It’s just a hedge against inflation. (A super important one)

As a property owner, I do not think of inflation as such a bad thing. The reason is because I am a property owner. Inflation will usually drive costs of construction up and when this does up, property prices naturally go up. However, I do not want property prices to rise like the years from 2009 – 2012. It’s NOT healthy yeah. My wish is very simple. Property prices to rise at a slower pace than salary increase so that more Malaysians could also own a home instead of renting.

By the way, do we know that if we look at inflation over a very long period of time, the average is around 3.4% per year for Malaysia? Yeah, it’s actually pretty close to what the government has always been announcing to the public, that inflation is around 3%. As for the latest inflation numbers, well, it’s extremely low yeah. For 2020, it’s forecasted to be just 2 percent. Here’s that article for reference. Below image shows the inflation number for Malaysia.

When we are renting a home, especially during these few years, the owner may not be increasing the rental much. In fact I think many felt lucky to have a tenant who pays on time every month. What is happening to the property prices then? Well, the increase in price is moderating but it’s still trending upwards. Latest figure for the home prices movement as below. From the average of 6.4% from 1990 – 2016, the latest number shows just 1.7% up.

By the way, Malaysia is not alone yeah. Our neighbour is also experiencing a slowdown in economy and the property prices are no longer increasing like 2018. In fact for 2019, it was only up by 2.5%. Earlier article here: Moderating prorperty price, just 2.5% What this tells us is that even when the market is not doing well, inflation will continue to pay its part in ensuring everything is still inching upwards.

Whether it’s the salary increase for the construction workers which will then also increase the material prices or even the slowly but surely increasing land prices, all these will mean that the final selling price of newer projects in the same neighbourhood will have to be priced higher than the earlier ones. This is why there is NO NEED to see property investment as a very profitable investment. Just look at it as a natural hedge against inflation. I think that’s good enough. Happy understanding.

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