Budget 2014: Property Sector Hit Hard by RPGT and DIBS ruling

As widely expected, property sector would be one of the hardest hit sector in view of the proposed cooling measures to be imposed. Out of the 3 tightening rules forecast by Finance Malaysia, 2 already Bingo! (Read our previous articles regarding property sector "3 Tighter Rules for Property Sector?" and "3 Critical Factors to watch out by Year End")

These cooling measures announced highlighting that government will not hesitate to curb property speculations and to ensure a affordable property prices. Of course, property developers will be the one screaming painfully.

The 3 Key Measures:

1. Higher Real Property Gains Tax (RPGT)
   This was the 3rd consecutive year government raised RPGT. Even said so, it was just reinstated back to its original rates since 2007. The different this time compared to previous rounds was different set of rates to be imposed on different categories of buyers as shown below:
   
   
   
   
   
   
   
2. Banning DIBS
   As predicted by us previously, DIBS was deemed to be one of the key motivating factor for speculators, thus pushing up property prices to current level. By banning DIBS, it will effectively diminished the speculative interest as the cost of investment increase with interest payment during construction period. It's good to genuine and first-time house buyers.
   
   
3. Higher minimum Purchased Price for Foreigners
   To minimized influx of hot money shoring up local property prices, government raised the minimum purchased price to above RM1mil from RM500k per unit. However, this doesn't impact the market much because most properties purchased by foreigners are above RM1mil. Nevertheless, foreigners' favorite investment hotspot, such as Iskandar or KLCC or Mont Kiara area would be affected.

Would this be the end of property up-cycle?

3 Tighter Rules for Property Sector? (Sept 2013)

Prior to Budget 2014 (to be tabled next month), speculation has rift up on a few proposal to tighten the rules, especially on property sector. Following the outcry from public stating the alarming high property prices, measure should be taken to tackle the issue before bubble was formed.

The Bubbling Biz...

Among the measures being proposed were:

1. Non-other than Real Property Gain Tax (RPGT)
   
   
   
   
2. Higher Stamp Duty:
   ~ 5% of purchase price for 3rd property
   ~ 7.5% for 4th property
   ~ 10% for 5th property onward
   
   
3. Loan-to-Value ratio reduce to 60% for 3rd property onward
   
   

While the above info need to be ascertained further, some banks already implemented their in-house ruling. What's that? It was to limit the maximum term for refinancing of property to 10 years. Yes. Sooner or later, all of the banks will follow.

* Please note that the above 3 rules need to be ascertained further. Stay tune!

ETP update: 10 Key Achievements (Nov 2012)

Below is the 10 key achievements highlighted by CEO of Pemandu, that demonstrates the positive inroads of the ETP:

1. Projects will be implemented within the 12 focused National Key Economic Areas (NKEA) and also implement 51 Strategic Reform Initiatives (SRI) to ensure competitiveness will flourish.
   
2. Whilst Malaysia's GNI per capita was only US$6,700 in 2009, it grew dramatically by 45% in 2011. (Target is US$15,000 by 2020)
   
   
3. GDP grew by 5.3% year-to-date. This is significant, considering Singapore's growth of only 1.3% while neighboring countries recorded the following GDP growth:
• Thailand 3.0%
• South Korea 1.6%
• Taiwan 1.0%
• Hong Kong 1.3%
  
4. Economy continues to grow to reach new GDP and GNI records in 2011, with Government achieved its highest revenue in history with RM185 billion in 2011, allowing the Government to implement many programmes, including those under GTP such as BRIM1 and BRIM2.
   
5. Private investment continues to achieve robust growth. As of Sept 2012, private investment grew by 25.5% yoy, reaching a new record of RM112.2 billion.
   
   
   
6. Domestic private consumption continues healthy growth of 8.2% year to date, an evidence of growing disposable income by Malaysians.
   
7. FTSE Bursa Malaysia KLCI market capitalization scaled new historic high on 1st Nov of 1,675.69 points, with market capital Rm1.46 trillion.
   
   
   
8. Consistent delivery of fiscal deficit reduction from 6.6% of GDP in 2009, 5.6% in 2010, 4.8% in 2011 and further reductions are planned in 2013 and beyond. Debt ceiling was capped at 55% of GDP.
   
