Thursday, December 30, 2010
Loan in Malaysia: Grameen, The World's Most Generous Bank
Loan in Malaysia: Grameen, The World's Most Generous Bank: "KUALA LUMPUR, Dec 29 (Bernama) -- Who has heard the story of a bank that has loaned over USD10 billion to the poor without collateral, ye..."
Grameen, The World's Most Generous Bank
KUALA LUMPUR, Dec 29 (Bernama) -- Who has heard the story of a bank that has loaned over USD10 billion to the poor without collateral, yet has a repayment rate of over 98 percent? For those who have yet to hear the story of Grameen Bank, the world's first micro-credit organisation, is indeed an extraordinary one.
Despite defying all the rules of conventional banking, Grameen Bank has single-handedly lifted the Bangladesh poor from poverty. More amazingly, it has even reformed social development and economy not only in the country but across the world.
The man that came up with the idea is now befittingly a Nobel Laureate. Professor Dr Muhammad Yunus, founder and Managing Director of Grameen Bank, started the bank while his country was going through famine in the 1970s. And his inspiration came one morning in 1976, while he was walking past a village to the university in which he served as an economics professor.
"I encountered a poor woman who explained to me that she earned only two cents a day from making these beautiful bamboo chairs, all because she had to borrow from a loan shark. The loan shark had demanded that she sell her products to him at a price so low that she made a profit of only two cents a day".
Muhammad said at that moment, he needed to pay the loan shark only USD1 to set her free from debt and help her out from that cycle of poverty. And so he did.
The happiness and relief in the poor woman inspired him to look for other people in the village who owed the moneylender. He found 42 people who needed a total of only USD27 to pay off the loan shark, as well as to buy raw materials for their businesses. With that amount of money they managed to become debt free and at the same time sell their products to the highest bidder, thus improving their economic status.
In doing so, he found that he had helped the first woman make a profit of USD1.25 a day, instead of only two cents. Thus began a journey for Muhammad to set up Grameen Bank which breaks the cycle of "low income, low saving and low investment".
Muhammad shared the inspiringly famous history of the bank during a luncheon in Malaysia recently, while delivering a keynote address titled "Social Business and Poverty Reduction". The special luncheon was organised by Khazanah Malaysia and the Malaysian Directors Academy (Minda).
BANK FOR THE POOR
Grameen means "rural" or "village" in Bangla. Its tagline is "Bank for the Poor". It provides micro credit to the rural poor in Bangladesh, so that they may start or finance their business and keep their income growing.
Muhammad says the bank lends tiny loans of USD200 per month to about 8.3 million borrowers all over Bangladesh and are paid back in weekly instalments. Amazingly, although the bank lends out to those living below the poverty line, it manages to recoup nearly 98 percent of its loans.
The economics professor says one basic fundamental of the banks since inception is that banks should go to the people and not the other way.
"We meet all these 8.3 million borrowers at their doorsteps. They don't have to go anywhere. We meet them every week and do banking at their doorstep.
"It's a big task. But it's the only way we can get them to do banking with us, as over 97 per cent of our borrowers are women. If you ask them to come to our office, it won't happen. The men will take over, being the mobile ones. Women usually stay home trying to settle numerous tasks in care giving", he explained.
An inevitable question arises: why does Grameen Bank tend to give out loans to women? The bank's website addresses this frequently-asked-question with the following answer:
"Women in Bangladesh are neglected by society. Through the opportunity of self-employment and the access to money, Grameen Bank helps to empower women. In addition, studies have shown that the overall output of development is greater when loans are given to women instead of men, as women are more likely to use their earnings to improve their living situation and to educate their children".
BANKING FOR EDUCATION
Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the bank own 90 percent of its shares, while the remaining 10 percent is owned by the government.
While watching the success of Grameen Bank in elevating the living standards of its borrowers, another question came to Muhammad's mind: what will become of the future of their families?
It was a natural question to ask, considering that the parents are mostly illiterate. This almost guarantees the perpetuation of the traditional cycle of poverty, ill health and other social maladies that come with it.
"We decided that we must ensure the children of all these families go to school in order to break out of that cycle and move on to a different direction", he says. So that plan was then set into motion.
Then a wonderful and unexpected thing happened. The children not only went to school, but thrived and excelled in their studies. They soon found themselves going to high schools and subsequently, colleges.
"There were thousands of them, flourishing and excelling in school. We didn't at all expect this as we thought having them go to primary school was the best achievement we could hope for from these Grameen kids. But the reality turned out to be much better than we expected", he says.
