WE are indeed living in challenging times.
The current fragile Malaysian economy will likely face several more lean years ahead as data continues to show that many households in the country are a vulnerable lot, given the state of their finances
In the recent article in Star the following were cited.
“To put that into perspective, a study on the financial fragility of urban households in Malaysia has found that only 10.8% of them would be resilient to financial shocks.
The same study, as highlighted in the recently published State of Households II report by Khazanah Research Institute (KRI), indicates that more than 50% of the country’s urban households did not have any savings, and 20% would only be able to survive for less than three months if their incomes were cut off.
Similarly, Bank Negara’s Financial Inclusion and Capability Study finds that only 6% of Malaysians can survive for more than six months, and 18% up to three months, if they lost their main sources of income.
As it stands, 65% of household income in Malaysia is sourced from paid-employment.”
Not forgetting that we have the household debts to GDP is in excess of 80% i.e. 89.1% in 2015 and 87.4% in 2014.
What are the effects of it?
In simple terms it means one wasn’t feeling as prosperous as before. We now has a concern for our financial future and decides to cut back on spending because things are probably going to get worse. Many others do the same either because their higher cost of living with rising costs in food, transportation costs, utilities and not forgetting mortgage payments took away what little extra money we have, or worse, some may even faced with the prospect of losing their home and job altogether.
But what about the car salesman who now sells one less car or the waiter who earns fewer tips and the restaurant owner who sells fewer meals? An electronic salesman sees his commission check lowered and has less money to spend on the things he needs and wants and as businesses failed or slowed some may need to lay people off. The ripples go through the entire economy and are felt by everyone. We tend to think of the soft real estate market as only affecting people in the industry. It is true that the real estate agent doesn’t earn commissions if houses don’t sell and mortgage brokers who can’t fund loans don’t earn their fees. But it is the people that they do business with who suffer as well even though they may have nothing to do with the real estate industry themselves.
An economy is nothing more than money in motion. Consumer A buys from consumer B who spends her money at consumer C’s shop and the money keeps moving. When A doesn’t buy B can’t buy and C doesn’t have enough money to pay his bills. The money has stopped flowing and the economy goes into a recession. There is a snowball effect in that consumers who are feeling the pinch suffer a drop in confidence and reduce their spending even further and the downward spiral continues.
The Federal Government is well aware of the impact that consumer confidence has on the economy and make efforts to track how consumer are feeling, that is called the Consumer Confidence Index. In Malaysia as of September 2016, the actual stands at 78.50%
|Actual Sept 2016||Previous Jun 2016||Highest 1st Qtr 2007||Lowest 4 Qtr 2015|
A value above 100 indicates expected improvement in conditions, a value below 100 shows lack of confidence and 100 indicates neutrality.
The government will do things to stimulate the economy and markets to improve liquidity and the recent reduction in the OPR rate by 0.25 basis point to directly affect the rates that consumers pay on loans when banks lowers its rate by around 0.20 basis point. Some of these actions are taken for the psychological impact that they will have. Will the recent Brexit issue and mortgage crisis that has compelled the Bank Negara to lower the OPR rate in July have much effect on the the majourity of the population with the costs of living still rising whilst income level remained low?. Not forgetting the tightening of loan approved measures that are still in place. The psychological impact, however, is that the government is doing something to help the situation. The rate cuts may have other consequences as well, they open the door to greater inflation and they directly affect the value of the ringgit in relation to other currencies.
The bottom line is that our economy is cyclical and will always have its’ ups and downs.
At some point things will hit bottom and start to rebound as they always have before. Consumer confidence will start rising and people will start spending. Money will flow at a greater rate and the economy will expand again. If you wait for this to happen before you begin investing you will most likely miss the early stages of the next cycle because by the time you realize what is happening the opportunity has passed you by.
The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.– Winston Churchill
The time to buy any investment, including real estate, is when everyone else is selling.