   
   
9. Recognition of Malaysia's tremendous progress by external parties such as World Bank (ranking in Doing Business), AT Kearney's FDI confidence index, IMD World Competitiveness Yearbook, WEF Global Competitiveness and CNN ranked KL as 4th best shopping cities.
   
10. Achievements against the KPI were at 123% in 2011 and 94% this year

Source: etp.pemandu.gov.my (summarized by Finance Malaysia blog for ease of reading)

What is US "Fiscal Cliff" actually?

When everyone thought that US and the world will be better if Obama won his presidential re-election again, world equities markets today declines with US being the most serious market by dropping more than 2%. What's the reason? Answer: Fiscal Cliff ?

Hmmm... Then, what is fiscal cliff actually which many of us on the street do not even heard about this new term before. No worry, Finance Malaysia blog did his homework over here. Share this out if you like.

Understanding Fiscal Cliff...

The US fiscal cliff refers to the effect of a series of enacted legislation which, if unchanged, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit. With Obama retaining the presidency, it sends the signal that it's US government policies will pretty much stay the same as previous 4 years. Ben Bernanke will stay as Fed chairman, which also meaning that the open-ended liquidity and bond buying programs will continue, fueling risk taking appetite of equity and fixed income markets for the foreseeable future.

Budget deficits, projected through 2022. The "CBO Baseline" shows the effects of the fiscal cliff under current law. The "Alternative Scenario" represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.

However, Obama has to resume his duties in a very likely divided congress, with Republicans controlling the House and Democrats controlling the Senate. With this political deadlock and the looming "Fiscal Cliff", that's the reason why US market sink this morning.

Good or Bad?

If you understand it, the so called "Fiscal Cliff" is not something bad, in which its purpose is to reduce budget deficit of US. What investors worried was the measures being taken will slow the already slow growth rate of US economy, subsequently the world economies including Asia. But, without the intention of reducing budget deficit of US, would you be more confident? Of course NOT, because US would never able to not walk out from the brushes. Right?

By now, you should be able to understand the term. Meanwhile, some analysts have argued that "fiscal slope" or "fiscal hill" would be more appropriate because while the cumulative economic effect over all would be substantial, it would not be felt immediately but rather gradually as the weeks and months went by. Hahaha...

Can Malaysia Trust 'Mat Rempit'?

First of all, Happy Merdeka to all Malaysians. Yup, we love peace and prosperity as mentioned by our beloved prime minister. 55th years of independence would not come true without unity of people from various races. No doubt, we Malaysians are from various background. Yet, we have come together, good or bad, to shape our nation until what we already achieve today. Anyway, Finance Malaysia hopes our nation can transform itself by realizing the 2020 vision "Developed Nation".

Just when everyone was celebrating today, I came across one news titled "Mat Rempit to help fight crime" and my writing instinct once again being activated. Fighting crime by collaborating with Mat Rempit? This is the first reaction I believed many readers would asked!!!

Don't we know that Mat Rempit were those who rides their motorcycle dangerously?

Don't we know that Mat Rempit were those riders that endangered the life of other road users?

And, I really don't know how and why our government came out this "think-out-of-the-box" idea!!!

Two Immediate Side Effects

Okay. We try to be neutral now. Maybe Mat Rempit really can help us to fight crime, and maybe they got "lubang" to detect crime, we have come out with these few immediate side effects once launched.

1. Privileged. They got these special privilege to join police personnel. How about other "gang"? Are we accepting them in our society as a good rempit?
2. Pride. Exactly, don't you think that being a Mat Rempit in Malaysia was so "cool"? This was like a statement to recruit more people to join them rempits everywhere. I'm not sure how effective they can in fighting crime, but what i'm sure of is this would attract more youngsters to rempit.

If they are really good, why in the first place become a rempit? Why don't they join our police personnel to formally fight crime? And the last point was this idea was first mooted by one political party to engage with mat rempits. And now this was mooted by Home ministry, in other words Malaysia Government. Hey dude, how did foreigners look at Malaysia on this matter? Positively or negatively? I think majority of Malaysians have the unpleasant answer...