But then another problem surfaced. While parents were happy that their children were progressing academically, they soon realised that the cost of tertiary education was beyond their means.
"So then we had scores of children who were academically excellent but couldn't further their education. We debated within Grameen bank on how best to ensure that they stay on, and we came up with this solution - to introduce the education loan. Now, nobody is left behind".
As a result, there are now more than 50,000 students with Grameen education loans in medical schools and engineering schools in universities across Bangladesh.
Muhammad believes that children from wealthy families are no different than the poor ones in terms of capabilities. However, opportunity-wise, there is a big difference.
"And that makes all the difference in their lives.
"If the poor children could go to the best schools in the world and compete with their best talents, they'll be as capable and as talented as everyone else."
GRAMEEN STUDENTS IN MALAYSIA
Muhammad speaks fondly of Malaysia and his relationship with Khazanah Chief Executive Officer Tan Sri Azman Mokhtar. The former has visited Malaysia many times, even before the Grameen idea took off outside of Bangladesh.
"Malaysia is almost like my second home. In fact, the first time the Grameen idea was taken outside of Bangladesh was in Malaysia, with the first application in Penang", he revealed.
In 1994, Malaysia bestowed Muhammad the Tun Abdul Razak award in recognition of his remarkable contribution to the world. Since Grameen Bank's inception in 1976, he founded 25 companies, all of which aimed at improving the living situation of the poor.
He says on hearing his sentiments on education, Azman immediately come up with idea of providing scholarships to Grameen students to study in Malaysia.
Today, Yayasan Khazanah sponsors 10 students who are children of Grameen Bank employees in select universities in Malaysia via the Khazanah Asia Scholarship. The foundation also continues to annually select five students from families that are served by the Grameen Bank to be recipients of the scholarship.
"The students that get this fantastic opportunity are from families with very low income", explains Muhammad.
He describes the programme as one that binds both Grameen and Khazanah very closely and says he is happy with the partnership.
Today, the bank is the source of ideas and models for many institutions in the field of micro-credit. But in Bangladesh, it represents a whole lot more.
"It is the future of the second generation of borrowers", says Muhammad.
"Of where they can go, and what they can be. They no longer have to go back to age-old cycle of poverty. They can now take it forward".
-- BERNAMA
Eight cooperatives suspended for failure to meet lending guidelines
KUALA LUMPUR: Cooperative Commission of Malaysia (CCM) is coming down hard on some cooperatives over the high interest rates charged on loans taken by civil servants.
Eight cooperatives have to-date been suspended temporarily for failure to comply with CCM's guidelines.
A CCM spokesperson told StarBiz that the suspension would be lifted once the cooperatives involved were able to comply with the guidelines and restructure their lending methods.
Dr Yeah Kim Leng says the impact on banks’ revenue will not likely to be sizeable.
The suspension of some of the eight cooperatives first came into effect on Dec 1.
The spokesperson said as the members of the eight cooperatives had already had their loans approved, only those that failed to comply with the guidelines in the future would not be successful in their loan applications.
CCM recently issued more directives to cooperatives and banks that contravened its guidelines, telling them to discontinue lending or make monthly salary deductions on loans taken by civil servants.
The spokesperson added that the directives were meant only for loans issued by the cooperatives on Dec 1 and Dec 15.
Currently, National Co-operatives Organisation of Malaysia (Angkasa) is the cooperative that has been mandated by the Finance Ministry to make salary deductions on loans taken by Government servants.
To date, there are 577 cooperatives involved in lending activities, of which 32 use banks for such purposes. Of the 32, eight were suspended for failure to comply with CCM guidelines.
The eight are Koperasi Bersatu Tenaga Malaysia Bhd, Koperasi Pendidikan Islam Malaysia Bhd, Koperasi Wawasan Pekerja-Pekerja Bhd, Koperasi Kobaru Bhd, Koperasi Pendidikan Usahawan Bhd, Koperasi Putri Terbilang Malaysia Bhd, Koperasi Wawasan Malaysia Bhd and Koperasi Serbaguna Pekerja-Pekerja Malaysia Bhd.
Industry observers believe the move by CCM would have minimal impact on civil servants' refinancing ability and household debt.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the move would not affect Government servants' refinancing ability.
“It will not exacerbate the current household debt level as the banks and cooperatives will have to adopt a more cautious approach now that deductions at the income source is no longer available, thus increasing the risk of delinquency,'' he said.
