The single worst financial decision

Buying a new car is regarded as a waste of money

 WHEN I discussed whether to buy a car or a house first in my last article, I received a lot of feedback from friends and readers. Someone even sent me an interesting article entitled “Buying a New Car Is the Single Worst Financial Decision”.

The remark was made by Davis Bach, a self-made millionaire who is also one of the American best-selling financial authors, a motivational speaker and an entrepreneur.

That was a bold statement but not without basis. In the article published by CNBC Make It, David Bach said, “Nothing you will do in your lifetime, realistically, will waste more money than buying a new car.”

He pointed out that a car's value drops 20% to 30% by the end of the first year. In five years, it can lose 60% or more of its initial value. And, most people actually borrow money to buy a car.

“Why would you borrow money to buy an asset that immediately goes down in value by 30%?” says Bach.

His views concurred with the idea I have been sharing in this column over the years.

In my last article, I mentioned the value of my friend’s car dropped 70% from RM140,000 to RM40,000 over eight years. On the other hand, another friend who bought an affordable apartment during the same time, enjoyed a huge capital appreciation as the apartment increased from RM100,000 to more than RM200,000 during the same period.

Both borrowed money to buy their house and car respectively. However, there is a clear contrast between the two items by looking at their long-term values. A house is an appreciating asset, and a loan on such an asset I like to call a “Good Debt”; while a car losses money, and is therefore deemed as “Bad Debt”.

Not only does a car depreciate in value, but owning a car also comes with expenses such as petrol, maintenance, licence, toll, insurance and parking costs. A person who owns a normal sedan car and travels about 1,000 km per month, can easily spend about RM1,500 per month for car loan repayment and other relevant expenses.

With ride-sharing services (such as GrabCar in Malaysia, and Uber & Lyft in other countries) becoming so convenient, and with the LRT and MRT networks being more developed, we can now choose to be car-loan free. Imagine having your own “driver” and able to use your time productively to read a book or relax when being caught in traffic jam. We are now able to enjoy this with ride-sharing services on call.

For a more economical approach, you can even opt for a "hybrid" transportation mode by combining ride-sharing and public transport services.

Chua, a reader from Muar wrote me an email last month. He shared his experience of not having purchased a property when he was young and only bought one when he was in his mid-30s due to some misperceptions.

“Looking back, how wrong I was! But today, there are just as many graduates who think just like myself when I was in my 20s and 30s. Therefore, your constant reminder to Malaysians is valid and practical. Instead of a new car, get a used car. Buy a medical insurance policy, pay EPF and try to buy a small property. These should be the priority of any young Malaysian,” Chua wrote in his email.

Bach, the self-made millionaire said, “If you’re spending US$500 (RM2,000) a month for that car, well, that’s US$6,000 (RM24,000) a year, not including the car insurance or the gas (petrol). That could be two months or three months of your income. Run the numbers and then ask yourself: Do you really need a car that's nice or could you buy a car that’s less expensive – maybe a little older – but still looks good and runs?”

That’s the sentiment that I had when I wrote about buying a house first before a car.

Buying a car may not be the single worst financial decision for everyone. There are different financial priorities at different stages of life. However, it may be the case if you buy a brand new expensive nice car prior to owning any long-run appreciating asset or investment, like a house!

Food for thought by Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He was the World president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email bkp@bukitkiara.com

Related posts:

Better to buy a car or a house first?

Putting our house in order

Restructuring our household debt

 

Leaving a legacy by buying a house first before a luxury car ...

Rich Gen-Y kids making their own success

Housing affordability is an income issue, what's with the fuss?

How to allocate your money wisely: lessons from my father

Putting our house in order

WITH the announcement of the new Housing and Local Government Minister, Zuraida Kamaruddin, there have been a lot of news and interviews on her proposals to put our housing industry in order.

Her new plans will help create a new housing environment in our country if well executed. I particularly like the minister’s assurance that there won’t be any political intervention in decision-making, especially in housing development matters.

The key objective of the ministry is to synchronise all affordable housing schemes under one roof with the establishment of the National Affordable Housing Council, which is expected to be announced in August.

The streamlining will involve four agencies, Syarikat Perumahan Negara Bhd, 1Malaysia Civil Servants Housing Programme (PPA1M), Rumah Mampu Milik Wilayah Persekutuan (RumaWIP), and 1Malaysia People’s Housing Scheme (PR1MA).


With this prompt move, the housing ministry will have better control over the construction of affordable houses, and will attempt to resolve the mismatch between market supply and demand in certain housing segments.

Apart from the new supply, we should also look at our current housing supply. As at end-2017, we have 5.4 million houses, of which 21% or 1.15 million were low-cost houses and flats. This should be sufficient to accommodate the critical housing needs of our Rakyat if they were allocated to the right group of people.

In my last article, I mentioned that there were potential leakages in our previous distribution system that had caused the failure of qualified applicants to buy or rent a low-cost home.