Previously

Nowadays

What's wrong with Malaysia in terms of GDP per Capita? (2012)

Addressing the issue, which Finance Malaysia thinks was critical at a time of globalization heats up, Malaysia needs to formulate and take action immediately without much hesitation. But, before we jump into action, we need to know the root of the problem. Right?

Exactly, we must find out the reason why we left behind other countries in terms of GDP per capita, which refers to the country's gross domestic products at purchasing power parity (PPP) per capita. According to Wikipedia, it was the value of all final goods and services produced within a country in a given year divided by the average population for the same year.

Why not using nominal GDP to measure national wealth?

Comparison of national wealth are also frequently made on the basis of nominal GDP, which does not reflect differences in the cost of living. Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income.

Singapore is now the richest country in the world.
Where is Malaysia?

According to sources, some of the factors contributing to Singapore's forecast performance are its 'human capital' -- a skilled and educated labour force, the dynamic business environment, openness to trade, capital mobility and foreign direct investment. Also, it is worth noting that there is a global eastwards shift in economic activity -- Singapore is perfectly positioned to take advantage of this.

However, everything is not going well for Malaysia, although we are Singapore's closest neighbour. In terms of GDP, we moving nowhere for past few years amid competitive global environment. But, in terms of population, we believe we accelerated for past one year after government legalized some 1.6million foreign unskilled labourers. Please noted that they are non-taxpayers who consume all the benefits funded by us Tax payers.

On the other side, our brightest and brilliant are forced to mass migrate to other countries. This is a fact which is dampening the future of our country. It's sad because Malaysia supposedly was high on the list in terms of GDP per capita, given the plenty of natural resources that we had and strategic position we located in. Why?

The main reason lies within us, Malaysians. Don't blame the government. Don't blame other countries. Don't blame the statistic. Just blame ourself, Malaysians. A government was formed by its own people, and elected by us. All the while, we have this wrong mentality that we are blessed with valuable resources which can last us for a long long time. Does that mean that we do not need to compete?

Facebooking is a new norm in workplace now.

If you were to ask, Finance Malaysia would take the blame on our mindset, especially youngsters nowadays. Most of them didn't bother about the country and their future. These people go to work for the sake of working only. They follow instructions, without reinventing the way we work. How are we going to excel? Don't even think about competing. It's about time to change for a better tomorrow.

Impact of minimum wage policy from an economics perspective

Continue from previous post on "New Minimum Wage Policy", here we analyze the impact from an economics perspective. Many people said the new policy will jack-up the inflation figures due to higher production costs. Subsequently, it will dampen the GDP growth numbers. Is it true?

The impact on inflation and GDP growth is ambiguous. Setting a minimum wage would boost wages and consumption for workers who remain employed (likely to be the more productive workers, working in companies that have higher profit margin), but would hurt the profitability of businesses that are labor intensive and could potentially lead to higher unemployment rate.

The impact on growth will likely be a net negative in the short-run as it might result in raised cost without an increase in productivity. In the long-run, this policy may bring about a positive impact if it succeeds in encouraging workers to upgrade their skills or for companies to invest more capital to boost productivity.

From an economic standpoint, the minimum wage policy is not the best way to help the lower income households. A gradual phase-in of the minimum wage should help reduce some of the negative impact.

Unless the introduction of the minimum wage policy leads to a widespread upward adjustment in wages, there shouldn't be a significant impact on inflation.

Some SMEs claim that a minimum wage would bankrupt small firms which rely on cheap labor, from Indonesia, Myanmar and Bangladesh. The Malaysian Federation of Employers, whose members collectively hire 2 million workers, said it wants an exemption for the smallest employers and for the policy to be implemented over several years. Ex-PM Mahathir Mohd, who is very influential in the political scene, is also against the minimum wage policy as he believes that it would hurt Malaysia’s competitiveness, especially during economic challenging times.

Source: Credit Suissue report dated 19th March 2012

Minimum Wage Policy: Pain for SMEs?

Malaysia Prime Minister promised that there will be an important announcement on 1 May 2012 (Labor Day). Without much thought, it's very obvious that it was closely related to "Minimum Wage Policy" which already echoed by Government to win the heart of public. However, it receives much objections from private sectors, especially small-and-medium enterprises (SME) claiming that the new policy would impact on their balance sheets drastically. Really?

