cover image source: PYMNTS
There are 2 key points that influence the Malaysia property market, which include GDP and inflation/deflation.
The second quarter of Malaysia’s GDP in 2020 (Q2 2020) had a negative contraction of 17.1% compared to the first quarter of 2020 and has encountered deflation due to the Movement Control Order (MCO) enforced during the quarter to stem the spread of COVID-19.
Here are some key points about the Malaysia property market that can be taken note of from this episode of Property Zone, presented by IQI Global Group VP and investment strategist Sean Lee:
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The Future Carries More Weight
There was a short drop in economic activities in almost all sectors such as wholesale & retail, industrial production, etc. starting from the end of March to April. However, during the May and June period, all these sectors almost came back to 100%, especially manufacturing PMI that increased to over 100%, which actually came back to even before the lockdown period.
From a property perspective, this data shows how the Malaysia property market performed in the past. Therefore, the important thing that all of us should pay attention to is the future, as it carries more weight in results compared to the statistics.
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China is a Role Model
China, which is the first country to go through the COVID-19 lockdown period, performed below expectation in the first quarter and suffered a big loss of about -8%. However, China is also the first country that resumed its economic activities despite suffering from the lockdown; and registered a positive GDP result (3.2%) in the second quarter. Thus, we can learn from China, which built itself from the bottom up.
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A Lower Base is Needed to Jump Higher
In order to jump higher, you must squat lower to create momentum to jump.
In this case, the second quarter of GDP in Malaysia has provided a lower base, and acted as a confidence booster; thus, it was believed that the Malaysia property market in the third quarter will have much better performance following the resumption of economic activities in Malaysia.
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Deflation is Good Timing for the Property Market
The higher the OPR is set, the more expensive it is to borrow money. The reasons Bank Negara Malaysia (BNM) cut the Overnight Policy Rate (OPR) includes 2 considerations:
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Economic Inflation
If the inflation rate is high, BNM requires even more to control the inflation, thus increasing the interest rate.
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Devaluing of Currency
When any central bank cuts its interest rate in a country, it will normally have an influence on the devaluing of the currency.
Hence, since the second quarter of GDP in 2020 encountered deflation, it gives more possibility to BNM to cut the OPR, which will be beneficial for those who want to invest in the Malaysia property market. Although there is a risk of the devaluing of currency, it is not actually a bad thing as it can help to boost the export overseas as well.
Conclusion
As of 20 August 2020, CNA posted a commentary, in which the title set as “With Covid-19 under control, the worst is over for the Malaysian economy”. To sum up, we should look at the future rather than at the past that has performed. It was not a bad thing to see the second quarter of GDP in 2020 going a downward movement, as it could be a booster for the third quarter and future to do well, which will be beneficial to the property market as well.
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