In early June 2018, the new Housing Minister requested owners of People’s Housing Projects (PPR units) who were renting out their units to foreigners to evict their tenants within 90 days.

It is important for the authorities to carry out surveys on residents of low-cost housing after certain grace period to ensure the ownership and tenancy of government housing fall into the right hands.

By addressing the current leakages and with the identification of the right target audience, the issue can be quickly resolved.

Our new government plans to set up an online platform for application of affordable housing in the future. This would be an effective way to gather market demand based on the actual requirement and ensure greater transparency in the allocation process.

In addition, the government promises to build one million affordable homes within 10 years. It also suggests the housing price for the B40 group (with a median monthly household income of RM3,000) to be around RM60,000, and equipped with basic facilities such as a park and a community hall.

Based on the contributing factors of housing development which include land, the approval process and resources, only the government can build houses at the price of around RM60,000.

Only the government can gather land bank through compulsory land acquisition of agriculture land, then to convert the land for housing development, and increase housing projects with public funds.

As taxpayers, I believe we are more than happy to help elevate the living standards of the B40 group knowing very well that our money is well-spent in making a difference for the future of our nation.

I applaud the new government for taking the bold measures in putting things in order, and walking the talk by planning for more affordable housing.

Offering affordable housing and a comfortable living environment are essential criteria in building a sustainable future for our country. Whenever the government announces more constructive measures and makes things more transparent, the market environment becomes more optimistic. With this confidence, the Rakyat will be more than willing to do our part as taxpayers to achieve the common goals for the benefit of all.

Food for thought Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

Related posts:

Building more homes, the only long term-way to bring house prices down

Cars are more expensive than houses? A house can buy ...

 

Hang on to the roof over your head 

8 million more houses needed in Malaysia 

 Property investments: good Infrastructure a way to huge profits and success

Buy property with good connectivity, investors advised - The road to huge profits   Packed room: Lee giving his talk on ‘Infrastructu...

Putting our house in order

WITH the announcement of the new Housing and Local Government Minister, Zuraida Kamaruddin, there have been a lot of news and interviews on her proposals to put our housing industry in order.

Her new plans will help create a new housing environment in our country if well executed. I particularly like the minister’s assurance that there won’t be any political intervention in decision-making, especially in housing development matters.

The key objective of the ministry is to synchronise all affordable housing schemes under one roof with the establishment of the National Affordable Housing Council, which is expected to be announced in August.

The streamlining will involve four agencies, Syarikat Perumahan Negara Bhd, 1Malaysia Civil Servants Housing Programme (PPA1M), Rumah Mampu Milik Wilayah Persekutuan (RumaWIP), and 1Malaysia People’s Housing Scheme (PR1MA).

With this prompt move, the housing ministry will have better control over the construction of affordable houses, and will attempt to resolve the mismatch between market supply and demand in certain housing segments.

Apart from the new supply, we should also look at our current housing supply. As at end-2017, we have 5.4 million houses, of which 21% or 1.15 million were low-cost houses and flats. This should be sufficient to accommodate the critical housing needs of our Rakyat if they were allocated to the right group of people.

In my last article, I mentioned that there were potential leakages in our previous distribution system that had caused the failure of qualified applicants to buy or rent a low-cost home.

In early June 2018, the new Housing Minister requested owners of People’s Housing Projects (PPR units) who were renting out their units to foreigners to evict their tenants within 90 days.

It is important for the authorities to carry out surveys on residents of low-cost housing after certain grace period to ensure the ownership and tenancy of government housing fall into the right hands.

By addressing the current leakages and with the identification of the right target audience, the issue can be quickly resolved.

Our new government plans to set up an online platform for application of affordable housing in the future. This would be an effective way to gather market demand based on the actual requirement and ensure greater transparency in the allocation process.

In addition, the government promises to build one million affordable homes within 10 years. It also suggests the housing price for the B40 group (with a median monthly household income of RM3,000) to be around RM60,000, and equipped with basic facilities such as a park and a community hall.

Based on the contributing factors of housing development which include land, the approval process and resources, only the government can build houses at the price of around RM60,000.

Only the government can gather land bank through compulsory land acquisition of agriculture land, then to convert the land for housing development, and increase housing projects with public funds.

As taxpayers, I believe we are more than happy to help elevate the living standards of the B40 group knowing very well that our money is well-spent in making a difference for the future of our nation.

I applaud the new government for taking the bold measures in putting things in order, and walking the talk by planning for more affordable housing.

Offering affordable housing and a comfortable living environment are essential criteria in building a sustainable future for our country. Whenever the government announces more constructive measures and makes things more transparent, the market environment becomes more optimistic. With this confidence, the Rakyat will be more than willing to do our part as taxpayers to achieve the common goals for the benefit of all.

Food for thought Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

Related posts:

Building more homes, the only long term-way to bring house prices down

Cars are more expensive than houses? A house can buy ...

