“Will Property & Stock Markets Crash in Malaysia?”
Deja Vu Time?
No More Cheap Interest Rates
I had a very Deja Vu feeling after reading yet another investment guru is now predicting a market crash. The Dow and S&P500 are technically in bear market territory. Both the US and UK are heading for a recession. So no surprises when a famous hedge fund manager ,Michael Burry of “The Big Short" fame, says the recent market rallies are just dead cat bounces. Burry has suggested the S&P 500 could plummet by another 53% before bottoming out. Wowza !
Folks, having lived through the 1998 crash where I saw my blue chip stock portfolio fall 30% in a single day (on the 2nd day, the market fell another 20%!) I think it looks like we are going to see interesting times ahead. Because if the US stock and property markets tank as Burry predicts, do you think property and stock markets in Bolehland are going to be immune, ie buck the general trend and climb HIGHER?
The era of cheap interest rates is pretty much over according to many industry experts. But many property and stock market investors (and some Investment Gurus) in Bolehland still think otherwise.
My 🤠 Dua Sen : Wait till our interest rates rise some more and stock and property prices will start to fall.
The Writing On The (Auction) Wall
It's already happening now in the high end property market. Auction prices for some 5* Luxury KLCC condominiums are trending lower in 2022. In May this year I wrote a post at 360 KLCC that expressed my surprise a luxury KLCC condominium unit at the Pearl, Jalan Stonor sold at auction for RM582 PSF. Back in May it was the first time I think but cannot be 100% sure any 5* KLCC condominium was transacted at below RM600 PSF for the past two years. Last month, a bigger Pearl unit on the same floor is now up for auction at a even lower price of RM518 PSF.
Elsewhere Goldman Sachs is forecasting a torrid time for US property developers and house owners this year and into next year. Last month, Goldman Sachs released a paper titled “The Housing Downturn: Further to Fall.” The investment bank now forecasts that activity in the U.S. housing market will end 2022 down across the board. The firm projects sharp declines this year in new home sales (22% drop), existing home sales (17% drop), and housing GDP (8.9% drop).
The reason of course is due to the Fed's inflation fighting tactics of sharply increasing interest rates, thereby causing a slump in demand for consumer goods, including housing. Just about the only bit of good news is Goldman Sachs is not expecting sharp declines in housing prices next year.
CPI v Cost Of Living
In Bolehland, recent strong GDP growth suggests Bank Negara Malaysia has got the leeway now to hike up interest rates to combat inflation. Our inflation rates are much lower than the US but they recently hit a high of 4% in July.
Malaysia’s annual inflation rate increased to a 14-month high of 4.4% in July of 2022 from 3.4% in the prior month, matching market consensus. Food prices rose at a new record peak of 6.9 percent after rising 6.1 percent in June, amid robust consumption following further improvement in COVID-19 situation. Additional upward pressures also came from cost of housing (3.8% vs 1.2%), transport (5.6% vs 5.4%), alcoholic beverages & tobacco (0.6% vs 0.4%), clothing (0.3% vs 0.2), health (0.8% vs 0.6%), recreation (2.5% vs 2.2%), education (1.2% vs 1.1%), restaurants & hotels (5.8% vs 5.0%), and miscellaneous goods & services (2.1% vs 2.2%
Vox Populi & Subsidies
So going forward, is inflation really a problem in Bolehland? Does the official Consumer Price Index reflect accurately the real changes in the Cost of Living? Our nice PM and Finance Minister are committed to maintaining subsidies on petrol and food eg cooking oil and chicken to batten inflation rates down and ostensibly help out the rakyat, particularly the B40 group (aka the bottom 40% of households receiving government aid and subsidies). Another reason is wide spread expectations a general election is just around the corner.
Maintaining all these costly subsidies is unsustainable. At RM77.7 bil, subsidies are projected to exceed budgeted development expenditure in 2022. But removing them quickly will make Putrajaya unpopular with the voters when a GE is finally announced.
See my earlier posts at @ 360KLCC (“Insights, Analysis & Perspective for the KL high end property market”) here:
“A Market Rally” or “Dead Cat Bounce?”
”Do You Really Want To Master Value Investing?” Book Review
"Chickens come home to roost for Putrajaya”
#stocks #valueinvesting #propertyinvestment
Post Script - The Writing On The Wall from 2001
In 2000, when I bought my first KLCC investment property, I took a loan from an overseas bank at 4% for the first year and then BLR +1%. In my second year, the interest rate on my loan repayment was I think repriced to 7.75%. Since 2000, a whole generation of property investors (& some property experts) have grown up on cheap mortgage financing.
“I wonder how many property owners are prepared for a future when interest rates are no longer cheap? “, A Property Blogger Based In Penang