On the impact on banks' revenue, Yeah said it was not likely to be sizeable as the cooperative market was not large and that alternative arrangements, such as deductions from bank accounts, could still be made as long as the borrower was credit-worthy.
Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings, Anandakumar Jegarasasingam, concurred that the move was not likely to have any immediate impact on Government servants' refinancing ability.
“In the absence of direct debit for repayments, it is likely that borrowers could be tempted to stretch the time taken for repayments and perhaps, at occasions, even default on repayments.
“In the near term, the lack of direct debit facility would make collections harder for cooperatives and hence lower their appetite for such lending. Over the long term, the viability of these cooperatives' societies itself would be tested,'' he noted.
Anandakumar said the revenue impact to the banking sector was likely to be negligible as most borrowers would eventually approach the banking sector for credit facilities.
“The most significant risk for the banking sector would be loan defaults by cooperatives that borrow from the banks. However, at least in the near term, a massive bank loan default by the cooperative societies appears fairly unlikely,'' he noted.
Consumer Association of Penang president S.M. Mohamed Idris said he supported the move by CCM to disallow some cooperatives to carry out direct debit and deductions on civil servants' salaries.
“We have written to the Finance Ministry in March this year, asking for a limit on the number of salary deductions carried out by Angkasa to ensure civil servants have sufficient take-home pay to live on.
“The problem is that civil servants have too many debts as Angkasa makes salary deductions so easy. Salary deductions are only needed for the purchases of houses and cars and these are already carried out by the Public Services Department. In fact, we have asked that Angkasa be shut down as it is nothing more than a debt collector,'' Mohamed Idris added.
Federation of Malaysian Consumer Associations secretary-general Muhammad Sha'ani Abdullah said Angkasa had no right to claim monopoly over the financial standing of Government servants or cooperative members to reap profit.
“Even airlines and Bursa Malaysia have eliminated commission payment to travel agents as well as remisiers. In such a situation, any intermediary body must stop claiming to easy ride for their financial gains.
“Angkasa, as an umbrella body, should provide value-added and other services innovatively that can benefit its member cooperatives,” he noted.
Eight cooperatives have to-date been suspended temporarily for failure to comply with CCM's guidelines.
A CCM spokesperson told StarBiz that the suspension would be lifted once the cooperatives involved were able to comply with the guidelines and restructure their lending methods.
Dr Yeah Kim Leng says the impact on banks’ revenue will not likely to be sizeable.
The suspension of some of the eight cooperatives first came into effect on Dec 1.
The spokesperson said as the members of the eight cooperatives had already had their loans approved, only those that failed to comply with the guidelines in the future would not be successful in their loan applications.
CCM recently issued more directives to cooperatives and banks that contravened its guidelines, telling them to discontinue lending or make monthly salary deductions on loans taken by civil servants.
The spokesperson added that the directives were meant only for loans issued by the cooperatives on Dec 1 and Dec 15.
Currently, National Co-operatives Organisation of Malaysia (Angkasa) is the cooperative that has been mandated by the Finance Ministry to make salary deductions on loans taken by Government servants.
To date, there are 577 cooperatives involved in lending activities, of which 32 use banks for such purposes. Of the 32, eight were suspended for failure to comply with CCM guidelines.
The eight are Koperasi Bersatu Tenaga Malaysia Bhd, Koperasi Pendidikan Islam Malaysia Bhd, Koperasi Wawasan Pekerja-Pekerja Bhd, Koperasi Kobaru Bhd, Koperasi Pendidikan Usahawan Bhd, Koperasi Putri Terbilang Malaysia Bhd, Koperasi Wawasan Malaysia Bhd and Koperasi Serbaguna Pekerja-Pekerja Malaysia Bhd.
Industry observers believe the move by CCM would have minimal impact on civil servants' refinancing ability and household debt.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the move would not affect Government servants' refinancing ability.
“It will not exacerbate the current household debt level as the banks and cooperatives will have to adopt a more cautious approach now that deductions at the income source is no longer available, thus increasing the risk of delinquency,'' he said.
On the impact on banks' revenue, Yeah said it was not likely to be sizeable as the cooperative market was not large and that alternative arrangements, such as deductions from bank accounts, could still be made as long as the borrower was credit-worthy.
Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings, Anandakumar Jegarasasingam, concurred that the move was not likely to have any immediate impact on Government servants' refinancing ability.
