The next note on my blog has to be on the current world political and economic situation and how it affects us. Because Malaysia is an open economy, we are forced to react to situations that are beyond our control. Recent happenings in North Africa and the contagion effect across that region has put Malaysians in an inflationary spiral. That is because those countries having a contagion problem are also the greatest oil producers in the world and Malaysia has yet to come out of an oil consuming syndrome into a more energy efficient manner. The short term effect of that would be a spike in our petroleum prices and our cost of living.
How does this affect real estate? Real estate is usually a hedge against inflation. The first thing that will happen is the prices of raw materials will increase, the prices of commodities will increase and the cost of construction will go up and at the end of that, we have a situation where developers will be forced to raise prices and there will be a rush to buy houses before the prices go out of control. At some point, supply will exceed demand because will be unaffordable for a larger and larger section of the population. And at that time, prices will begin to peak and developers will be forced to look at alternative solution to make houses affordable again. The cycle of real estate development is always between affordability and desire. We have had statistics to show that over the last two years there had been actually fewer houses being developed by developers as their land banks reach maturity and they are having difficulty in buying more land especially in the Klang Valley.
An interesting corollary often quoted is the famous “Black Swan” theory. “Black Swan” theory is primarily a theory where an unexplained, un-planned event causes major disruptions around the world. The North African contagion, disturbances and the overthrow of long-established governments is a “Black Swan”. Are there are other “Black Swan” as well in Asia? A Tsunami is a “Black Swan” too.
China is the largest investor around the world and has in excess of 50 billion US Dollars in every continent looking for strategic investments. They seek to protect the continued expansion of the Chinese economy and feeding the growing urban population. In a forecast by the Chinese Minister for Environment, he said that in 10 years’ time the Chinese will not work as maids anymore. In 20 years’ time Indonesians will not want to work as maids anymore. Just as 30 years ago Malaysians women moved into factories and business enterprises and stopped working as maids.
So the urbanization and the improving of living standards also does provide social upheaval. The Malaysian population therefore is already having smaller families as parents find it more and more difficult to manage a family and a working environment, especially women.
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