A RETURN TO CONFIDENCE
by Lim Lay Ying
Property Times, New Straits Times
01st May 2004

The good times are here again.

After six years of declining business and plummeting revenues, companies in Asia are now celebrating a resurgence of business activities across the region. Their countries’ economies are expanding at stronger rates than ever, contributed primarily by the strengthening external demand for electronics and commodities as well as recovering domestic demand.

Though there is still plenty of talk of bubbles and overheating in some emerging markets, economic forecasters believe that a new golden age is falling on these countries as a whole. Southeast Asia is predicted to grow faster than 6 per cent, driven not only by the global upturn but also by the mini-locomotive effect of China in particular.

Another source of optimism for the region is India, which late last year, raised the limit on foreign investment in private banks from 49 per cent to 74 per cent. South Korea has pulled itself back from a credit crisis, and consumer confidence there is rising.

Emerging in A Big Way

In Malaysia, economic conditions have also improved significantly, continuing the upward growth momentum since the second half of last year. Fuelled by stronger world demand for products and services, better stock market performance, more tourist arrivals, increased property transactions, and rising manufacturing output in most industries, economists are confident that the local economy will perform better than Bank Negara’s expectations.

The most recent prognosis of an optimistic outlook for the Malaysian economy was by the Malaysian Institute of Economic Research (MIER) following the completion of its survey for the first quarter of this year. The Institute is confident that Bank Negara’s projection of 6% to 6.5% for 2004 could be surpassed as long as global economic growth remains generally stable and no major disruptions occur. Its latest prediction is that the economy could grow at a rate of 6.7%.

Its Consumer Sentiment Index (CSI) rose 2 points during the first quarter to 117.5 – the highest level recorded since 2002. The renewed confidence amongst consumers about the future (against a backdrop of an improving labour market) is reflected in their increased propensity to spend – with housing being one of the main beneficiaries aside from cars. Low interest rates have prompted people to plop down cash for a new house, which is a good sign as it will help to spur further growth in the local economy.

Ready to Splurge

Throughout the country, more and more consumers are looking for a new home to buy lately. Recent surveys amongst the middle-income market segment revealed that over three-quarters of those residing in the north (Penang : island and mainland) and south (Johore Bharu) were either prospective first homebuyers or upgraders. In the central region (Klang Valley), two-thirds had similar intentions while the remaining one-third were investors.

The majority of the first home seekers were observed to belong to the ‘Baby Busters’ cohort, that is those between 25 and 34 years old. Upgraders however, were mostly ‘Late Baby Boomers’ of between 35 and 44 years who would have pooled together some amount of savings after having worked for several years.

With the improving global economy, encouraging economic statistics locally, positive business conditions, and better feelings about job security, the people’s rising confidence in real estate purchase can be expected. And as long as inflation remains subdued and interest rates are still manageable, many will soon realize that it would make more sense to buy.

Upward Trend in Property Prices

Increasing rents will push those who are renting to leave their rented premises (whether it’s the home or the office) and shell out a down payment for a place which they could call their own. After all, property prices have been inching up in the country since the Iraq war ended and the threat from severe acute respiratory syndrome (SARS) receded.

The last House Price Index (HPI) reported by the Department of Statistics for the year 2001 showed that property prices had managed to stay above 1995 levels despite numerous setbacks since 1997. The latest reading was 199.7 (in 2001) against 188.5 in 1995. Amongst all the house types, the top performer was the terraced house where the HPI climbed to 196.7 in 2001 – the highest ever recorded since 1990. Prior to the mid-1997 Asian Financial Crisis, its HPI peaked at 192.0 (in 1997) before retreating to 182.7 the following year.

There’s no doubt therefore, that the overall trend in property prices across the country is upward and the same phenomenon is happening throughout Asia too.

Prosperity is Returning

There have been substantial increases of up to 50 per cent in areas of the Chinese mainland, and Hong Kong is particularly benefiting from this trend despite its volatile housing market history. Fueled by low interest rates, an improving economy, and new demand-driven land release policies by the Hong Kong government, the luxury property market in particular, has boomed – soaring more than 80% since the end of the severe acute respiratory syndrome epidemic last June.

In Singapore, although the real estate market remains stuck in the doldrums because of persistent oversupply, optimists believe that private property sales will soon be revived by rising employment. The economy has enjoyed three consecutive quarters of annualised double-digit growth. It expanded by 11 per cent in the first quarter of this year.

A recent report from the country’s Urban Redevelopment Authority confirmed an increase in buyers lately, from its Asian neighbours – especially Indonesia due to increased marketing there. Moreover, rise in prices have also been noticed in the northeastern part where a new line in the Mass Rapid Transit train system recently commenced operations.

For the region as a whole and Malaysia in particular, this could turn out to be the best period since 1993. Prosperity is returning and investors are running back because of the thinking that growth rates will be uphill and steep. Underpinned by low interest rates, rising incomes, and friendly government policies that welcome foreign investors, real estate will soon return as the country’s number-one path to riches.