Where does the money go?

RECENTLY I was offered an easy loan with just 5.8% interest rate after activation of my credit card.

There was no pre-qualified questions asked when the sales personnel approached me through the phone. As I had no intention to get funding, I did not take up the offer.

It is understood that the “attractive” rate was offered to attract potential customers. If there is a delay in repayment eventually, the rate would jump up according to the interest incurred on the credit card outstanding balance, which ranges from 15% to 18% per annum.

When I asked around, I found most of my family members had on at least one if not more occasions being offered an easy loan, credit card balance transfer, personal loan, or other credit facilities via phone calls every month.

This contrasts with what I had heard from friends and peers from the property industry regarding housing loan. There have been complaints about stringent requirements for housing loan application and low approval rate. They have this question in mind – where does the money go?

Their concerns are understandable when I see the home loan approval rates was only hovering around 50% for the past few years. In 2013, the approval rate was at 49.2%, it improved slightly to 52.9% in 2014 but went down to 50.2% in 2015.

According to the group president of the Real Estate and Housing Developers Association (Rehda), Datuk Seri FD Iskandar, rejection rate for affordable housing loan applications was more than 50%, and the strict housing/mortgage lending conditions were denying aspiring owners their first homes.

Based on Rehda’s survey in the second half of 2015, loan rejection was the number one reason for unsold units, and affordable homes top the list.

For example, an individual or family with a combined household income of between RM2,500 and RM10,000 are eligible to apply for PR1MA homes that cost between RM100,000 and RM400,000. However, with loan eligibility based on net income, many with their existing commitments such as car loan or credit card outstanding payment, are not able to secure a loan for an affordable home. This dampens the effort of helping qualified households in owning their first homes.

Looking at the situation, I am puzzled with different treatments given to loan application. At one end, there is an easy access for personal loan and credit card financing. On the other, stringent requirements are imposed on housing loan. It seems like the priority has been given to spending on liability instead of asset.

If we look at it from the business perspective, credit card, personal loan and easy loan offer higher profit margin to the banks with interest rates ranging from 12% to 18%, compared to housing loan interest which is about 4.5% to 5%. This may explain the shift of focus among the banks.

Central bank concerned

Reports show that our household debt stood at an alarming 87.9% of GDP as at end of 2014 – one of the highest in the region. It is comprehensible that Bank Negara is concerned with the situation, and would like to impose responsible lending with housing loan.

However, when we look at the details, residential housing loans accounted for 45.7% of total debt, hire purchase at 16.6%, personal financing stood at 15.7%, non-residential loan was 7.7%, securities at 6.5%, followed by credit cards and other items at 3.9% respectively.

A recent McKinsey Global Institute Report highlighted that in advanced countries, housing loans comprise 74% of total household debt on average. As a country that aspires to be a developed nation by 2020, our 45.7% housing loan component is considered low.

Looking at the above, it is ironic that our authorities and banks are strict on funding a house which is a basic necessity and asset for people, but lenient on car loan, personal loan, credit card and other easy financing with higher interest rate, that tend to encourage the rakyat to overspend on depreciating items.

It is common nowadays to see young adults paying half of their salary for car loan, and people go on extravagant holidays or purchase luxury items which rack up their credit card balance. As such it is not surprising that the number of counselling cases took on by Credit Counselling and Debt Management Agency has also shown a worrying upward trend, with the number of cases leaping by 20,000 from 2013 to 2014. There was an average of about 35,000 counselling cases annually from 2008 to 2014, but that figure rose to approximately 60,000 in 2014.

It is important for the authorities and banks to encourage prudent lending and spending, re-look into high housing loan rejection rate, and consider to tighten lending conditions of other loans, such as personal loan and credit card. These will encourage the rakyat to channel their money into assets instead of liabilities, and improve the financial position of the people and the nation in the future.

By Alan Tong

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



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Little by little, a little becomes a lot

NOW that Christmas, New Year and Chinese New Year are over, many of us have started to reconcile the amount spent for these celebrations.

Not surprisingly, many have underestimated the current cost of living and have therefore overspent.

