More Threat With A bit of Opportunity

photo credit: digitalhead!

Malaysia has set a vision to become industrialize country by year 2020. Industrialize country means we will move forwards into higher living standard, higher income per capital and focusing more on industrial, manufacturing and production. Will you really benefit if our country achieves vision 2020? I don’t think so. What I will share with you here is the global trends that will impact us not only at our generation but our future generation if we continue not add any property into our investment portfolio.

Despite world financial meltdown end of last year, our living standard has not been dropping due to high inflation. But actually what is the actual current inflation rate we are really facing? Government always says our inflation is balancing around 3%. Is this real inflation that we are facing? In actual fact, governments only use control items like petrol, rice, sugar and other necessity products to measure the inflation rate. Is that fair? For me inflation is all depend on our own personal lifestyle and spending habits. But what about inflation rate in property? Property price on average has been maintained and gradually increase due to Cost-Push inflation while industrial product to continue facing stiff competition. See what happen in develop country like Japan, Singapore and Hong Kong. In general, 90% of the people in develop country is not owning a home. Why is this happening? Thanks to industrialize concept that a lot of country adopting which causing inflation to sky rocket and savings of people start to deteriorate while their cost of living continue to rise.

In Hong Kong, an average apartment of 600 sf at average location easily cost HKD 5M which equal to RM2.5M. That means purchaser need to have saving of not less than HKD 1.5M or RM800K (Including 20% down payment, legal fees plus renovation and some furniture) to buy the apartment. My question is how many people can afford such amount of money to purchase? How many working class people can save such amount of money? As I always say, by the time they have enough money to buy, property price has reach another level higher as their saving rate will never be faster than the appreciation of the property. If you analysis above situation carefully, home ownership will continue to drop while rental market continue to do well as they really can’t afford to buy.  

The problem not only end there, industrialize country will face more stiff competition which create more threat to employees as they need to work harder and harder to cope up with market demand and industrial changes. Imaging when I was a student back in late 1990’s a notebook computer costing me easily RM8000 per unit with 4GB storage with minimum features and functions. Compare to now I can buy a smaller, new design and more advance features with 160GB storage for less than RM2000 per unit. That means I’m purchasing it at 75% discount (base on the price) not counted on the advance features yet. This gives you an idea about how competitive our world is especially in industrial and manufacturing sector. Of course all this pressure will forwarded to employees like you and me. The rules always apply, when company is not performing well our salary will be threaten and bonus is virtually impossible. Life will be never easy as a lot of people thought of. This happen everyway not excluding financial sector in Malaysia.

When I enter into banking industry back in year 2002, borrowing interest is at average of 6%-7% for residential compare to now which is only around 3.3% – 4.5%. That mean every 100K you borrowed, you save RM2K per year @ RM166 per month. That’s a lot. This will benefit more to me since I always believe property markets will definitely giving me more return against my interest expenses. Unfortunately this is definitely a bad news for those who keep their portfolio in cash term as they only enjoying 1%-2% return per annum. Bear in mind, 100K last year and 100K this year no longer fetch same value. It has been depreciated at least 30%. Yet I don’t understand why people still keep their majority of their portfolio in cash.    

Bear in mind, our cost of living will continue to rise while our salary increment will be sluggish due to heavy competition but property price will continue to hit all time high due to Cost-push-inflation. When the above situations appear, it’s a signal that the rich and the poor gap are getting wider. Mark my words, with the continuity of above situation for the next 10-15 years, you will see more awful situation whereby people need to take few generation to pay off their home loan while some might not have the chances at all to buy their dream home in their entire life. So why wait? Take opportunity now and secure your future generation as it’s easier to make money and invest today compare to tomorrow. Happy Investing.       

You cannot Grow Land…Ck Wong & Kh Wong

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