 

Hang on to the roof over your head 

8 million more houses needed in Malaysia 

 Property investments: good Infrastructure a way to huge profits and success

Buy property with good connectivity, investors advised - The road to huge profits   Packed room: Lee giving his talk on ‘Infrastructu...

Malaysian new hope for the housing industry with new government

MALAYSIANS have been in an uplifting mood, with the various measures announced by the new government since the new Cabinet was formed.

Out of my passion for the housing industry, I am paying special interest and attention to Pakatan Harapan’s proposals on housing matters. There are several initiatives which will give a new breath of life to the industry if they are implemented successfully.

In its manifesto, Pakatan Harapan promises to build one million affordable homes within two terms of their administration. This is a realistic and encouraging move to address the affordable housing issue in Malaysia.

As mentioned in my previous article, I often wondered why the previous government didn’t directly drive affordable housing. I was enlightened when a friend told me last year, “The reason is that there isn’t any ‘money’ involved in affordable housing”. Given the new government’s promise of a cleaner government, I believe this is the right time.

To build one million affordable houses within two terms means that the government needs to build an average of 100,000 homes every year. This exceeds our yearly residential housing production recorded for the past few years.

To make this a reality, the government needs to put in real money to make it happen. The previous government depended on the private sector to drive that number. However, as we have seen from successful public/affordable housing models from Hong Kong and Singapore, our government should be the main driving force in providing affordable homes.

The reasons for such success are obvious. Governments have control over land, approval rights, public funds and development expertise. Given enough political will, and backed by tax payers’ funds, we can achieve these targets.

According to the manifesto of the new government, the above mission will be carried out by a National Affordable Housing Council chaired by the Prime Minister. Setting up a central authority has been suggested by Bank Negara and also in this column before. A centralised system will ensure effective planning and allocation of affordable homes, just as is done by the Housing and Development Board (HDB) in Singapore.

Currently, we have different agencies looking at affordable housing, such as the various State Economic Development Corporations (SEDCs), Syarikat Perumahan Negara Bhd (SPNB), Perbadanan Kemajuan Negeri Selangor (PKNS) and 1 Malaysia People’s Housing Scheme (PR1MA).

Many of them are working in isolation from one another and some have strayed from their original purpose.

In Singapore, prior to the formation of the Housing and Development Board (HDB) in 1960, less than 9% of Singaporeans stayed in government housing. Today, HDB has built more than a million flats and houses. About 82% of Singaporeans stay in HDB housing, according to HDB’s annual report. It is a great example for reference.

Based on the recently published statistics from the National Property Information Centre (Napic), the total residential homes in Malaysia as at the end of 2017 was 5.4 million. Low-cost houses and flats accounted for 21% or 1.15 million of the total.

Some may question whether the number of low-cost homes is sufficient. However, there may be some “leakages” or misallocation in the previous distribution system that caused qualified applicants to face difficulties when buying or renting a low-cost home.

Many years ago, The Star reported that thousands of government housing units in Kuala Lumpur were being sub-let to third parties at five times above the control rental price. It stated that the number of applicants for low-cost units in Kuala Lumpur had reached 26,000, and that many of them had been on the waiting list for more than a decade.

It was even rumoured that some low-cost housing units across Malaysia were sold to political nominees, instead of going towards the rakyat who really couldn’t afford housing. If this practice did actually happen, it is disgusting and should be reviewed.

It is timely for the new government to inspect whether our low-cost homes have fallen into the wrong hands. It is essential to repair the allocation system and stop any form of corruption while building more low cost and affordable homes.

The new government’s manifesto to coordinate a unified and open database on affordable housing, can be one of the solutions to the matter.

In addition, the idea of managing a rent-to-own scheme for lower income groups is a positive measure to encourage residents to take care of their houses, as they will eventually own them.

I am glad to see the manifesto of the new government addressing many areas of concern in building homes for the rakyat. We understand that it takes time to implement these new measures. The rakyat will need to be patient for these new measures to reap their full results. We hope that a fresh start in the right direction will finally shine some light at the end of the tunnel.

By Alan Tong - Food for thought

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.


Related:

Planning for a home

Malaysia must brace for short-term pai

A contrasting return to Bank Negara for Nor Shamsiah

Daim considers basic income fund

Related posts:

Leaving a legacy by buying a house first before a luxury car

Restructuring our household debt

If it's too good to be true, something's wrong 

Too good to be true? Think twice

A challenging year ahead

Malaysian new hope for the housing industry with new government

MALAYSIANS have been in an uplifting mood, with the various measures announced by the new government since the new Cabinet was formed.

Out of my passion for the housing industry, I am paying special interest and attention to Pakatan Harapan’s proposals on housing matters. There are several initiatives which will give a new breath of life to the industry if they are implemented successfully.