Hence, it did not come as a surprise to me when I overheard one of my relatives saying that the price of an eight-course Chinese New Year package at the restaurant that she often frequents has increased by 15% from RM898++ to RM1,028++ within a year. Not only has the price increased, she also noticed the serving portions were smaller than the previous year.

The rising cost of living caused by the depreciating ringgit, hike in transportation costs, the goods and services tax implementation, etc, was the hottest topic of discussion during these festive gatherings. Among the various counter-measures, some young ones welcomed the option to reduce the Employees Provident Fund (EPF) contributions, citing that it would help relieve their burden.

The reduction in EPF contribution came about early this year when the Government announced that employees had the option to reduce their EPF contribution by 3% from March 2016 until December 2017 to spur economic growth and at the same time, put more money into the rakyat’s pockets. According to our Prime Minister who is also the Finance Minister, this move is expected to increase consumer spending by RM8bil a year.

It sounds good as we now have the option to have more disposable income. Yet, should we encourage spending or saving during this challenging time.

Before answering this question, let’s ask ourselves what we should do with the extra disposable income. Repay credit card instalments, go after items such as expensive household goods, electronic gadgets or gourmet food?

If we are not careful, we will end up spending based on our desire instead of necessity. Hence, having more money to spend is not necessarily good. It depends on how we plan our future finances, and whether we spend the money on “good debt” or “bad debt” as explained in my previous articles.

If we unnecessarily spend the additional income on luxury goods such as a new car which depreciates over time, we are practically paying for “bad debt”, as these items are liabilities instead of assets.

In contrast, if we convert the additional income into “good debt” such as investing in commodities/ shares or to fund our housing loan, we can enjoy the long-term benefits as the value of these assets will likely appreciate over time.

At a glance, 3% taken out from the EPF per month may not be seen as a lot. However, it will become a significant amount in the long term.

For an individual earning RM5,000 a month, 3% equals to RM150. As such, the total amount is RM3,300 for the duration of 22 months (March 2016 to December 2017). Assuming the average EPF interest rate at 6.5% per year (based on the dividend declared this year), the compounding rate for RM3,300 could potentially become RM23,190.64 after 30 years!

Therefore, unless there are really good reasons to use this additional disposable income, it is better to retain this seemingly small amount as retirement funds, giving its potential to grow significantly in the longer term. Besides, the savings in the EPF can also be withdrawn during rainy days to fund the payment for children’s education, purchase a new home and payment of medical expenses for treatment of critical illnesses.

At this testing time when many are faced with the burden of rising costs and economic slowdown, it is important to resist the temptation of instant gratification, be prudent in spending, and be able to differentiate between “good debt” and “bad debt” in making financial decisions.

For those who have yet to opt out from reducing the EPF contribution from 11% to 8%, it is important to use the additional money wisely so as to ensure that your retirement fund is not affected. Every ringgit saved or invested is essential in making a difference in our future financial position.

When I was a kid, my parents encouraged me and my siblings to save. Each of us would have our own piggy banks and they would continue to remind us about the beauty of saving. Until today, I still like this Malay proverb – ‘Sedikit, sedikit, lama-lama jadi bukit’ (little by little, a little becomes a lot).

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

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Penang Forum tells Chief Minister: the unmitigated disasters on hill projects

The Penang Forum steering committee released the following ‘executive summary’ to the media during its meeting with the chief minister of Penang

The Penang Forum steering committee released the following ‘executive summary’ to the media during its meeting with the chief minister of Penang:

To address public concerns over hill degradation in Penang, the Penang Forum took the initiative in September 2015 to co-organise a public forum on hill development with the MBPP and relevant Penang state authorities.

But the council and the state decided not to participate in the effort and missed the opportunity to engage with the public.

In organising the public forum, the Penang Forum is non-partisan and has not been influenced by any other body or organisation.

The Penang Forum has not been misinformed. Its information and data came from two sources:

• answers provided by the State Exco to the State Assembly sitting in November 2015 on the number of legal projects and illegal clearings on sensitive hill land between 2008 and 2015; and 
• photographs provided by members of public, resident associations, Google Earth satellite imagery and drone shots. The scarring on Bukit Relau has grown into an unmitigated disaster. Despite a stop work order and a fine against those responsible, major earthworks, including the building of road infrastructure, have taken place.

