endeavour to create demand, not just supply space.
Not all Malaysians are exposed to European, North American character, nor do they want to understand the nuances in taste. Like many they adopt what appeals to them, and reject those that dont. Different cultures have different nuances to taste and different evolution. Malaysia has always been a mix of everything, from influences of pre-to-post colonialisation, everyone has a different affinity towards design and taste elements. Not everything is meant to suit you. Not everything here is homogeneous too like the west end of london, or with straight roads like manhattan, or full of culture like shanghai, or vibrant like south american cities... but what it has is a population of warm, fun-loving, happy go lucky people with great dreams to live well and their homes have character, albeit theirs.
Applying Macro Economics: USA -vs- Malaysia (Not Relevant)!
Why Malaysia keeps Building; the importance of the Construction Industry.
What happened in the USA Protected content Bust/Global Financial Meltdown?
How Malaysia controls/curbs Property Speculation and Rising Pricing.
Using Macro Economics only as a tool for making informed decisions!
Thank you for reading this, please do share your thoughts below.
If you enjoyed reading this and wish to read more, check out:
Malaysian Property Market 2 | a Good Time to Buy!
Protected content and
Malaysian Property Market 3 | Buying vs Investment
Enjoy! and feel free to connect with me on InterNations! Cheers!