Life is a Ponzi Scheme

FEELING happy? I can change that.

Think back over your life since you entered the workforce. Think you’re getting ahead? Ask yourself if your quality of life is genuinely honest and in all respects better than when you were (1) single (2) just a junior employee (3) unburdened by debt and family obligations and (4) better looking.

The only time someone panhandled you were on a holiday in the US. Now it happens daily almost before you get through the front door. The only person you really lived for was yourself; now you are a human ATM and prone to physical abuse if you run out of large bank notes.

Almost every weekend seemingly rational people embark on this downward mobility and even invite me to join their celebrations.

The reason they don’t see the cake and champagne as the beginning of the end is an irrational belief that the more they put into family life, the more they are going to get out of it. Since the calibration of reward factors is entirely subjective, fate’s tricky way of slowing down the dividends takes a while to discern.

Then, while you impulsively step up the contributions and shower your family with the milk of human kindness, there is no guarantee that the moral credit is not being miss-allocated to some goat-herd in Mongolia who will roll over in his yurt and say ‘thanks mate’.

Is this a Ponzi scheme of the highest order, or what?

So it is with the residential property market. From Peterborough to PJ, dinner party conversation inevitably veers towards the rising value of one’s house. This is a time for the modest shrug, and the carefully rehearsed throwaway line ‘just lucky I guess’.

But when you think about it, having your house double in value is about as lucky as a letter from Bernie Madoff confirming that your annual dividend has been credited to your account.

There are only three ways you can benefit from a rise in house prices. One is to sell what you have and buy something cheaper, or rent. Under some circumstances, this may be a good idea. These circumstances include the wish to have your family line up for their share of the spoils before walking out on you.

Secondly, you could of course have bought more than one house. Of course. For most of us, this type of wishful thinking ranks with memories of the days when Bangsar was still a primordial swamp and land in Ampang was two kupangs a relong. When single-storey houses in Taman Tun (Dr Ismail) were only RM35,000, I personally didn’t have RM35,000, so please stop going on about it, it’s too late and you’re irritating me.

Finally you could sell up and go and find a country where living is cheaper. This is something I know a little about. My wife likes to shop and our holidays are spent in the challenging search for countries where things are cheaper. So far, we’ve been threatened by police in communist Czechoslovakia, toured war-torn Bosnia and been shadowed on our trip across Myanmar. I can’t think of a foreign country where I haven’t been ripped off by money-changers and taxi drivers and fallen into bed with indigestion. All these splendid countries are unlikely to welcome us as permanent residents unless we one day develop a taste for cold pizza, cold shoulders and colder winters.

So, will house prices ever come down in Malaysia? I believe landed property appreciated recently because of a supply squeeze. Towards the end of 2008 and throughout 2009 developers simply turned off the tap until the financial future became clearer. New completions in the Klang Valley dropped to 2% instead of the customary 7%-8% of existing supply while economic growth barely paused for breath.

Can developers turn on the tap again? Yes, despite the difficulty of finding good land. Will prices drop? Maybe not, but they will probably go into a period of stability before the next hike.

The Malaysian housing market regulates itself well. No need to tinker with the loan to value ratios, if you ask me.

Chris Boyd is Executive Chairman of international property consultants CB Richard Ellis (Malaysia)

This article appeared in The Edge Financial Daily, October 8, 2010.