In its manifesto, Pakatan Harapan promises to build one million affordable homes within two terms of their administration. This is a realistic and encouraging move to address the affordable housing issue in Malaysia.

As mentioned in my previous article, I often wondered why the previous government didn’t directly drive affordable housing. I was enlightened when a friend told me last year, “The reason is that there isn’t any ‘money’ involved in affordable housing”. Given the new government’s promise of a cleaner government, I believe this is the right time.

To build one million affordable houses within two terms means that the government needs to build an average of 100,000 homes every year. This exceeds our yearly residential housing production recorded for the past few years.

To make this a reality, the government needs to put in real money to make it happen. The previous government depended on the private sector to drive that number. However, as we have seen from successful public/affordable housing models from Hong Kong and Singapore, our government should be the main driving force in providing affordable homes.

The reasons for such success are obvious. Governments have control over land, approval rights, public funds and development expertise. Given enough political will, and backed by tax payers’ funds, we can achieve these targets.

According to the manifesto of the new government, the above mission will be carried out by a National Affordable Housing Council chaired by the Prime Minister. Setting up a central authority has been suggested by Bank Negara and also in this column before. A centralised system will ensure effective planning and allocation of affordable homes, just as is done by the Housing and Development Board (HDB) in Singapore.

Currently, we have different agencies looking at affordable housing, such as the various State Economic Development Corporations (SEDCs), Syarikat Perumahan Negara Bhd (SPNB), Perbadanan Kemajuan Negeri Selangor (PKNS) and 1 Malaysia People’s Housing Scheme (PR1MA).

Many of them are working in isolation from one another and some have strayed from their original purpose.

In Singapore, prior to the formation of the Housing and Development Board (HDB) in 1960, less than 9% of Singaporeans stayed in government housing. Today, HDB has built more than a million flats and houses. About 82% of Singaporeans stay in HDB housing, according to HDB’s annual report. It is a great example for reference.

Based on the recently published statistics from the National Property Information Centre (Napic), the total residential homes in Malaysia as at the end of 2017 was 5.4 million. Low-cost houses and flats accounted for 21% or 1.15 million of the total.

Some may question whether the number of low-cost homes is sufficient. However, there may be some “leakages” or misallocation in the previous distribution system that caused qualified applicants to face difficulties when buying or renting a low-cost home.

Many years ago, The Star reported that thousands of government housing units in Kuala Lumpur were being sub-let to third parties at five times above the control rental price. It stated that the number of applicants for low-cost units in Kuala Lumpur had reached 26,000, and that many of them had been on the waiting list for more than a decade.

It was even rumoured that some low-cost housing units across Malaysia were sold to political nominees, instead of going towards the rakyat who really couldn’t afford housing. If this practice did actually happen, it is disgusting and should be reviewed.

It is timely for the new government to inspect whether our low-cost homes have fallen into the wrong hands. It is essential to repair the allocation system and stop any form of corruption while building more low cost and affordable homes.

The new government’s manifesto to coordinate a unified and open database on affordable housing, can be one of the solutions to the matter.

In addition, the idea of managing a rent-to-own scheme for lower income groups is a positive measure to encourage residents to take care of their houses, as they will eventually own them.

I am glad to see the manifesto of the new government addressing many areas of concern in building homes for the rakyat. We understand that it takes time to implement these new measures. The rakyat will need to be patient for these new measures to reap their full results. We hope that a fresh start in the right direction will finally shine some light at the end of the tunnel.

By Alan Tong - Food for thought

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.


Related:

Planning for a home

Malaysia must brace for short-term pai

A contrasting return to Bank Negara for Nor Shamsiah

Daim considers basic income fund

Related posts:

Leaving a legacy by buying a house first before a luxury car

Restructuring our household debt

If it's too good to be true, something's wrong 

Too good to be true? Think twice

A challenging year ahead

Restructuring our household debt

NEW Year always come with new resolutions. Finance is an important aspect of most people’s checklists when it comes to planning new goals.

While it is good to set new financial targets, it is also vital to re-look at our debt portfolio to ascertain if it is at a healthy state.

At a national level, our country also has its financial targets matched against its debt portfolio.

According to the latest Risk Developments and Assessment of Financial Stability 2016 Report by Bank Negara, the country’s household debt was at RM1.086 trillion or 88.4% of gross domestic product (GDP) as at end 2016.

Residential housing loan accounted for 50.3% (RM546.3bil) of total household debts, motor vehicles at 14.6%, personal financing at 14.9%, non-residential loan was 7.4%, securities at 5.7%, followed by credit cards at 3.5% and other items at 3.6%.

Evidently, residential housing loan is the highest among all types of household debt. However, a McKinsey Global Institute Report on “Debt and (Not Much) Deleveraging” in 2015 highlighted that in advanced countries, mortgage or housing loan comprises 74% of total household debt on average.

