Pandemic and Post-Lockdown: End game or Beginning of a New Era?

Article previously published in YES, Malaysia by Dr. Daniele Gambero | Propenomist

The world we knew, joyful and very social, has suddenly disappeared! Locked at home for the past few months and with several more expected, we all have had enough time to adapt ourselves to this new life-style, if we want to call it so. 

If we look at what Covid-19 has caused on a global scale, we are witnessing something unprecedented in humankind history. It is the first time such a widespread pandemic is causing such a brutal and sudden disruption of our lives, the way they used to be. What the outcome will be and how the whole world will react and adapt to it? No one can or better dares to do precise predictions. One thing is for sure going to happen; the way we were used to work and carry on our daily lives is going to be affected and, somehow, the ones obstructing this “fast-forwarded” evolution might  be left behind.

This is not my first article on this topic, I’ve published few in LinkedIn and one of them talks about a “perfect-storm” which is hitting Malaysia and the whole world. Let’s do a short recap of what happened in the past few months. 

Between the end of 2019 and the early part of 2020, Malaysia’s economic growth was not performing up to expectations and there were numerous voices explaining how, later on this year, there could have been a further slow-down. Then, starting on February 24th, 2020, one after the other we have had a number of triggers which helped to transform a serious global storm into the perfect one:

-       Bursa Malaysia index (KLCI) dropped 22% between February 20th and March 19th.

-       Crude oil price dropped from USD61.49 per barrel in December 2019 to USD23.20 per barrel in March 2020

-       Covid-19 appeared on the world’s news stages late in January, attracted more attention during the celebrations for Chinese New Year to then explode right after it. As I’m writing it has affected the whole world declared as a pandemic and stopped our normal daily activities, both business and private life wise (200 countries, more than 11.5 million people have been infected and the death toll is up to 537,000 as at July 5th, 2020 WHO official situation release).

Which type of future are we looking at, what is the scenario we should be getting ready for? Many experts, and unfortunately I agree with them, are foreseeing between 6 and 18 months before we will see a full recovery and, on a global scene, several researchers are saying: Covid-19 represents the end of globalization the way we knew it and it has acted as main shock factor at global level, unfortunately supported and fired up by other factors such as financial instability, crude oil and trade wars. 

The table below shows how poor are the forecasts done by the Economist Intelligence Unit on the GDP growth of fully developed countries and the BRICS ones. 

Malaysia, according to a report released by MIERS on March 24th, is expected to see a drop of 6.9% in the forecasted 2020 GDP, which translates into an actual “growth” equal to -2.9%. 

My personal opinion on all these forecasts, after having seen many revisions of the above, is that I do not look at any of them as, somehow, are all highly unreliable. Please get me right, I don’t want to appear as too arrogant but, can someone explain to us which base or predictive  model has been used? Which type of precedent situation has been taken into account? Maybe the Spanish Flu 1918-1919 or the Great Depression 1929-1939? At those times there were no internet, no globalisation, no World Health Organisation, much lower education and the list can go on.

200 countries have been touched by the pandemic, all the greatest economies in the world have been kneeled down by "The Great Lockdown", supply-chain is mostly disrupted, job losses will make the great US depression looking like a kids game and digital transformation has been accelerated to hyper-speed. We all need to get into a fast forward direction or will be left behind. I still believe that, providing the pandemic will be defeated within the next few months, major economies will heal faster than in the past and, the huge demand for all those “missed” products and services, will boost economic growth to “before crisis” levels.

Disruption doesn’t mean endgame, it’s a push to change and innovate which is precisely what the whole world is doing and learning. Walking outside a comfort zone that we all have been constructing during the past 30 plus years, this is what we are all doing. It's matter of survival.

It’s mostly matter of leveraging on the “falling speed” to enter into a loop which will re-launch economic growth to new levels (V-shaped recovery) and this can only happen with a radical innovation. The government should support this not only with financial packages but making sure that Malaysia will be in the short term future ready in terms of “infrastructure” adequate to the current speed of our digital transformation.  

Mythology has a history of a Phoenix resurrecting from ashes and 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 braves, for the ones willing to step up and start running when everyone else seeks for a shelter where to heal the wounds. 

Property market is the one taking a great hit at the moment, because the current market perception about “investment”, and specifically property investing or buying, is at its lowest level since the big financial crisis in 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/assets at below market values. We all should remember that, bad economic times are good investment times for prepared investors in both stock market and property, let’s not waste this unique opportunity!

In terms of specific outlook for the property market, the extended Lockdown and the negative impact of Covid-19 on the public perception do not allow so positive outlook, unfortunately. It might take 12 months before we will see positive numbers coming up in terms of transactions while, somehow, I’m not expecting drop or crash of our property values. The 6 months moratorium has pushed away the ghost of a sudden spike in the percentage of non-performing loans (NPL) and, being Malaysian properties historically quite cheap (see the two comparison tables below) compared to our neighbours, we will definitely become attractive for foreigner investors once the storm will be over. 

This table is comparing values in the most important city of each country or, in other words, the high-end side of the market. 

The table above, instead, compares the average value of a residential property in each country. 

In conclusions 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 end and, like all the storms it will end and sun will shine again, most probably, better than before. While waiting for it to end, is there anything else that we should hope to see, in terms of government support, to jump-start the end of the MCO and be ahead of the curve when recovery will start moving?

Our government, even though very young, has been performing in a fantastic way with three timely stimulus packages and one 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, US, Australia, even Singapore and many more have been much slower and less effective 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 covering: 

-       mega-infrastructure projects: anticipating the construction of ECRL, HSR and MRT Line 3, just to mention few, will generate exponential growth as second and third layer of SMEs

-       special incentive packages, attractive and not too complicated to obtain, to attract FDI to Malaysia. As I’ve mentioned above, this pandemic will change the way superpowers deal with each other and, for sure, we will see a partial re-location of production facilities, warehousing and logistic services from China towards SEA markets. Let’s be highly appealing for these foreigners to choose Malaysia more than our neighbours

-       total refresh of the MM2H program making it even more attractive for foreigners above the age of 60 or 65. The third age group is going to be badly “touched” by the pandemic and my best guess is that lots of them will look around the world to find countries which are: friendly, English speaking, with above average medical services, only marginally touched by the Covid-19 spreading, with good entertainment and the list can go on.

The above are just some ideas or thinking points for the readers to consider. If you have more, agree or eventually disagree and want to reach the author, he will definitely reply to your queries here: daniele.g@reigroup.com.my        

About the Author

The opinions expressed in this article are solely of the author, Dr Daniele Gambero. He has been an expatriate to Malaysia from Italy, since 1998 and has more than 35 years of real estate experience. He is the co-founder and group CEO of REI Group of Companies, the deputy president of the Malaysia Proptech Association, international sought-after speaker and bestselling author.