2H2021 Market Direction

Transitory Or Not, Inflation Is Here To Stay. It Could Be Much Higher Than You Realize.

Inflation Erodes The Value of Money. It is therefore critical to resist holding cash, which can cost us 2% per annum due to inflation. Place funds in quality assest that can grow and outperform the inflation rate. Invest in property with low risk and good potential growth.

What is inflation?

If it feels like your dollar does not go quite as far as it used to, you are not imagining it. The reason is inflation. Inflation is the rise in prices and slow decline in purchasing power of your dollars over time.

The impact of inflation may seem small in the short term, but over the course of years and decades, inflation can drastically erode the purchasing power of your savings.

As we have witnessed, massive money printing by central banks globally has seen asset prices recovering swiftly and beyond past highs in many markets.

How does money supply affect property prices?

There is a correlation between inflation and property prices. In fact, there are correlations between inflation and any good with a limited supply. To illustrate, consider an economy that has a money supply of only $10 and five houses in the whole economy. Each house would be priced at $2 (assuming no other goods in the economy). Now, suppose the central bank decides to print more money and the money supply expands to $20. Now each house would be priced at $4. In this simple example, increasing the money supply causing inflation and house prices to increase.

Construction costs increased

High levels of inflation might not be short term transitory given the huge amount of debt created by central banks and could be present for many years to come.

To aggravate the situation , the covid 19 pandemic has caused many new projects to be put on hold as the immediate focus is to continue to work on the resumption of existing projects. Given the severity of the economic downturn, some of the projects previously in the pipeline have been deferred.

The supply of private residential housing from the confirmed sites under the Government Land Sales (GLS) programme for the second half of 2020 has also been reduced, taking into account the fallout from the global COVID-19 situation.

Developers , contractors are battling labour crunch and supply shortage too resulting in construction costs inflation in various segments.