When economy is not well, property market should not do well.

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Every time I start speaking about property market, I will start with the economy. Let’s understand that the fundamental for the property market is the economy. It is not about 30% of the properties being purchased by foreigners for example. It is definitely not when affordability becomes non-existent and every property in the market beyond the reach of all households in the B40 and M40. (Here’s what B40 and M40 households earn) When everyone has a job, they have stable money and this is how they could save for a property. Even if they were to rent, someone has to own that property for them to rent from, right? However, if the economy is doing badly, many may be without a job. This will definitely affect the property market until the economy recovers. I know the stock market is not well… However, shall we understand about the economy from HSBC Global Research?

Article in thestar.com.my HSBC Global Research said that Malaysia’s 4.5% in Q1 2019 showed that it’s holding up well by regional standards. (Erm… I wonder how’s the world growth…) It said this about the recent GDP numbers, “the details suggest that manufacturing activity is holding up, private consumption should remain above-trend, and the commodity sector is recovering from disruptions in previous years”. 

HSBC Global Research also said the following:

“Growth in Malaysia is gradually slowing in a broad-based manner; manufacturing growth has been resilient by regional standards.” (Keyword here is broad-based…)

“With growth likely to stay within Bank Negara’s 4.3% to 4.8% forecast range this year, we do not forecast further rate cuts in 2019.” (The outlook should be better since there are no forecast of a further rate cut which will indicate a weakening GDP growth)

“With sequential growth rebounding slightly to 1.4% q-o-q (previous: 1.2%), it is clear that consumer spending in Malaysia is alive and kicking. We expect private consumption to remain one of the key drivers of growth for the remainder of the year, driven by a stable labour market and expansionary fiscal policy.” (when everyone has a stable job, they spend… or invest if they are more financially savvy)

“With the resumption of some large-scale projects such as the East Coast Rail Link, we are likely to see some stabilisation in public investment towards the end of the year. However, we forecast overall investment to be a drag on growth this year.” (Yes, large-scale projects are a plus to the economy and definitely not a liability to growth)

With regard to the economy, HSBC Global Research said that the worry will be from the latest US-China trade tensions. (So, this confirms that if the economy is to slow further, it will be caused by external circumstances instead of a domestic one. This is certainly a good assessment yeah) Article in thestar.com.my

Call me an uncle but I must repeat this. The home prices should only rise slowly and it should be below or at most at the same level as income growth. Anyone promising anyone that a home investment is risk-free or give super high returns with little or not much of our own money is not talking about property investment the way I believe it should be. I dare not imagine if just 30% of everyone in the whole market are buying properties WITHOUT a single cent being forked out. I think the banks better be vigilant too because if everyone is buying home prices which is not based on fundamental, their risks are no longer manageable… Happy understanding that everything starts from a well managed economy.

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written on 16 May 2019

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