As a country that aspires to be a developed nation, a housing loan ratio of 50.3% to total household debt would be considered low, compared to 74% for the advanced countries. In other words, we are spending too much on items that depreciate in value immediately – such as car loans, credit card loans and personal loans – compared to assets that appreciate in value in the long run, such as houses.

Advanced economies, which are usually consumer nations, have only 26% debts on non-housing loan as compared to ours at 49.7%.

In order to adopt the household debt ratio of advanced economies, our housing loan of RM546.3bil should be at 74% of total household debt. This means that if we were to keep our housing loan of RM546.3bil constant, our total household debt should be reduced from the current RM1.086 trillion to a more manageable RM738bil. This would require other non-housing loans (car loans, credit card loans and personal loans etc) to reduce from 49.7% of total household debt to only 26%. To achieve this ratio, the non-housing loan debt must collapse from the current RM539.7bil to only RM192bil.

Reducing total household debt from the current RM1.086 trillion to a more manageable RM738bil would also have the added benefit of reducing our total household debt-to-GDP ratio from the high 88.4% to only 60%, making us one of the top countries globally for financial health.

Malaysia’s household debt at present ranked as one of the highest in Asia. Based on the same 2015 McKinsey Report, our household debt-to-income ratio was 146% in 2014 (the ratio of other developing countries was about 42%) compared to the average of 110% in advanced economies.

Adjusting the debt ratio by reducing car loans, personal loans and credit card loans will make our nation stay financially healthy.

Car values depreciate at about 10% to 20% per year based on insurance calculations, accounting standards and actual market prices. Assets financed by personal and credit card loans typically depreciate immediately and aggressively.

The easy access to credit cards and personal loan facilities tend to encourage people to spend excessively, especially when there is no maximum credit limit imposed on credit cards for those earning more than RM36,000 per year.

If we maximised the credit limit given without considering our financial ability, we will need a long time to repay due to the high interest rates, which ranged from 15% to 18% per annum.

Based on a report in The Star recently, Malaysia’s youth are seeing a worrying trend with those aged between 25 and 44 forming the biggest group classified as bankrupt.

The top four reasons for bankruptcy were car loans (26.63%), personal loans (25.48%), housing loans (16.87%) and business loans (10.24%).

It is time for the Government to introduce more drastic cooling-off measures for non-housing loans in order to curb debt that is not backed by assets. This will protect the rakyat from further impoverishment that they are voicing and feeling today.

As we kick start the new year, it is good to relook into our debt portfolio. When we are able to identify where we make up most of our debts, and start to reallocate our financial resources more effectively, we will be heading towards a sound and healthier financial status as a nation.
 

By Alan Tong - Food for thought

Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please e-mail feedback@fiabci-asiapacific.com.


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Leaving a legacy by buying a house first before a luxury car ... 

 

Can Malaysia's household debt at 87.9% in 2014 be reduced to 54% ? 

 

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Cars are more expensive than houses? A house can buy how many cars?

 

Our cars are costing us our homes!

Is having a car still a symbol of freedom? 

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Restructuring our household debt

NEW Year always come with new resolutions. Finance is an important aspect of most people’s checklists when it comes to planning new goals.

While it is good to set new financial targets, it is also vital to re-look at our debt portfolio to ascertain if it is at a healthy state.

At a national level, our country also has its financial targets matched against its debt portfolio.

According to the latest Risk Developments and Assessment of Financial Stability 2016 Report by Bank Negara, the country’s household debt was at RM1.086 trillion or 88.4% of gross domestic product (GDP) as at end 2016.

Residential housing loan accounted for 50.3% (RM546.3bil) of total household debts, motor vehicles at 14.6%, personal financing at 14.9%, non-residential loan was 7.4%, securities at 5.7%, followed by credit cards at 3.5% and other items at 3.6%.

Evidently, residential housing loan is the highest among all types of household debt. However, a McKinsey Global Institute Report on “Debt and (Not Much) Deleveraging” in 2015 highlighted that in advanced countries, mortgage or housing loan comprises 74% of total household debt on average.

As a country that aspires to be a developed nation, a housing loan ratio of 50.3% to total household debt would be considered low, compared to 74% for the advanced countries. In other words, we are spending too much on items that depreciate in value immediately – such as car loans, credit card loans and personal loans – compared to assets that appreciate in value in the long run, such as houses.

Advanced economies, which are usually consumer nations, have only 26% debts on non-housing loan as compared to ours at 49.7%.

In order to adopt the household debt ratio of advanced economies, our housing loan of RM546.3bil should be at 74% of total household debt. This means that if we were to keep our housing loan of RM546.3bil constant, our total household debt should be reduced from the current RM1.086 trillion to a more manageable RM738bil. This would require other non-housing loans (car loans, credit card loans and personal loans etc) to reduce from 49.7% of total household debt to only 26%. To achieve this ratio, the non-housing loan debt must collapse from the current RM539.7bil to only RM192bil.

