Share market is going down very soon? We already have one of the worst performing indices in Asia 

yeah investors will be shy away from msia market/properties
Time to pick up some cheap shares or properties

My 2 cents on dreamer101's statement referencing a CNN article (and subsequent views).

The effective question was whether or not we'd think the same thing as what happenned in the US property market will happen here (and to the same extent).

2 parts to the answer.

1st part

The economies are different, and perhaps one would have to consider to what extent the sector is exposed.  If you research the US property sector, and the US economy in general, you will find very high levels of household debt. As an economist, I can tell you the measure we are concerned about is the amount of debt per household - and really, how it varies over time.  An economy run on credit always runs higher risks when the economy sputters.

In an economy where people are used to the notion of personal debt, this becomes dangerous when it's extended into leveraged asset purchases.

As part of my job, I sometimes handle cross-border M&A transactions. In one of these transactions, we discovered that the US entity we were proposing to advice on, was potentially engaged in house price inflation to pocket the cash (Scam involving loans extended on over-inflated house prices, and finding straw buyers).  When you have an economy that's so debt-fuelled, coupled with speculative attitudes towards property, and with lax controls, that's when severe price crashes will occur if the bottom drops out of the market.

Thus, a conditional answer would be that it's unlikely for the same thing to happen to the Malaysian property market to the same extent.

I personally think the resiliency in the market will be the higher-end areas where the Middle East investors have come in.  Our economy has made a strong push as an Islamic centre of finance.  Some of my friends have financed and developed the properties in the KLCC area - do you know that take-up rates are phenomenally high still? The take-up is predominantly foreign.  This is quite remarkable.

p.s. Side note, as an economist though, this does not bode very well for our country in the longer run.  We generally want locals to acquire and grow assets, rather than foreigners.  We should adopt Singapore policy and convert as many of these highly skilled, highly productive foreigners into locals.  Instead we import Bangladeshis by the truckload, but that's an economics topic for another day.

You may see sharp price falls elsewhere in the market.  If you take a drive outside the city, I am sure you still come across some abandoned housing / commercial development projects.  My firm also handles some recovery exercises for these projects, and I can tell you that the Banks have been saddled with some of these for a rather long time, some since the last crisis.

2nd part

Dreamer101's statement, though, is interesting in a different aspect.  There are links between economies - just to what extent.

I remember about 1.5 to 2 years back, at end-06, I received one of those international research reports (as part of my line of work).  It was predicting the overextension of the US economy, the risks of a fall, and more importantly, the ripple effects.  At that time, I had a number of furniture-related companies in my client portfolio, and I remember an interesting statistic. 50% of our furniture exports was westwards towards the US.  Thus, this was predicted to be a sector with rather significant exposure in a US downturn.

It's interesting because now I am starting to see the effects being felt among Malaysian property companies, unlisted and listed.

Anyway, dreamer101's statement should serve as a reminder not of whether our market will fall to the same extent but that the continued slowdown in the US economy will soon lead (if it hasn't already done so) to slowing US demand for Asian products including Malaysia.  BNM holding our Overnight Policy Rate constant will keep our growth rate (artificially so) at the expense of a higher inflation rate and weakening ringgit (Ringgit has recently weakened to new lows), thus keeping exports humming for awhile more.  But exports won't hum forever.

If you want to know what our exposure risks are for the Malaysian economy, the likelihood of a downturn, do start spending time looking at which sectors are overly-exposed to US and european economies - particularly the US, the fall will be sharpest.  If those sectors are large components of our economy, you will see the effects felt on a larger scale.  When consumer demand falls off because of less earnings from exports, that's when the property prices will fall.

By the way, what is your M&A refer to ?

so, what you are trying to say is, our economy (malaysia), will be directly tarnished by the slowdown of USA, IF THE USA ECONOMY SITUATION DOES NOT IMPROVE ?

i believe, this is pretty common concept among us, which we all know. and, i also do understand that we are FAR FROM RECESSION, AND THE IMPACT OF USA to our economy is, pretty slim.

What is the main products which we export to USA? yes, indeed FURNITURE is one of the list besides semicon. we, in malaysia, the products we export are mainly raw material. besides, mould plastic, chemicals and minerals, are also, our main export to western country, which include USA.

Why do i say, our economy does not have much impact from USA SLOWDOWN? Let me give an example, i am also supplying BONDING MACHINE, which is for the use of flattening of micro chips in SEMICON industry. one of this machine cost roughly 200k USD. my main and only regional market is MALAYSIA and Thailand, but, which SINGAPORE OERLIKON, which is also my Partnership, that based in Switzerland, monopoly the whole Far East Semicon.

We, in Malaysia and especially Thailand, the demand for this Bonding Machine (which is just a size of ATM MACHINE FROM ANY BANK), is high, and consistently. Dont forget, the spare parts of this machine will generate millions of USD annually.

Now, where does all the Bonding Machine and its spare parts come from ? 70% from USA, and the rest from Europe.

So, to me, i am not an economist. I am a mechanical engineer. thus, to put economy in order, i believe, we have to include practical and some theory together, not just by giving and refer to all the data.

Will our property affected by USA slowdown ? it is that simple, if you buy at decent location, you are the winner. I do not quote this baseless, because, i am a property owner, and i personally been through this.