 While it is technically possible to build safely on hill slopes many stringent conditions must first be in place and complied with. The present approach to environmental and engineering impact assessment done in isolation for individual hill development projects should be reviewed.

The Penang Forum calls on the Penang state government to comply with its own stated policies of prohibiting development on hill land above 76m (250 feet) and/or with a gradient greater than 25 degrees.

Special projects should be limited only to those of public interest.

We recommend that the authorities implement a holistic planning and monitoring system that takes account of cumulative impacts for the whole hill area under development.

We call for violators to be prosecuted to the full extent of the law, including jail sentences and to be blacklisted for future projects.

We call upon the authorities to require all offenders to restore the damaged hills to their original condition.

Penang Forum steering committee 11 January 2016

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Venture scheme accelerates growth of start-ups

KUALA LUMPUR: The New Entrepreneurs Foundation's (myNEF) unit Rave Ventures Sdn Bhd is looking to raise RM50 million to RM100 million in the next five to 10 years for its business coaching and mentoring programme, called Rave Accelerator.

The 12-week accelerator programme, which consists of a network of experienced entrepreneurs and industry members, hopes to provide promising start-ups with venture building and funding.

Speaking to SunBiz after organising a Rave Mentor Pitch Night a few months ago, Rave Ventures' CEO Rizal Alwani said that the accelerator had previously signed on RM800,000 and RM1 million sized funds for its first and second batch programmes respectively.

Rizal said the accelerator would connect the founders of start-ups with its wide connection of investors and venture capitals, to ensure the start-ups get the right funding for their business.

Apart from that, he said it also makes sure that the founders get proper information and knowledge on how to conduct vesting agreements by providing advice and consultation.

"Working on a 90-day venture building methodology, we engage the selected start-ups to further refine their product, presentation and execution of their business. Our goal is not only to get start-ups to the next phase of funding, but also to ensure sustainability and growth," Rizal noted.

Meanwhile, on the objective of the Mentor Pitch Night, Rizal said it is to introduce the new third batch start-ups to the experienced entrepreneurs and industry members.

"Our goal is to find the right mentors for all the eight participating start-ups, where their mentors will help to guide and accelerate their businesses further."

The start-ups consist of social matchmaking service, known as "Halal Speed Dating", sports clothing e-commerce Summersault.my, home decorations e-commerce Jiham.my, Above and Beyond Concierge Services, JomJamban Bathroom Services, Laundry on the Go Services, MyMakBidan Services and Toy Library Club (TLC) Services.

The eight start-ups were short-listed from 400 young companies, and started their acceleration programme on Sept 28, 2015.

As part of their business coaching and mentoring programme, Rave Ventures also organises what is called as Demo Days for start-ups to be showcased to local and regional investors.

Demo Days are attended by key start-up ecosystem players including big IT companies, early stage funders, influencer and government agencies.

"We are basically backed by myNEF. For the last two batches, myNEF foundation has invested about RM400,000 into the programmes. Starting this July, myNEF allocated another RM500,000 for the operation costs," Rizal said, noting that the accelerator programme is wholly funded by myNEF since it began its first batch programme in July, 2014.

MyNEF, which was formed in 1997, is a non-profit organisation established by ICT and creative industry players in partnership with the government.

By Wan Ilaika Mohd Zakaria sunbiz@thesundaily.com

Startups put through paces 
 

The programme gives startups the right pressure and motivation to succeed, says Rizal.

SPEED and focus are vital in starting a business, particularly at the start-up phase, budding entrepreneurs heard at the “RAVe Mentor Pitch Night” at the New Entrepreneurs Foundation (myNEF) headquarters in Empire Damansara, Damansara Perdana on Oct 9.

“In focused programmes such as our accelerator plan, we make them do things in three months for things which companies use a year to achieve,” said RAVe Ventures Sdn Bhd chief executive officer Rizal Alwani. RAVe is a subsidiary of myNEF.

During the event, the third batch of eight start-ups were given an opportunity to pitch their ideas to mentors and investors.

