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Covid-19 & Post MCO/CMCO: Is It The End Of The Game For Property Or The Beginning Of A New Era?

Dr Daniele Gambero Managing Director of REI Group of Companies who coined the term Propernomist – is in the business of promoting properties while taking into account the economic principles at hand

The world as we knew it – joyful and teeming with social interactions, has suddenly disappeared! Locked at home for the past few months and with an extended Movement Control Order (MCO) already in force with the widely anticipated extension to curb the spread of the virus followed by the Conditional Movement Control Order (CMCO) and the Restrictive Movement Control Order (RMCO) taking effect as of June 10, 2020. – we have all had enough time to adapt ourselves to this new lifestyle, if we want to call it so.

If we look at what Covid-19 has caused on a global basis – we are witnessing something unprecedented in humankind history. In fact, it is the first time such a widespread pandemic is causing such a brutal and sudden disruption to our livesthe way we knew it and how it used to be. What the outcome will be and how the whole world will react and adapt to “The New Normal” is something no one can do a precise prediction on.

However, one thing for sure is going to happen: The way we were used to working and carrying on our daily lives is going to be affected and so arguable, the ones obstructing this “fast-forwarded” evolution might end up being left behind. This is not my first article on this topic as I’ve posted a few of my thoughts on LinkedIn previously. And, one of them talks about a “perfectstorm” which is hitting Malaysia and the whole world. Let’s do a short recap of what has happened in the past few months. Between the end of 2019 and the early part of 2020, Malaysia’s economic growth was already not performing up to expectation and there were numerous voices explaining how, later on this year – there could be a further anticipated slowdown.

Then, starting on February 24, 2020, one after the other – a number of triggers occurred – which helped to transform a serious global storm into the perfect devastating storm happening not only locally but globally. Here’s an outline of the events that took place:
– The Bursa Malaysia index (KLCI) dropped 22% between February 20 and March 19, 2020.
– Crude oil price dropped from USD61.49 (RM263.18) per barrel in December 2019 to USD23.20 (RM99.29) per barrel in March 2020.
– Covid-19 appeared on the world’s news stage late in January. It attracted even more attention during the Chinese New Year celebrations leading to the news explosion after the festival. As I’m writing this article, the pandemic has affected the whole world (including 200 countries – with more than 1.3 million people having been infected while the death toll has escalated to 80,000 people as at April 2020 according to official statistics released by the World Health Organisation (WHO), which has declared Covid-19 as a pandemic.

This pandemic has instantly stopped our normal daily activities – both business and private life wise with the crisis affecting everyone – both locally and also globally.
What type of future are we looking at now for post MCO and CMCO? And, what is the scenario we should be getting ready for? Many experts, and unfortunately I agree with them, are foreseeing between six and 18 months before we will see a full recovery. And, on a global scale, several researchers are saying that Covid-19 represents the end of globalisation the way we knew it.
They state that it has acted as the main shock factor at a global level which unfortunately, has contributed to the dire situation — fired up by other factors such as financial instability, crude oil and trade wars.
The table at the next page, shows how poor the forecasts by the Economist Intelligence Unit on the Gross Domestic Product (GDP) growth of fully developed countries are as well as BRICS which comprise Brazil, Russia, India, China and South Africa.
Malaysia, according to a report released by the Malaysian Institute of Economic Research (MIERS) on March 24, 2020, is expected to see a drop of 6.9% in the forecasted GDP for 2020, which translates into an actual “growth” equal to -2.9%.
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My personal opinion on all these forecasts, which are flooding my inbox – both via emails and s these days, is that I do not look at any of them as the gospel truth. But somehow, are all not totally reliable as could someone explain to us which base or predictive model has been used? Here are some possible scenarios…
The situation in which the whole world has been thrust into is unprecedented – being the first time in human history in which whole countries are in lockdown at the same time. Some 200 countries have been plagued by the pandemic. And, all the greatest economies in the world have been brought down to their knees during the MCO and CMCO lockdown. The supply chain is mostly disrupted, and coming job losses will make the great US depression looking like kid’s play while digital transformation has been accelerated to hyper-speed. We all need to get into a fast forward mode of recovery or will risk being left behind. I still believe that – providing the pandemic will be defeated within the next two months – major economies will heal faster than in the past. And, the huge demand for all those “missed” products and services, will bring about a boost of economic growth to “before crisis” levels. Disruption doesn’t mean an end to the game. Instead, it can be a push to change and innovate which is precisely what the whole world is doing and relearning now.

