It’s a very gloomy Monday indeed.
Malaysians woke up, not only to dreary grey skies, but also the news that the ringgit had fell (or maybe ‘skydived’ would be a more apt description) to record lows against the world’s currencies. It hit a 17-year low of 4.2615 against the US dollar, and Bloomberg data reported that it fell to a historic low against Singapore, with S$1 worth 3.0037 ringgit shortly after markets opened this morning. The local currency depreciated further against the pound sterling to 6.64, and weakened against the euro to 4.84. For the year, the ringgit has weakened 18%, making it the worst-performing currency in Asia so far, with no tangible end in sight.
Effect of China yuan devaluation on world currencies (Graphic by Subrata Jana/Mint)
What does this mean for the local property market? Since April this year, when the Goods and Services Tax (GST) was implemented, the market has seen lowered consumer sentiment and a decline in the number of property transactions, although there is little change to the value of these transactions. In fact, according to statistics by the Malaysian Institute of Estate Agents (MIEA), the volume and value of property transactions have seen positive annual increase since 2011.
While locals may be wary of buying or investing in property at the moment – adopting a wait-and-see attitude before taking action – or even disposing of their properties, foreign investors from countries with stable currencies are taking the combined opportunity presented by a strong exchange rate and softened market to purchase properties in the Iskandar and Kuala Lumpur region.
This begs the question, how does the weakened ringgit affect property investment from foreigners? A drop in the number of Chinese buyers due to the yuan devaluation will be balanced out by the entry of Singaporeans or Malaysians working in Singapore because the Singapore dollar has strengthened against the ringgit.
Another aspect to consider is the market for low-cost and affordable housing. Despite the weakening ringgit, local first-time home buyers may still benefit from the various affordable home schemes and weaker market sentiment to score a good piece of property. Banks have also been encouraged to play a more positive role in assisting first-time house buyers, especially for the low and medium cost houses so that home ownership can be increased in line with the 11th Malaysia Plan (11MP).
Talking about the 11MP, the current scandals clouding state investment firm 1Malaysia Development Bhd (1MDB) and the prime minister could erode investor confidence, and directly or indirectly, affect the ringgit’s stability in the global market, in addition to China’s yuan devaluation that affected most major markets especially Asia. There’s also the matter of a possible interest rate hike by the US Fed, although chances of a hike are decreasing day-by-day, which will see investors on tenterhooks regarding the ringgit. Pong Teng Siew, head of research of Inter-Pacific Securities, opined that internal politics should not be so messy that it forms a cloud or another dimension to the problem of weakening ringgit. Otherwise, even when the external problems have cleared, Malaysia may still be struggling with a currency weakened by sentiment.
It can be safe to say that, amid falling crude oil prices, sliding currencies, political scandals, and the impending Bersih 4.0 rally, Malaysia’s Merdeka (national day) weekend is set to be an uncomfortable one for all involved.
Let’s just hope it doesn’t rain on any parades.
Merdeka Day celebration in Dataran Merdeka Kuala Lumpur. Photo by AZLINA ABDULLAH/THE STAR, 31 August 2015
References
Malaysia Chronicle, 24 August 2015 (link)
The Borneo Post, 21 August 2015 (link)
The Rakyat Post, 24 August 2015 (link)
The Star Online, 24 August 2015 (link)
The Straits Times, 24 August 2015 (link)