“Our entrepreneurs are not exposed to the serious level of competitiveness in the tech eco-system and are also less hungry, so in our programme we give them the right pressure and motivation to succeed,” Rizal said.

The eight start-ups, shortlisted from over 400, had to work up to 4am in the morning to achieve their respective deliverables.

“They were all given deliverables, including their three-month revenue target, and they had to find ways to achieve it, including applying guerilla marketing campaigns,” he added.

The accelerator had been running the programme since 2014.

“By the end of the three-month period, we hope they will become investible companies, be it by grants or by venture capitalists,” Rizal said.

Some of the ideas that the start-ups pitched on that night included being a tech platform for helper services including things like cleaning residential and office spaces, laundry service, post-natal care, purchase of wall furnishings. There was even an idea for a halal speed dating service.

The start-ups were given an opportunity to do a short presentation on their business model, their motivation for doing it and what had been achieved so far.

Subsequently, they were asked by mentors and investors on how they would acquire customers and the acquisition cost. Some mentors also recommended contacts to help the start-ups.

Rizal concluded that the event was to prepare the start-ups of what was to follow.

That would be Demo Day for local investors in December and subsequently in Singapore for investors from the South-East Asian region.

By Lim Wing Hooi The Star/Asia News Network

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How property prices are determined?

Factors affecting prices - It is not easy to predict trend as the property market involves all kinds of players

THE year 2015 will always be considered one of the more challenging years for the property sector, with several factors coming into play and leaving potential buyers and investors cautious.

Looking back, Jordan Lee & Jaafar executive director Yap Kian Ann says there were many factors – be it microeconomic or macroeconomic, political, social, among others, that affected the property market performance and its pricing either directly, indirectly and/or jointly.


Click for actual size:  http://clips.thestar.com.my.s3.amazonaws.com/clips/business/property-prices-chart-1912.pdf

“These factors are inter-related and influence each other. Individually, they give direct and indirect impact to the property market, property transaction volume and property prices at a different direction and degree.

“As the property market involves players (buyers and sellers) with all kinds of behaviour and is subject to a combination of factors that affect its performance at a given point in time, it is not an easy task to predict its trend and degree accurately.”

Looking ahead, property consultancy VPC Alliance (KL) Sdn Bhd managing director James Wong expects 2016 to be more subdued than this year.

Wong says most developers have launched their products aggressively in 2014.

“They knew the market this year would be soft and this softening would be carried forward to 2016. The full impact of the expiry of the developers’ interest bearing schemes (DIBS) will be felt next year.

Under DIBS, property buyers need not service the loan until the property is completed. Introduced in 2009 as an incentive, speculators purchased multiple units under DIBS because of the initial low outlay.

He expects to see softening demand in the high-rise high-end residential sector in the central region of the Klang Valley in 2016. Landed residential property demand is still resilient, especially with the gated and guarded community concept. House prices are expected to “self-correct”, he says.

Wong says foreign investors are actively monitoring residential properties in Kuala Lumpur due to weak ringgit but they remain cautious.

The increase in interest rates by the Federal Reserve after nearly a decade is also keenly watched. Already, reports are filtering out that Federal Reserve’s sway on global interest rates is causing a sharp jump in Singapore’s benchmark borrowing cost, squeezing growth in the small Asian city-state.

On a state by state basis, MIDF Research said earlier this month that Johor’s house price index showed the slowest growth year-on-year at 3%, Penang (3.5%) while Selangor fared better at 6.2%, followed by Kuala Lumpur’s 5.3%.

“We believe that the outlook for property price is better in Greater KL (Selangor and KL) due to support from the urbanisation factor.”

Citing Bank Negara statistics, the research house also noted that demand for property loans declined 13% year-on-year in October 2015 to RM25.19bil.

“This was weaker than September 2015, which declined 9% year-on-year. On a monthly sequential basis, the data was 1% lower. We are negative on the data as the number was showing nine consecutive year-on-year declines since February 2015.

“Year-to-date October 2015, loans were lower by 7% year-on-year to RM253.88bil. In our view, consumer appetite for big ticket items such as property remains low due to the rising cost of living and the weakening ringgit.”

By Eugene Mahalingam The Star/Asia News Network

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