Reducing total household debt from the current RM1.086 trillion to a more manageable RM738bil would also have the added benefit of reducing our total household debt-to-GDP ratio from the high 88.4% to only 60%, making us one of the top countries globally for financial health.

Malaysia’s household debt at present ranked as one of the highest in Asia. Based on the same 2015 McKinsey Report, our household debt-to-income ratio was 146% in 2014 (the ratio of other developing countries was about 42%) compared to the average of 110% in advanced economies.

Adjusting the debt ratio by reducing car loans, personal loans and credit card loans will make our nation stay financially healthy.

Car values depreciate at about 10% to 20% per year based on insurance calculations, accounting standards and actual market prices. Assets financed by personal and credit card loans typically depreciate immediately and aggressively.

The easy access to credit cards and personal loan facilities tend to encourage people to spend excessively, especially when there is no maximum credit limit imposed on credit cards for those earning more than RM36,000 per year.

If we maximised the credit limit given without considering our financial ability, we will need a long time to repay due to the high interest rates, which ranged from 15% to 18% per annum.

Based on a report in The Star recently, Malaysia’s youth are seeing a worrying trend with those aged between 25 and 44 forming the biggest group classified as bankrupt.

The top four reasons for bankruptcy were car loans (26.63%), personal loans (25.48%), housing loans (16.87%) and business loans (10.24%).

It is time for the Government to introduce more drastic cooling-off measures for non-housing loans in order to curb debt that is not backed by assets. This will protect the rakyat from further impoverishment that they are voicing and feeling today.

As we kick start the new year, it is good to relook into our debt portfolio. When we are able to identify where we make up most of our debts, and start to reallocate our financial resources more effectively, we will be heading towards a sound and healthier financial status as a nation.
 

By Alan Tong - Food for thought

Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please e-mail feedback@fiabci-asiapacific.com.


Related posts:

Moving forward with affordable housing

One way to solve housing shortage problem is to build more houses. "If we take a look at countries with commendable housing pol...

Leaving a legacy by buying a house first before a luxury car ... 

 

Can Malaysia's household debt at 87.9% in 2014 be reduced to 54% ? 

 

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Moving forward with affordable housing

One way to solve housing shortage problem is to build more houses.


"If we take a look at countries with commendable housing policies such as Singapore and Hong Kong, we notice that the government plays a very important role in building and ensuring a sufficient supply of housing for their people."

THE issue of affordable housing has been a hot potato for many countries, especially for a nation with a growing population and urbanisation like ours.

In my previous article, I mentioned that there was a growing shortage of affordable housing in our country according to Bank Negara governor Tan Sri Muhammad Ibrahim. The shortage is expected to reach one million units by 2020.

According to Bank of England governor Mark Carney, one of the most effective ways to address the issue is to build more houses. There are good examples in countries like United Kingdom, Australia and Singapore, which have 2.4, 2.6 and 3.35 persons per household respectively.

In comparison, the average persons per household in our country is 4.06 person, a ratio which Australia had already achieved in 1933! To improve the current ratio, we need to put more effort into building houses to bring prices down.

If we take a look at countries with commendable housing policies such as Singapore and Hong Kong, we notice that the government plays a very important role in building and ensuring a sufficient supply of housing for their people.

For example in Singapore, their Housing and Development Board (HDB) has built over one million flats and houses since 1960, to house 90% of Singaporeans in their properties. In Hong Kong, the government provides affordable housing for lower-income residents, with nearly half of the population residing in some form of public housing nowadays. The rents and prices of public housing are subsidised by the government and are significantly lower than for private housing.

To be on par with Australia (2.6 persons per household), our country needs a total of 8.6 million homes to house our urban population of 22.4 million people. In other words, we need an additional 3.3 million houses on top of our existing 5.3 million residential houses.

However, with our current total national housing production of about 80,000 units a year, it will take us more than 40 years to build 3.3 million houses! With household formation growing at a faster rate than housing production, we will still be faced with a housing shortage 40 years from now.

Therefore, even if the private sector dedicated all its current output to build affordable housing, it will still be a long journey ahead to produce sufficient houses for the nation. It is of course impossible for the private sector to do so as it will be running at a loss due to rising costs of land and construction.

In view of the above, the government has to shoulder the responsibility of building more houses for the rakyat due to the availability of resources owned by the government. Land, for example, is the most crucial element in housing development. As a lot of land resources are owned by government, they must offer these lands to relevant agencies or authorities to develop affordable housing.

I recall when I was one of the founding directors of the Selangor State Development Corp in 1970s, its main objectives was to build public housing for the rakyat.

However, today the corporation has also ventured into high end developments in order to subsidise its affordable housing initiatives. This will somehow distract them from focusing on the affordable housing sector.

Although government has rolled out various initiatives in encouraging affordable houses, it is also important for the authorities to constantly review the original objectives of the relevant housing agencies, such as the various State Economic Development Corporations, Syarikat Perumahan Negara Bhd, and 1 Malaysia People’s Housing Scheme, to ensure they have ample resources especially land and funding to continue their mission in building affordable housing.

