Effects of Ringgit De-Peg on Property Market
So now our currency the ringgit has been de-peg. Most Malaysians should be buoyant about the rising value, somewhat akin to the pre-financial crisis days of the early 90’s.
Some observers had immediately mentioned the obvious benefits – cheaper imported vehicles, less to pay of overseas education, more frequent holidays abroad and savings for local importers.
The downside – the exporters and plantation sector will be hit by this turn of events.
But what tidings for the property and construction sector?
Most market analysts have yet to released an in-depth study of the long term implications. But in a nutshell, a few negative consequences can be foreseen.
Foreigners have to pay more – The government has been promoting ‘Malaysia My Second Home’ recently. But due to the de-peg, foreigners now pay more, thus making property investing in Malaysia less attractive. Although the FIC has relaxed some of the rulings of late, I believe Malaysia may lose some of its competitive edge in this sector. Many high-end condominium projects are heavily marketed to Singaporeans, Hong Kong residents and Australians.
Cost of construction might increase – The property and construction industries are strongly intertwined. It is also a known fact that the Malaysian construction industry relies heavily of imported materials from overseas, like steel coil, heavy machineries, lift equipment, construction plant, extruded metals, etc. Higher construction costs means higher property prices. At the current situation, if the ringgit gets stronger, construction costs will decrease. However if the ringgit gets weaker in the future due to the de-peg (nobody can say that won’t happen), then the cost will be increased. Even with the peg previously, the price of steel in Japan spiralled uncontrollably 2 years ago, causing a huge crisis in Malaysia. (Thanks earth, for the comment)
Malaysian companies overseas – the Malaysian economy is well supported by a number of construction companies operating in countries like India, Vietnam, China and Indonesia. The de-peg has in actual fact reduce the value of the contract agreed upon, and thereby making it harder for our companies to maintain profits. As always in construction tender, profit margins are known to be paper thin. And these projects are very susceptible to huge overhead of operating outside the country.
However, most industry players say that it’s not all bad news. The overall knock on effect of the improving currency value will bound to improve the property market. How much, however, remains to be seen.
I don’t get it.
For number 2, given that MYR is appreciating and assuming capital coming in due to various reason, ceteris paribus, shouldn’t stronger MYR reduce the cost of imported material and hence, reduce the cost of construction and in effect, lower prop price?
MYR is getting stronger, overall.
Comment by __earth — July 27, 2005 @ 9:37 am
you are right. if the ringgit increases against the exporting country’s currency, the price of materials will decrease. I should have emphasize the fact, thanks for pointing it out.
the important thing is that with the ringgit de-pegged, it can go higher or lower more drastically, meaning prices can go up or down.
Comment by Administrator — July 27, 2005 @ 12:17 pm
btw, earth, i’ve edited the text to make it clearer.
Comment by Administrator — July 27, 2005 @ 12:20 pm
I am in a dillemma now on whether to buy a newly launch Setia Tropika now or delay till phase 2? The corner lot I m interested in are rising twice before official launch and I am not happy about this.
Comment by Robin — July 30, 2005 @ 7:42 pm
SP Setia has a good track record for these kind of luxury homes. If you like the design of the unit in Phase 1, go for it. If they are already increasing the prices now, then Phase will most likely be MORE expensive, since the response was good.
But if the price increase not justified, then you may want to look elsewhere.
it all depends on how much you want the unit, and what’s the max you’re willing to pay for it.
Comment by Administrator — July 31, 2005 @ 5:38 am
Thanks for your reply. After deliberating for a few weeks, I finally decide to book at the very last minute. The developer told me this is soft launch price. There will be another $8K increase during official launch and I hope they keep to their word.
Comment by Robin — August 1, 2005 @ 1:29 am