Sunday, October 12, 2008

In Recession - it's Official

It's interesting to note that the classifieds are still advertising KLCC properties at sky high prices. We are talking RM1300psf for Meritz and RM1200psf for Marc residence. I am curious if there are actually any transactions. What is certain now is that the advertisments for the same property runs for much longer, disappears and then reappears again a few weeks later.
This is the recession that everyone has been anticipating since last year. In my view, it is the longest lull before the storm. But what is certain, the next few months we will start to see property prices on the downward slide.
Why do I say this?
There will be a few thousand units coming into the market this year. Many of them purchased by short term speculators. Yes, some might argue that there were many cash buyers, foreigners, Arabs, Mainland Chinese with buckets of Yuan... but there is no doubt that there are hundreds, if not thousands of local speculators among them. I know at least a few people who do not have the fundamentals to back up their purchase, they were just hoping to cash out upon VP. The cash buyers, mainly would probably just sit still and hold it out for a few years until the economy picks up again (provided that their other investments or livelihood is not affected). While the speculators will drop their pants when the installments, added with the maintenance fees and other costs kicks in.
So, has it been a mistake to have bought a property a year ago since there will be a fire-sale coming? I would say no. I myself have made a few purchases. Our Malaysian inflation is now at 8.5% (official figure) - the unofficial figure is of course higher, when you take into account that we subsidize a lot of out goods from tax payers money... So that means, if our money has stayed in the bank earning 3% interest p.a., it would have depreciated by 5% to 7% within this 1 year period. So, 1 year ago if we have bought a property, we would have enjoyed and collected 1 year's worth of rent to counter the losses of our money depreciation.
How about now? To buy or not to buy?
I would say it is probably not a good idea to have wads of cash sitting in the bank. First of all, it depreciates, even more this time. And secondly, the bank might not necessarily be around any more next few months. Don't panic yet! So what do you do with the money? Buy gold? Buy USD? Buy stocks? Everywhere there are risks.
In my opinion, property is still a safe bet because it is still a tangible investment. No matter what happens, you still have that property to live in which will at least last you 99 years till you children grow old. And the next economic cycle will see that the property value appreciates higher than the value dropped.
The challenge is of course to find a good location, a good property with a very good price. And make sure you bought it cause the owner was desperate to sell. Of course this makes sense only if you have lots of cash. If you don't, my opinion is to sit still and do nothing for the next few years. But if you really itchy and really have to buy something, try to go for those fixed rate loans.

5 comments:

Anonymous said...

Sinleong
I saluate you for being frank and honest on the current economic situation.

We saw it coming but (still many today) chose to ignor or acknowledge the situation.

I read one blog with this advice
"we have hit rock bottom and property prices can only go up". What I am not certain is it up in flames or smoke!!!

I do not intend to sound like Dr Gloom but a fact is a fact. I do not hear of secret receipes (except for the chain of resturants)or formulas that will pull the country out of this current slide. Anyone with this will form the government with landslide support.

Time will help stablise and normalise current property prices.

Is this a good time to invest?? I can only remember advice given to me sometime back. "Every investor would want to buy at lowest and sell at higest!!! You do not know when it hit the higest until it begins to drop and when you have hit rock bottom until it begins to rise" So you have to make the best guess!!!!
Money in bank...while guranteed to RM60k it is still king in these hard times...............

kc said...

That's true that the so-called financial expert is always saying some optimistic words to excite the market, especially developers who is hoping to pull the market higher so they can have more sales ... but that's not the truth normally, as we all know people will only start talking about reason for the downhill when everything goes bad ... making us think they are the financial expert because they know everything ....

so i agreed with sinleong, putting money to work is better than sitting around like duck ... we just have to look harder ...

Anonymous said...

The current finacial situation is indeed challenging. This week the market dipped further and many are at lost on their investments.

Will this get better in the near future? I have not answers but can only share how a senior finacial expert describes the situation.

It is like that the world economy had just suffered a massive heart attack...governments and banks around the world intervened to help stabalise the situation.

Is this over?...the current status is like being on lifesupport in the ICU without clear steer of the future.

We can only wait and pray.

As for investing the in market now!!! Be patient and wait.... the time is not right .....

Please share your thoughts

Anonymous said...

It looks that the recession has taken a bite locally. While property prices slide elsewhere in the world, many maintain that prices here remain stable despite fewer tranctions.

Historically, it takes about a year for changes overseas to hit our shores. Are the local investors adopting a wait and see attitude?

In KL more units especially in the KLCC area will come online soon. Will this effect the per sq ft price???? may be!!!!..

So what will it take for investors to return?

Better forecast of the world economy...MM2H?? Maybe a stimulus package from the overnment...maybe after March 09!

But for now!!!!

sinleong said...

This is a global economy crisis. Only that our government is in denial. Next year we will see the full effect of the crisis.