A successful housing policy and easy access to affordable housing have a huge impact on the rakyat. It is hoped that our government escalates its effort in building affordable housing, which will enhance the happiness and well-being of the people, and the advancement of our nation.


 Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

By Alan Tong

Moving forward with affordable housing

One way to solve housing shortage problem is to build more houses.


"If we take a look at countries with commendable housing policies such as Singapore and Hong Kong, we notice that the government plays a very important role in building and ensuring a sufficient supply of housing for their people."

THE issue of affordable housing has been a hot potato for many countries, especially for a nation with a growing population and urbanisation like ours.

In my previous article, I mentioned that there was a growing shortage of affordable housing in our country according to Bank Negara governor Tan Sri Muhammad Ibrahim. The shortage is expected to reach one million units by 2020.

According to Bank of England governor Mark Carney, one of the most effective ways to address the issue is to build more houses. There are good examples in countries like United Kingdom, Australia and Singapore, which have 2.4, 2.6 and 3.35 persons per household respectively.

In comparison, the average persons per household in our country is 4.06 person, a ratio which Australia had already achieved in 1933! To improve the current ratio, we need to put more effort into building houses to bring prices down.

If we take a look at countries with commendable housing policies such as Singapore and Hong Kong, we notice that the government plays a very important role in building and ensuring a sufficient supply of housing for their people.

For example in Singapore, their Housing and Development Board (HDB) has built over one million flats and houses since 1960, to house 90% of Singaporeans in their properties. In Hong Kong, the government provides affordable housing for lower-income residents, with nearly half of the population residing in some form of public housing nowadays. The rents and prices of public housing are subsidised by the government and are significantly lower than for private housing.

To be on par with Australia (2.6 persons per household), our country needs a total of 8.6 million homes to house our urban population of 22.4 million people. In other words, we need an additional 3.3 million houses on top of our existing 5.3 million residential houses.

However, with our current total national housing production of about 80,000 units a year, it will take us more than 40 years to build 3.3 million houses! With household formation growing at a faster rate than housing production, we will still be faced with a housing shortage 40 years from now.

Therefore, even if the private sector dedicated all its current output to build affordable housing, it will still be a long journey ahead to produce sufficient houses for the nation. It is of course impossible for the private sector to do so as it will be running at a loss due to rising costs of land and construction.

In view of the above, the government has to shoulder the responsibility of building more houses for the rakyat due to the availability of resources owned by the government. Land, for example, is the most crucial element in housing development. As a lot of land resources are owned by government, they must offer these lands to relevant agencies or authorities to develop affordable housing.

I recall when I was one of the founding directors of the Selangor State Development Corp in 1970s, its main objectives was to build public housing for the rakyat.

However, today the corporation has also ventured into high end developments in order to subsidise its affordable housing initiatives. This will somehow distract them from focusing on the affordable housing sector.

Although government has rolled out various initiatives in encouraging affordable houses, it is also important for the authorities to constantly review the original objectives of the relevant housing agencies, such as the various State Economic Development Corporations, Syarikat Perumahan Negara Bhd, and 1 Malaysia People’s Housing Scheme, to ensure they have ample resources especially land and funding to continue their mission in building affordable housing.

A successful housing policy and easy access to affordable housing have a huge impact on the rakyat. It is hoped that our government escalates its effort in building affordable housing, which will enhance the happiness and well-being of the people, and the advancement of our nation.


 Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

By Alan Tong

Graft destroys nature as Corrupt officers see no evil as environment is being ravaged

Humans Are Destroying the Environment 

PETALING JAYA: They are supposed to be guardians of the environment, and yet “certain enforcement officers” are found to be tolerating illegal activities that are detrimental to nature – all for personal gain.

Pollution and unauthorised felling of trees, for instance, could be traced to those working in cahoots with the culprits, according to sources.

Several recent cases such as the illegal bauxite mining in Kuantan, flash floods in Cameron Highlands and the illegal sawdust factory in Kampung Sungai Lembu, Penanti, Butterworth, were all linked to abuse of power and corruption.

“Some of them are more inclined to soliciting and receiving monetary gains in lieu of their responsibilities in protecting the natural surroundings.

“As a result, it has created greater problems to the fragile environment at the expense of future generations,” said a source.

The source added that stern action needed to be meted out against these irresponsible officers in order to put a stop to the wanton destruction.

If nothing was done, it could lead to adverse effects to the people in terms of public health and safety, the source said.

“All enforcement agencies tasked to preserve the environment must be serious in discharging their duties diligently.

“In this regard, the Malaysian Anti-Corruption Commission (MACC) has done its part to send out a stern warning with numerous arrests and prosecutions in court,” the source said.