Pai,

Historically, Malaysia always have OIL MONEY to bail out companies during recession.  This will be the first time in the last 30 years that when Malaysia enter recession, Malaysia has NO OIL MONEY to bail out.  Given that 1.2 millions to 1.5 millions people working in government and GLCs, you think that will not affect the property market??  Malaysia has ONLY 10 millions people in working age. 

In the last recession (97/98), most and if not all those people were not affected.

So, be careful.  Do not be so confident about your outlook.

Dreamer

we are having recession ever since the fuel price increase to RM2.70.

Historically, Malaysia always have OIL MONEY to bail out companies during recession.  This will be the first time in the last 30 years that when Malaysia enter recession, Malaysia has NO OIL MONEY to bail out 

I personally think the resiliency in the market will be the higher-end areas where the Middle East investors have come in.  Our economy has made a strong push as an Islamic centre of finance.  Some of my friends have financed and developed the properties in the KLCC area - do you know that take-up rates are phenomenally high still? The take-up is predominantly foreign.  This is quite remarkable.

I think you r wrong here. Look for the definition of a recession, then u know why I said we were far from it.

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Added on August 1, 2008, 7:24 pm

If there's no recesion, then there's no need for such bail out nor oil money(apart from taxes), rite? Ur assumption that we will get into a recession was based on nothing concrete.

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Added on August 1, 2008, 7:27 pm
Hi Playbook, mind sharing with us the recent take up rate for KLCC area? 

I think you r wrong here. Look for the definition of a recession, then u know why I said we were far from it.

Or the properties eg 2 storey terrace in KL will shoot up to RM1mil?

hi, i'm a kns technician

kns, esec or asm wirebonder? yup those spare parts cost in unbelievable price. 15cm x 6cm x 2 cm block of clamp cost rm2500...unbelievable, especially those kns'ses(weak in design for maintanaince, but effience in developing fast output).

actually, i hope the price of property will go down like 20% less. If not, salary for those average people like me will start thinking about migrating to another state  such as nilai or seremban or perak...~~~on-semiconductor company or cashem semicon hohoho.

Pai,

<<If there's no recesion, then there's no need for such bail out nor oil money(apart from taxes), rite? Ur assumption that we will get into a recession was based on nothing concrete.>>

USA is either in slow or no growth or recession now.  Do you think Malaysia will be unaffected by that??

And, the situation in USA is getting progressively worse.

Dreamer

You are too optimistic dude, so do you think that the KLCI will go up to 2500-3000? Or the properties eg 2 storey terrace in KL will shoot up to RM1mil?

correct, are u from CARSEM SEMICON IPOH ? IF U IN THE PRODUCTION LINE, I MIGHT KNOW YOU? Yes, Seremban semicon booming drastically.
Pai, since when we are facing recession ? we do will affected by usa slowdown, but, at the moment, it is very slim. malaysia economy is still in infant stage, Pai. Our property market also in early stage. we are stil growing and learning. dont compare with USA MACRO ECONOMY AND WITH HUNDRED YEARS of development history.

One thing, i agree is, USA indeed is getting worse, but, they will not take too long to recover.

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Added on August 1, 2008, 11:18 pm

Muscaa, come on, i really do not know how to response to the quotes. by the way, do you really know what is recession and what is the major challenge our malaysia economy facing? but, dont worry, everyone have different thinking and perception.

Pai, since when we are facing recession ? we do will affected by usa slowdown, but, at the moment, it is very slim. malaysia economy is still in infant stage, Pai. Our property market also in early stage. we are stil growing and learning. dont compare with USA MACRO ECONOMY AND WITH HUNDRED YEARS of development history.

One thing, i agree is, USA indeed is getting worse, but, they will not take too long to recover.

You are too optimistic dude, so do you think that the KLCI will go up to 2500-3000? Or the properties eg 2 storey terrace in KL will shoot up to RM1mil?

Bro, was saying that we are still far from one, think it was Dreamer who thought we'll face one soon.

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Added on August 2, 2008, 12:47 am
Just bcoz KLCI didnt go to 2500 or 2-storey terrace shoots up to 1 mil doesnt meant we are in recession.  FYI, we do have a DS in KL selling for RM1Mil.

And why do you think that Im optimistic? Im not optimistic, but if you or anyone else for that matter think we are heading for a recession, back it up with logic stats and data.

Sadly, I believe that until the education system incorporates financial planning and comprehension into the highschool and university syllabus then many will continue becoming adults whom live on debt and fall into financial ruin (if the kids are old enough to fancy themselves adults then they ought to be prepared to be adults. I know I would have benefited greatly if I had learnt about simple economics, investments, compounded interest, etc in my teens. I learnt about such things from).

i agree with you, paying for your own property is way better than paying rent, you are basically helping the owner to pay their mortgage

I have paid more than $30000 renting room since 2003. 

Hope the property prices is going to drop come 2009. Might get a studio / 2-room apartment unit for own stay.

Bro, was saying that we are still far from one, think it was Dreamer who thought we'll face one soon.

And why do you think that Im optimistic? Im not optimistic, but if you or anyone else for that matter think we are heading for a recession, back it up with logic stats and data.