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Homebuyers with real purchasing power to build up your equity in high inflation era

Homebuyers with real purchasing power to build up your equity in high inflation era
Article to "The Nation"
June 23, 2008

As many more start to recognize, the state of global economy is something to worry about. The weakening US dollar and the rising of China and India economy push up the inflation around the world as the price of energy, commodity and food keep going up to the ceiling. “What should we do?”—you may ask. Surprisingly, this may even make real estate more interesting to those with purchasing power.

The rising of energy and commodity has a huge impact on the country like Thailand where logistics capability is still underdeveloped and the country still depends a lot on the import of the energy and many commodities like steel. The rising inflation put some pressure on the Bank of Thailand to raise the interest rate to control inflation. Many commercial banks already did so. Bankers start to be cautious with project financing and mortgage lending. How these macroeconomic factors affect Thai property sector?

On the supply side, the higher cost of construction material and energy makes the cost of building new buildings going up at the 5th gear speed this year. The construction material cost index tracked by the Ministry of Commerce has increased for more than 15% from beginning of this year up to May 2008, As empty land plots have becoming scarcer, the cost of new residential units is very likely to rise than fall. As bankers are more cautious in giving project financing and the developers have learnt to watch the market closely since the crisis, the housing market mechanism has been adjusting itself to maintain the better equilibrium. The result is that the market will not crash and the cost of the house will not drop.

On the demand side, the higher inflation decreases the real purchasing power of the consumers. The higher cost of living decreases the ability to save, reflecting in the lower capacity to acquire permanent asset like homes or cars. The increasing interest rate and the banker’s tighter control make it even harder. But living space is something you need

“So, what homebuyers should do?” My advice is not to panic, and figure out your real purchasing power. As the high inflation and relatively low interest make your saving in real term turns negative, saving in bank saving account may not be a good idea. As explained, the cost of house tends to rise faster than the inflation and the era of low interest rate may be ended, acquiring a house is natural inflation hedge. With the relatively higher leverage power compared to other types of loan, acquiring a real estate in this situation is the way to build up your equity as long as you afford to pay.

So start saving today to see your real purchasing power. If you start to figure out how much you can save in this high inflation economy, maybe it’s a good time to building your equity through acquisition of some house you have been dreaming for before it gets too far out of reach.

Create Date : 23 มิถุนายน 2551

Last Update : 26 มิถุนายน 2551 23:15:49 น.

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