Over the past few months, scores of enforcement officers including those from the Customs, Land Office and local councils were nabbed on suspicion of receiving bribes to turn a blind eye on illegal activities detrimental to the environment.

The MACC also held several dialogues with NGOs and environmental groups through an Environmental Protection and Anti-Corruption Caucus to share information on corruption issues.

With this strategic collaboration, illegal activities such as illegal logging, river pollution and clearing of land could be prevented from recurring.

By Simon Khoo The Star/Asian News Network

Authorities fighting an uphill battle against ‘rape of hills’

PETALING JAYA: The authorities are waging an endless war against illegal loggers, with some enforcement officers even labelling the wanton destruction of trees as “raping the hills”.

Cases of such destructive activities in recent years include uncontrolled logging and illegal farming in Cameron Highlands, which polluted several rivers.

In April this year, a former Terengganu Forestry Department director was charged with accepting RM60,000 from a timber contractor four years ago as an inducement to approve a logging application for Hulu Terengganu Forest Reserve.

Two men were detained in the Bukit Bauk Forest Reserve in Dungun in November last year for removing evidence of illegal logging during an ambush by the Forestry Department. Some 400 tonnes of logs were reportedly seized.

In August last year, a Datuk Seri and two others were arrested in connection with illegal logging in the Cerul forest reserve in Terengganu. They produced a letter from a “high-ranking officer” to evade arrest but failed.

In Pahang, 11 people were detained by the Forestry Department for trespassing into forest reserves with the intent to steal high-value timber.

The Auditor-General’s Report 2015 highlighted illegal logging and encroachment in Perak forest reserves and said it was due to the lack of monitoring and effective enforcement by the Perak Forestry Department.

Logging in Kelantan has also come under scrutiny following allegations of illegal and uncontrolled logging being a possible cause of the 2014 floods in Kuala Krai.

In 2013, Kelantan-based NGO Young People against Corruption (Ombak) discovered rampant land clearing and wanton destruction of virgin forests in Kuala Krai and Gua Musang, affecting at least five hills stretching from the Pahang-Kelantan and Kelantan-Perak borders.

Ombak president Wan Khairul Ihsan Wan Muhammad described the destruction as the “rape of the forested hills”, adding that the activities were stealthily done in the middle of forest reserves to avoid detection.

Anti-graft officers out to stop illegal timber business

PETALING JAYA: Illegal logging, which has cost the country billions of ringgit in losses in taxes and revenue, is the latest target of the Malaysian Anti-Corruption Commission (MACC).

Remote area: A file picture of a suspected illegal logging site in Bakun, Sarawak, that was raided by the MACC.

Anti-graft officers will be focusing on this issue after tackling illegal land clearing, bauxite mining and unlicensed factories.

It is learnt that incidents of illegal logging are “quite rampant and extensive”, causing a lot of destruction to the nation’s fragile eco-system and environment.

Some of the illegal activities are believed to be taking place deep in the jungle, including forest reserves and catchment areas, hidden from public view.

The problem is made worse when some enforcement officers tasked with taking action against illegal loggers are believed to have turned a blind eye and worked in cahoots with illegal loggers.

In return, the officers are said to be promised a certain percentage from profits from the illegal activities every month, paying no heed to the destruction of the country’s forests.

It is learnt that these unethical officers are raking in tens of thousand of ringgit every month as kickback and side income to finance their lavish lifestyle.

MACC deputy chief commissioner (operations) Datuk Azam Baki said such illegal activities must be nipped in the bud before they cause irreparable damage.

“We have received very reliable information from the public on illegal logging.

“It is not just in one particular area, but in several states throughout the country, including Sabah and Sarawak.

“We have set up a few flying squads and they are now collecting evidence on the ground,” he said when contacted yesterday.

He said illegal logging has caused serious pollution, while natural disasters, such as flash floods and landslides could occur more rapidly, endangering the lives of the people.

Azam said the main focus of investigations will be on elements of corruption and abuse of power involving several enforcement agencies, their officers and logging companies.

“Once we have gathered all the necessary evidence, a sting operation will be launched to nab the culprits,” he added.

He said MACC would be moving into several states “very soon”, adding that “we are pretty serious in tackling this issue”.

He welcomed tip-offs from the people to assist in putting a stop to illegal logging and other activities detrimental to the environment.

“We will also work closely with NGOs and environmental groups to collect information,” he added.

In November 2014, the then Sarawak chief minister Tan Sri Adenan Satem declared war on illegal logging, saying Sarawakians must not tolerate corruption anymore because millions in revenue had been lost.

The state, he said, had gained a bad reputation internationally because of “this robbery which is carried out in broad daylight”.

The MACC swung into action with a massive crackdown dubbed Ops Gergaji the following year, and together with several agencies, some 400 bank accounts belonging to companies and individuals with about RM600mil were frozen.

About RM1mil worth of illegally felled logs were also seized.

By Simon Khoo The Star/AN

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