Monday 22 June 2015

Depreciating RM Currency - a boom for the leveraged investor

Generally, l advocate leveraging to get better returns. In the case of Malaysia property, I am so far able to get 90%, 80% and 70% loan. I am happy the currency falls as it meant my debts are lower vis-a-vis the falling of my equity. That is of course provided that the property price don't fall. When a currency falls without a fall in the economy, generally it will bring about imported inflation and hence the price of assets will rise. 

Eg, a RM1,000,000 
with a depreciation of 10% in currency, if you had put in 20% downpayment, it means you lose 2% of the asset value - RM20,000 in value. At this point in time, if you sell your asset, you lose RM20,000. However, taking a long term view, if the currency falls, generally asset price increases due to inflation. Say a 10% increase to RM1,100,000 This would counter the inflation. You loan remains 80% of which is RM800,000, your asset would have brought you gains of RM100,000 vs your deposit of RM200,000. This will offset any loss in depreciation of currency.

When in doubt, consult the spreadsheet.

2 comments:

  1. RM set to freefall. Debts have decreased by > 10%. Means I can make higher leverage in the Malaysia market.

    ReplyDelete
  2. https://sg.yahoo.com/?p=us

    Crisis? What crisis? Fear sells news... Maintain course and attack!

    ReplyDelete