MONEY SPECIALIST

People sometimes make decision about the future based on their experiences. These expectations about the future are often accurate because they are rational, based on the rational expectations theory in economics.

For example, let’s take a look at inflationary expectations. If a company has a view that prices are going to increase, what will it do? If it can get away with it, it will simply increase the prices of its own products.

If everyone has the same view, and takes the first opportunity available to do the same, then what happens is that prices begin to spiral upward and inflation indeed does go up. Prices went up simply because enough people expected prices to rise.

That leads us to this frightening thought – are we talking our way into recession? And will we be faced with recession simply because that we must move into recession? Do not underestimate the power of the “Secret”.

We have all read about how much more resilient the banking system in Malaysia these days and how little we are exposed to the global financial crisis. And despite the scepticism and cynicism, that’s actually right. There are plenty of liquidity in the system and when people keep more cash, there will be even more liquidity – that’s not so bad.

But what could be the real bad is if companies and businesses cutback even before things go bad and banks stop lending even if projects are good. If people are losing jobs and having their pay cut, even as companies are still making profits, that will be bad. If businesses and individuals don’t pay their bills, it starts a downward spiral from which it will be hard to recover in the current environment.

In short, if enough of us believe there will be a recession, enough of us will behave such that there already is a recession. And that will itself cause a recession – a self-fulfilling prophecy of doom. We do not want that now, do we?

Most property developers in Malaysia may not openly admit that their sales have slowed, but the consensus is that 2009 will be very challenging indeed. Times must be getting quite bad for the developer as financial crisis from the West spills to our side of the world. Judging from the recent spate of generous freebies and incentives, they are really trying to push property sales.

While in the past such incentives were offered by big and small players, this time around it appears that the big boys, like IOI Group, Sime Darby and SPK Group, are going all out to sell their products while the smaller ones are mostly lying low.

But will these freebies and incentives have any impact on sales? Those with steady-paying job and sound finances may find the incentives attractive enough to help them decide to buy. However, generally, people are still wary and uncertain of the economy and are adopting a “wait-and-see” attitude, something that developers do not want.

During the current economic downturn, besides giving freebies and incentives, property developers need to be innovative to create demand for their projects. The government can do more, not just by injecting funds, but more importantly, addressing issues such as rising crime rates to ensure that Malaysia is seen as a safe place to stay. The government could also offer tax incentives to spur people to buy their first home.