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.