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The impact of the changing macro economic environment on the landed property industry.!

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The changing macro economic condition in Malaysia will have a very direct impact on the landed property market. According to the latest release from the Department of Statistics inflation recorded in December 2013 and forecasted for January 2014 is the highest since 2011 (refer figure 1.1). !

Figure 1.1 While some claim that this is mainly due to administrative adjustments from the scaling back of some government subsidies, the price inflation due to economic growth cannot be neglected. Hence the possibility of Bank Negara increasing the interest rate soon is a very real prospect. The result of this tightening of monetary policy will decrease the money flow within the economy pushing the aggregate demand down. !

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The result of this would be a decrease in the demand for landed property forcing suppliers to reduce prices. While this may sound like good news to potential serious buyers it certainly is not good for dealers as their revenue will decrease as the price of the properties go down. !

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Figure 1.2

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Another impeding factor is the depreciation of the Ringgit. The past few months we have seen the MYR decline from 3.15 in early December 2013 to 3.35 as of this report (refer figure 1.2). Money market forecasts the MYR to further depreciate creating fears of capital outflow. !

As the value of the MYR decreases the value of properties on hand will become low and at a substantially fast rate. Due to the fact that landed properties represents a considerably large equity stake for any investor, the demand is expected to decrease in near future at least until fears of capital outflow resides. Bank Negara must take immediate measures to curb the fall of MYR before the market starts shorting this MYR. !

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However so far what we have seen from the actions of Bank Negara is that they consider this adjustment to be that of a administrative adjustment and do not see any real impact on the economy. A view which may not be shared by foreign investors who have a substantial stake in the sovereign debt market (refer to figure 1.3)! !

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Figure 1.3

If this situation escalates we are bound to witness a capital outflow with money moving back into the US treasury bills, drying up capital within the economy hence further lowering the demand for expensive assets such as landed property. Any investment in acquiring landed property should be reconsidered very carefully because the possibility of a rating decrease is very real if a capital outflow begins creating a stampede followed by a mild recession.!

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Author! Hussain Alim Shakoor MBA, MPA (econ. policy) !

(C) All rights reserved. The report or part of which should not be replicated or used for financial gain without the consent from the author. !

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