Impact of a minimum wage policy

As pressure mounts on the government to ensure that private sector workers in Malaysia earn salaries above the poverty level of RM760, Malaysia could set the minimum wage at RM900 for Peninsular Malaysia and RM800 for East Malaysia. According to World Bank, Malaysia's wages have risen by a CAGR of 2.6% over the past 10 years, while inflation has risen at a higher pace of 3.0-3.5%.

Source: Department of Statistics, Malaysia

Who is the BIG winner?

The new policy would benefit some 3.2million workers or about 1/4 of Malaysia's workforce. It was believe that foreign workers would also enjoy a minimum wage salary. Obviously, foreign workers could be the biggest beneficiaries, as they are the most likely group of workers who are currently paid below the proposed minimum wage levels.

Which Sectors could be the Worst hit?

According to MIER, the sectors which have the highest percentage of workers in the lower income bracket are listed below. This is no surprise as these industries have the highest proportion of foreign labor.

• Manufacturing (e.g. glove, food, wood-related and electronics)
• Retail (e.g. department stores and supermarkets)
• Hotel, F&B (e.g. restaurants, hawker centers and small eateries)
• Security and Landscape
• Agriculture including plantations, aquaculture and fishing industries

However, it was understand that the MNCs such as Nestle, AEON, Guinness and Carlsberg are already paying their general workers above the minimum wage levels. Meanwhile, local SMEs or manufacturing entities which rely heavily on foreign workers would be worst hit, such as Top Glove, Supermax and The Store, especially if they do not have pricing power to pass on the increased wage cost to their buyers. But, the graph below shows that Top Glove and Supermax may not be badly hit as mentioned above, due to its low weightage of cost on labor.

How about Palm Oil sector?

Luckily, the palm oil industry which rely heavily on foreign workers (1/3 of field workers), had already adjusted the salaries of their workers in 2011. So, it may not be as badly hit as the other sectors.

Next post, we look at the impact of the policy from an economies perspective. Stay tune.
Share this out if you felt that the info here is good for Malaysians. Thanks for your support.

Source: Credit Suisse, TA Research, Bloomberg, MIER

Should Government Abolish PTPTN Loans?

Once again, PTPTN (Malaysia National Higher Education Loan) came to the limelight lately with the wrong reasons. In conjunction with this, Finance Malaysia did a survey on Facebook Page asking our fans "Should Government Abolish PTPTN Loans?", and guess the answer given by majority of them? NO.

Emmm... What does this mean? It's pretty clear that majority of us thinks that PTPTN should be continue for the following reasons:

1. There is no FREE lunch in this world
2. Borrowers should repay what he borrows
3. The scheme did already help many financially distressed students pursuing tertiary education

Thanks for your participation in the survey. Yet, many readers keep asking Finance Malaysia, our view on this matter. Before answering you, we also highlighted that this blog is of freedom of speech, we're not political driven blog, and we tend to be political-neutral in writing. Below is our view on this issue:

1. We agreed that there is no free lunch, especially in Malaysia. We should change our mentality that Government owe us this and that things. We must put in our own efforts to make things happen, and Government's role is to facilitate the process to become easier and smoother. This is why PTPTN loan was offered at the beginning.
   
   
2. Regarding the interest rate charged, it's a mere 3% only. Does it really sky high? Definitely not. Why PTPTN charged 3%? This was because our inflation rate is around that figure. If you take last year inflation rate of 3.5% into calculation, PTPTN are making losses actually, although we repay back with 3% interest rate.
   
   
3. Without interest, anyone of us who qualify to go into varsities will take PTPTN loan, whether he/she is serious in his/her study or not. Why not borrow the money to spend, instead of study, if given free?
   
   
4. Without interest, what is the incentive for student to repay back the borrow amount as soon as possible? Without interest, I will be the one who use whatever money I have now to invest, do business, buy gadgets... last is PTPTN. Agree?
   
