During the Great Depression of the 1930s, the economist John Maynard Keynes said , "If you do not buy goods, the shops will not clear their stocks, they will not give repeat orders, and someone will be thrown out of work. The best guess I can make is that whenever you save five shillings, you put a man out of work for a day."
Economists are prescribing spending as a way out of the current slump. In China, a nation where people save almost 40 per cent of their income, communist party officials are distributing vouchers to get people to go out to the movies, eat in restaurants, have a good time – their stimulus to kickstart the economy.
Spending our way out of a slowdown does sound a bit like bingeing on burgers to get slimmer. For those of us working in sectors plagued by lay-offs, with mounting credit card debt, mortgages or uncertain cash flows, it makes sense to be thrifty. But if you have a tidy sum stashed in their bank, fiscal discipline and a goal in mind, go with the libertarians. There could be no better time than the present to buy.
Property
Right now, the real estate market is moving like molasses. However, banks are still lending, albeit with stricter conditions, and realtors have wisened up to the fact that it is a buyer's market. The result? More time to view properties, get together a down payment, negotiate hard and beat down prices.
Those with bravado looking to occupy the home they own and not to buy property to flip, can find themselves some sweet deals. If you are about to renew your rental contract, anecdotal evidence suggests that landlords are more than willing to increase the number of cheques from the extortionate, only-in-Dubai one or two cheque rental payment which was prevalent until last year. Free up your money so it can be put to better use.
First-time homebuyers can seriously consider schemes such as Emaar's rent-to-buy and plan-to-own in Old Town that allow people to rent or purchase residences under more affordable terms. Under the 'Plan to Own' programme, Emaar helps potential home-owners who can qualify for a mortgage through a bank to bridge the gap by extending their payment plans. With the 'Rent to Own' programme, tenants can adjust 100 per cent of the first year's rents as home finance if they decide to purchase the property within 10 months of living in the home.
Madhuri Samtani-Bhandari, a realtor with Al Dashti Real Estate, says property prices in the last four months have scaled back to 2006/2007 levels (which still compares favourably to developed nations that have gone back by 15 years). "Property prices today are extremely attractive – they are below their intrinsic value, which makes it affordable for end users," she says, citing the examples of villas on the Palm Jumeirah that reached prices of Dhs12mn and are available now for Dhs5.8mn-6mn.
At the other end of the spectrum, a one-bedroom apartment in International City is now available for about Dhs350,000 when it was Dhs650,000 at its peak. Property has seen a peak to trough drop in value of up to 40 per cent and though analysts say it can go lower, we are pretty much near the floor.
"Speculators who lost their monies by treating property as an object of trading are the ones now proclaiming doomsday. Those who leveraged themselves several times over to make short-term gains have now taken a 180-degree turn, just because they have been punished for their irrational greed," Madhuri says.
Financial products
Tim Searle, CEO of GlobalEye Investments stresses there is no one-size-fits-all solution for investing needs. "We all have different financial circumstances with regards to ourselves, our families and businesses. It goes without saying that having a cash buffer is crucial while we navigate the turbulent financial storm and liquidity (or lack thereof) is biting hard at all levels. Regardless, we should take comfort in the fact that we'd rather be riding the storm out here than in other parts of the world."
Like US financier Warren Buffett, Searle believes in buying when there is blood in the streets. It may sound crazy, but bank stocks ought to be bought now. "If your view is long enough, then you can be assured that markets will recover, since history has shown that they always do. Many are buying into emerging markets since they are believed to be more robust to the downtrend in the western hemisphere. It is worth exploring non-correlating forms of investment. We have market neutral and managed futures funds which have yielded over 12 per cent over the last 12 months - not a bad return even in rising markets," he says.
Recession-related stress is also taking its toll on people's health. Now more than ever, you need to protect yourself, family and business, so being insured is critical.
Now is also the time to buy gold. The yellow metal is a classic inflationary hedge. "It is always worth having some gold exposure in any balanced portfolio," Searle advises, "but as with any commodity, its price can fluctuate around the supply and demand dynamic. There are funds that invest in gold or you can buy the commodity itself."
Automobiles
When it comes to automobiles, the lines between urban legend and reality are blurring - containers with unsold cars that occupy areas the size of 10 football fields, car factories shutting down and parking lots choked with cars left behind by expats doing a "runner". On the other hand, Toyota has redirected its full-size, previously US-only Sequoia to the Middle East market because of hemorrhaging sales in the US – an indicator of the confidence car makers still have in this market.
So have car prices touched the floor or is there still some way to go? "That is a very good question," responds Yolanda Delport, general manager, marketing at Trading Enterprises. "The reality is that car prices have not changed. What has changed is the special deals on offer. Bear in mind that most dealers order their vehicles a few months in advance and at a fixed price and exchange rate. This is what determines the price of the car. When there is more supply than demand and stock levels build up, dealers then use tactical offers to clear the old stock and make way for newer models. If the question is, will we see more aggressive discounting or more offers in the market, then the answer is yes: promotions of this nature will continue."
"Huge discounting is not a good strategy. In fact, some of the feedback we are getting from financial institutes is that they are hesitating to finance vehicles that carry huge discounts. This is to do with managing the risk and also protecting the residual value of the asset," explains Delport.
To counter the stricter lending requirements banks now have in place, car manufacturers have turned to 'shift leasing'. It is now possible to lease a new car directly from the dealer without having to go to the bank. Experts say the downside is that it's still a lot more expensive, month-on-month, than paying the full price. But it might be the only option for those who can't get credit.
This is also a great time to get a pre-owned car, with some amazing bargains out there. "Our advice to customers is to make sure that they fully understand what the offer really is, and make sure it represents good value, rather than a discounted price ticket. The latter of course, can impact the residual value of the car. We have several exciting value-added promotions as well, which focus on long-term value. These include free insurance, free service up to 20,000kms, free first 1000km service, 24hrs recovery service for three years, full pre-delivery inspection among others."
The current slowdown has taught us that greed and mindless consumption are ultimately unsustainable. But the answer is not to clamp down on all spending as that fuels a vicious cycle of more job cuts and economic woes. As Keynes said, "Do whatever is necessary to satisfy the most sensible needs of yourself and your household" - sensible being the key word.
How to spend it now
1. Life insurance: Should anything happen to you, make sure your dependents are cared for and not saddled with your mortgage payments.
2. Medical insurance: If you are facing the prospect of redundancy, a medical emergency or hospital bills can drive you into bankruptcy. Keep making your insurance payments.
3. Credit card repayments: Don't allow interests to mount on your credit cards.
4. One man's trash is another man's treasure: Make use of websites such as GNads4u, supermarket bulletin boards and classifieds to sell what you would have put in the skip in happier times. Liquidity is of prime importance.
5. Buy what you need and can afford: This is not the time to splurge on fancy vacations, however much you feel like running away from it all.