This deals mostly with a matter of leveraging on the “falling speed” in order to enter into a loop which will relaunch economic growth to new levels. This can only happen by means of utilising radical innovation. The Government should support this not only with financial packages but also by making sure that Malaysia will be in the “short term, future ready” mode in terms of “infrastructure” sufficiency responding to the current speed of its digital transformation.
Mythology tells of the proverbial Phoenix resurrecting from the ashes. In the past, farmers were burning their cornfields after harvesting season to have better and faster flourishing of new buds. I’m looking at today’s situation as a huge opportunity for the brave-hearted and the ones who are willing to step up and start running when everyone else seeks for a shelter in order to recuperate from sustained wounds.
The property market is inevitably the sector that is taking the greatest hit at the current moment. This is because the current market perception about “investment”, and specifically property investment or purchase, is at its lowest perceived value level since the big Asian financial crisis of 1997. One of the issues is the lack of “financial and investment education”. A too large share of the market does not see the current situation as “the greatest opportunity of the past 20 years” to pick good properties or assets at below market values. However, we should all remember that bad economic times are good investment times for prepared investors in both the stock market and property. So, let’s not waste this upcoming unique opportunity to seize the day!

In terms of a specific outlook for the property market, this extended MCO and CMCO and the negative impact of Covid-19 on public perception do not allow too positive an outlook unfortunately. It might take 12 months before we will be able to see positive numbers coming up in terms of transactions while somehow, I am not expecting a drop or crash of our property values. The six-month moratorium has pushed away the ghost of a sudden spike in the percentage of non-performing loans (NPLs). And historically, Malaysian properties remain quite affordable (see the two comparison tables below) as compared to the neighbouring countries. Therefore, Malaysian properties will definitely become attractive to foreign investors once the storm is finally over.
This table draws comparison from the most important city of each country. Or, in other words, the high-end side of the market.

In conclusion: Yes, we are in the middle of a perfect global storm. We know when it started but cannot foresee – for the moment, when it will all end. Like all the other storms – it will end and the sun will shine again. And, most probably, it will be better than before. While waiting for it all to end – is there anything else that we could hope to see in terms of Government support to jump-start the end of the MCO and CMCO and plus be ahead of the curve when recovery takes place?
Our Government – even though very young, has been performing in a fantastic way with three timely stimulus packages and one main Bank Negara Malaysia (BNM) relief package. Once more, I’m very proud of Malaysia and all Malaysians. As a foreigner, let me say that no other country has been able to act as fast and as effectively than Malaysia (my own country – Italy, the US, Australia and many more have been moving less effectively in checking their population and blocking the contagion.

Additional boosters to get ready for the full recovery at this point should concentrate more on the future and cover the following areas:

Mega infrastructure projects:

Anticipating the construction of the East Coast Rail Line (ECRL), High Speed-Rail (HSR) and Mass Rapid Transit (MRT) Line 3 – just to mention a few which will generate exponential growth for the second and third layer of Small and Medium-size Enterprise (SMEs) companies.

Special incentive packages

Attractive and not too complicated to obtain – special incentive packages can serve to attract Foreign Direct Investment (FDI) to Malaysia. As I’ve mentioned above, this pandemic will change the way superpowers deal with each other moving forward into the future and for sure, we will see a partial relocation of production facilities, warehousing and logistic services from China towards South East Asia (SEA) markets. So, let us be highly appealing for these foreigners to choose Malaysia over other neighbouring countries.

Total refreshing of the Malaysia MY Second Home (MM2H) programme

This will make it even more attractive for foreigners above the age of 60 or 65 to consider joining the MM2H programme. The third age group is going to be badly ‘touched’ by the pandemic and my best guess is that many of them will look around the world to find countries which are friendly, English-speaking, with above average medical services, and which are only marginally touched by the spread of the Covid-19 virus where good entertainment is available. And, the list can go on.
The above are just some ideas or thinking points for the readers. If you have more, agree or eventually disagree and want to reach the author, he will definitely reply to your queries at: daniele.g@reigroup.com.my
 

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