   
5. We believe this is one of the agenda purposely created by certain political parties to fish young voters, saying that they will abolish and cleared their outstanding PTPTN loan once they formed the new Government. (Please be neutral on this matter, then only think)
   
   
6. By writing-off the outstanding PTPTN loans amounting to billions of ringgit, Malaysia sure will went into financially distressed level. Then, all of the subsidies will be removed, public sector salary will be cut, all of us will protest because of this. Do you really want this to happen?
   
   

Anyway, this is one of the interesting preview running up to the anticipated general election. Finance Malaysia hopes that political parties from both sides should focus on things that really can benefiting the country. What's the point to form a new Government that will go into bankruptcy?

Before ending this posts, we must highlighted here that Government must clear the doubts by sorting it out fast. If not, many borrowers will wait and stop repayment in anticipating that Government will abolish it soon.

Another point was we lauded PTPTN's intention to reward those prompt and disciplined borrowers with a reduced 1% interest rate. However, why not PTPTN automatically reducing it without much hassle for borrowers to appeal? Now, borrowers must request > wait for revised terms and conditions agreement > print and sign > guarantors signatures > employers details > auto-deductions from salary > return back to PTPTN. Since these are eligible good paymasters, why not treati them automatically?

CIMB: Domestic Drivers to steady the ship in 2012

CIMB research remain cautious on Malaysia's growth outlook for 2012 as several factors will put the brakes on growth - slower export growth due to the fragile western economies as well as slower consumption and investment growth due to heightened uncertainty and volatile financial markets. The implementation of ETP and stimulus measures cannot take up all the slack left by weak exports.

Slowing growth, rising risks

We expect GDP growth to slow to 3.8% in 2012 from an estimated 5% in 2011. The factors that shape the prognosis are:

1. continuing weak global growth, pressured by volatile financial markets and Europe's sovereign debt worries;
2. a downturn in Malaysia's export cycle;
3. an expected slowing of consumption and investment due to worries over economic conditions

What to expect in 2012?

While not forecasting a global recession, a combination of fiscal tightening and a potential bigger financial shock from the debt crisis are expected to result in weaker global growth in 2012.

1. Limited growth for the US economy. Its recovery is fragile and could succumb to any big external shocks, especially from Europe. This could lead to a double-dip recession. The sluggish recovery of the labor market as well as housing deflation will dampen household spending.
2. The Eurozone is already in recession in 4Q11 and this will persist in 2012 as the persistent sovereign debt worries, volatility in financial markets and fiscal austerity will weigh significantly on growth. These braking factors will certainly raise the risk of more severe deleveraging, credit contraction and economic drag as the negative feedback loop between the banking system and the real economy becomes entrenched.
3. China and India to continue growing, albeit at a slower pace due to the laggard impact of monetary tightening measures as well as a less favourable external environment. There are still fears of a hard landing for China.

Domestic demand cushions against weaker exports

With the export engine throwing a spanner in the works, the pressure is on domestic demand to keep the economy going, underpinned by both private spending and public investment. The key drivers of consumer spending are stable income and favorable employment prospects. But concerns over weaker growth prospects and volatile stock markets will bite into discretionary spending. Also, global uncertainties will throw a damper over the investment activity.

Macroeconomic policies: What to expect?

For 2012, the government is not straying from its path of fiscal sustainability as it targets to bring down the budget deficit from 5.4% of GDP in 2011 to 4.7%. The high level of debt constrains the government's ability to take on additional risk on its balance sheet. If the country does not commit to a credible fiscal reduction plan, it runs the risk of a downgrade of its credit rating in the event of a major change that pushes the fiscal deficit off track.

Monetary policy will continue to support activity

There is still a risk of food inflation. For 2012, inflation was expected to moderate to estimated 2.2% due to:

1. weaker economic growth;
2. easing commodity prices;
3. a high base due to the fuel and sugar price hikes in 1H11

Persistent growth concerns, both global and domestic, coupled with expectations of easing inflationary pressures will enable the central bank to maintain an accomodative monetary policy. The tone of its policy statement on 11 Nov 11 suggests that growth is more of a worry than inflation, signalling the central bank's readiness to reverse its monetary course if domestic conditions deteriorate. An early rate cut in 1Q12 is still a possibility and end-2012 OPR to be targeted at 2.50-2.75% (3% at end-2011).

Source: CIMB Research