Property Investments & World Events

Should property investments be look from a bigger perspective instead of area or regional specific? Does the world events affect real estate market?.

Relating to the wider perspectives will enable property investors to get important clues as to the demand and supply in the market and the sentiments therein and take precautions too on any pending crisis.

As the whole wide world is on the internet and with advanced technology, all information is almost available to the seconds. Markets in one part of the world will affect the other just as the World Financial Crisis affects all Asians countries; the same apply to when the Asian Financial crisis hits us, countries in Australia, UK and US are affected too.

As a consequence of this globalisation, it is expected that real estate markets will have become integrated. This integration among markets can arbitrage away excess returns between markets and therefore lead to convergence in returns among real estate markets worldwide after adjusting for risk, including country and currency risks, as markets become more efficient due to the availability of more global information that allow investors to make better informed decisions. It is also expected that this integration will lead to increased co-movement of prices among real estate markets worldwide. However, the non-tradability of physical real estate may moderate this co-movement of prices between real estate markets

Apart from the real estate markets, stocks prices, political situations around the world, oil prices, technological advances and commodity prices will affect the real estate market.

With all the cracks in the financial system…geopolitical uncertainty…and with US stocks sky-high like they were before 1987…2000…and 2008…it’s no wonder investors are so twitchy. And it’s no surprise journalists are pumping out fear and panic articles on a daily basis.

From past history, real estate usually takes a longer time to turn around and you know you are coming out of the doldrums or lows when the stock market starts to recover. Stocks market normally recovers at least six to nine months ahead of the real estate market.

Few people are likely to commit to a big mortgage payment if they feel that their economic future is uncertain. When the stock market retreats and the value of portfolios declines, investors are impacted psychologically. Loss of confidence can spread like a virus, affecting others who have not been financially hurt but have nevertheless become unnerved by news surrounding the economy

As the value of stock portfolios increases, investors may look to other investment instruments to diversify their holdings. Real estate is one alternative. Families will purchase second homes or lock in current prices and rates by purchasing property with the intent to build later. Investors will purchase rental homes. Conversely, if the stock market were to fall, it is likely that real estate prices would follow suit.

Many commented that market cycles can be erratic and impossible to foresee. A market peak or valley may not be obvious until months after it happens, so it’s important to understand market cycles and how they can affect your portfolio performance.

No investment is immune

Every asset class – stocks, bonds, cash equivalents, commodities and real estate – can be affected by cyclical patterns. However, different types of investments tend to move in opposite directions as a result of changes in the market. History shows that when stocks increase in value, bond prices typically decline – and vice versa.

Economy and politics drive cycles

3 ways the markets can react

A correction – A sudden drop of 10% in the major market indexes. After a correction, stock prices tend to more realistically reflect a company’s growth and earnings potential.

1. A crash – A market keeps dropping, maybe 20% or more, in a short period accompanied by widespread selling.

2. A bubble – Overly optimistic investors drive stock prices to unsustainable levels.

3. Although it may take a while, post-bubble stock prices often deflate, giving investors the opportunity to buy at bargain prices.

In short, real estate investments like all other markets also works in cycle and this cycle are intertwined and affected by the political cycle, economic cycle, stock cycle, commodities, bonds and also technological advancements.

Malaysia and its Asia Pacific counterparts are expected to have stable regional growth in 2015.

The challenges that the countries in Asia Pacific including Malaysia will faced in 2015 are

• Risk of another recession in Europe
• Credit bubbles
• Global geo-political risks
• The expectation of interest rates rising in the US also has the potential to cause some volatility in emerging markets, but most Asia Pacific countries seem well placed to weather financial market risk

Even with the challenges of the world events above, Malaysia may face some corrections or consolidations in the property market in 2015 but the property market will not experienced a crash.