There’s no need for forecast from Raja Bomoh – the recent Malaysia economic outlook for 2018 and beyond brings plenty of good news for property investors.
If you’ve been following Malaysia’s news closely, you would be well-aware of the economic situation here in the last couple of years. Global recession coupled with two national tragedies and political instability, has left our economy in a tumultuous state; while this hasn’t shortened the Starbucks line nationwide, it has considerably reduced the queue for new launches and the grin on the faces of avid investors.
However, a paper titled “Economic Outlook for 2018 and Beyond” presented by Professor Yeah Kim Leng at the 27th National Real Estate Convention gave us a few reasons to smile again this year moving forward.
According to the Professor of Economics at Sunway University Business School, things started slowly looking relatively positive in 2017, as for the first time in a long period the country saw a strong and synchronised growth. The trend saw a positive incline from 4.2% to 5.9% that year; top it up with the robust growth we experienced at the beginning of this year, the numbers suggest that we are on an upward trajectory for 2018 and beyond.
As such, some of the key areas that saw a positive increase are agriculture, manufacturing and services sectors, while the construction sector had a moderate growth. Although the growth in the real estate industry is also moderate, many are still seeing this as a silver lining as the situation can improve in the years to come. This means that the property you’ve had your eyes on may not be that out of reach for long. So put away those ‘teropong buloh’ and coconuts, let’s look at the four key factors that indicate it’s time to part with your cash.
1. Cyclical upturn to continue in 2018
Looking at the post global financial crisis, a lot of imbalances and vulnerability have more or less been removed. In fact, the global economy saw a good improvement for the first time after eight to nine years. This suggest an expanding trend in the global market and Malaysia will also see a positive outcome. Besides that, the country’s GDP growth, supported by improving external demand, is expected to grow at the higher end of 5.5% – 6.0% range in 2018. However, it is important to note that strong financial system can cope with volatile short term capital flows, but overcoming long term structural challenges such as insufficient high skills workforce, industrial upgrading and productivity-led growth will need greater policy effectiveness. Therefore, this is something that Malaysia needs to seriously look at.
2. Inflation to taper off to long term average
Here’s another good news for all. It is forecasted that the inflation rate is about to reduce this year. The above trend Consumer Price Index (CPI) inflation of 3.7% in 2017 is projected to normalise to 1.8% to 2.5% in 2018 as subsidy rationalisation and energy price shocks subside. Some analysts are saying we are on a sweet spot, which means that we are on a high strong growth with low inflation. Although the forecast says that inflation will reduce, but the low income household remains vulnerable as this group are at high exposure to debt even though its relative proportion has declined slightly.
3. Mixed real estate outlook
As for the property industry, construction activities continue to be driven by civil engineering works particularly in the large infrastructure and industrial projects as well as selective property development. Besides that, the property market is also continuing to cool off after a rough couple of years. The speculative demand has evaporated but no major correction is expected as the economy remains healthy. As for the property prices and demand, the next few years will see a moderately strong GDP growth and full employment, which is causing an increase in income and an expansion in working age population. On top of that, there will be a slower but still a positive credit growth underpinned by strong domestic liquidity and continuing credit flows as banks remain healthy.
4. Ringgit to strengthen further but still under-valued
As for our currency, it has not been the strongest currency in the recent years. But, it is slowly strengthening, and in fact has emerged as one of the top performing currencies. However, the Ringgit still remained as the most undervalued currency in ASEAN. Besides that, foreign funds are also likely to flow back to the local equity market once there is a clear indication regarding this year’s general election.
Written by Rubaa Shunmuganathan. Edited by Mira Soyza.