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 to 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. However if the ringgit gets stronger against the exporting companies’ currency, then the cost will be slightly reduced.
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.