Property, a hedge again recession and inflation? Part I

During financial “tsunami" buying property a better bet

According to thestar.com.my SC Cheah :

We are not facing with a property “bubble” as in the early 1990s and also, banks have reduced their construction loans since end of last year to avoid an over-supply situation.

Fear, uncertainty and even panic have gripped many investors who have dumped their shares in the local bourse.

We must remember that it’s not the global credit crunch that is worrying but soaring inflation caused mainly by spikes in crude oil prices. Although crude oil price has dropped recently, it may go up again.

Our property market has been affected by the high construction costs, inflation and a perceived over-built situation especially of high-end homes.

However, I am confident that if one has extra money and can afford to service a loan, investing in property especially in a good location is still a safer bet and will yield better returns in the long run.

This is not to say that one should not save money in fixed deposits. It is always prudent to have sufficient savings but with fixed deposit rates hovering around 3.7% to 4.2% for 12- and 60-month tenures respectively, it is still a negative return when compared with the current inflation rate of over 7% (for many people it is more like 30%).

What about the stock market? Punters have been nibbling at some bargains in the hope of making a tidy profit in the event of an upswing in price. Trouble is many of us are unsure of when it will hit bottom and how long it will take for it to recover, not to mention a bull-run which seems unlikely in the near future.

Unlike property, which is solid brick and mortar, share prices are often determined by sentiments and, currently sentiments are very weak. Many property counters have taken a beating.

My advice for those wishing to buy their first home is to do it now. Don’t fool yourself that prices of new launches will come down because developers cannot afford to reduce prices anymore as their profit margins are already cut to the bone.

In fact many developers I talked to said they were either withholding launches or increasing prices by 20% to 30%. This is also a good time to go bargain hunting in the secondary market and snap up unsold units of upmarket residential homes before developers are forced to increase their price.

Those who can afford homes priced above RM1mil may hold back on their purchase because of the prevailing global financial and local political uncertainties.