“In the absence of direct debit for repayments, it is likely that borrowers could be tempted to stretch the time taken for repayments and perhaps, at occasions, even default on repayments.
“In the near term, the lack of direct debit facility would make collections harder for cooperatives and hence lower their appetite for such lending. Over the long term, the viability of these cooperatives' societies itself would be tested,'' he noted.
Anandakumar said the revenue impact to the banking sector was likely to be negligible as most borrowers would eventually approach the banking sector for credit facilities.
“The most significant risk for the banking sector would be loan defaults by cooperatives that borrow from the banks. However, at least in the near term, a massive bank loan default by the cooperative societies appears fairly unlikely,'' he noted.
Consumer Association of Penang president S.M. Mohamed Idris said he supported the move by CCM to disallow some cooperatives to carry out direct debit and deductions on civil servants' salaries.
“We have written to the Finance Ministry in March this year, asking for a limit on the number of salary deductions carried out by Angkasa to ensure civil servants have sufficient take-home pay to live on.
“The problem is that civil servants have too many debts as Angkasa makes salary deductions so easy. Salary deductions are only needed for the purchases of houses and cars and these are already carried out by the Public Services Department. In fact, we have asked that Angkasa be shut down as it is nothing more than a debt collector,'' Mohamed Idris added.
Federation of Malaysian Consumer Associations secretary-general Muhammad Sha'ani Abdullah said Angkasa had no right to claim monopoly over the financial standing of Government servants or cooperative members to reap profit.
“Even airlines and Bursa Malaysia have eliminated commission payment to travel agents as well as remisiers. In such a situation, any intermediary body must stop claiming to easy ride for their financial gains.
“Angkasa, as an umbrella body, should provide value-added and other services innovatively that can benefit its member cooperatives,” he noted.
Monday, December 20, 2010
Zeti: M’sia well-positioned to absorb international volatility
KUALA LUMPUR: While tensions between North and South Korea and Europe's debt crisis have a negligible impact on the Malaysian economy, it will affect the global economy; hence financial markets will be more volatile, said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
Malaysia is better able to withstand this (external volatilities) as we now have a more developed system. Our financial system is stronger, more resilient and can absorb volatility, Zeti told reporters after the listing of Islamic Development Bank's (IDB) US$3.5bil (RM11bil) trust certificate (sukuk) programme on Bursa Malaysia yesterday.
On the strength of the ringgit, Zeti said it was now depreciating against the US dollar, which was to be expected given the many global developments taking place such as the second round of quantitative easing, the debt crises in Europe and tensions between North and South Korea.
Malaysia has been well positioned to absorb this volatility compared to 10 years ago. Our financial sector is now more developed and diversified. Our financial institutions are very much stronger and resilient. Our financial markets are deeper and broader, she said.On how the loan-to-value ratio imposed by Bank Negara would impact the property market, Zeti said it was monitoring the sector.
She added that loans growth remained healthy. There is still a lot of growth in loans, 11% to 12% (in October from a year ago). That's very good growth, she said.
IDB is the first multilateral development bank to list its foreign currency sukuk programme on Bursa. The proceeds raised from IDB's sukuk programme would be used for general corporate purposes, including financing projects in IDB member countries.
We have not identified specific projects for this sukuk issuance. However it will all be developmental projects in sectors such as health, roads, airports and industrial projects. The projects depends on the economic plan of the particular country, said IDB president Dr Ahmed Mohamed Ali.
He said IDB was in expansion mode and would be going to the market to raise funds either through the sukuk programme or private placement exercise. This year, IDB has mobilised more than US$1bil for its development projects.
The global financial crisis has brought Islamic banking to new heights. Malaysia is at the forefront to create its leadership in this sector, he said.
IDB's sukuk programme is a multi-currency programme established by IDB via a special purpose vehicle, IDB Trust Services Ltd. It was given triple A ratings by Moody's,Standard & Poor's and Fitch Ratings.
Malaysia is better able to withstand this (external volatilities) as we now have a more developed system. Our financial system is stronger, more resilient and can absorb volatility, Zeti told reporters after the listing of Islamic Development Bank's (IDB) US$3.5bil (RM11bil) trust certificate (sukuk) programme on Bursa Malaysia yesterday.
On the strength of the ringgit, Zeti said it was now depreciating against the US dollar, which was to be expected given the many global developments taking place such as the second round of quantitative easing, the debt crises in Europe and tensions between North and South Korea.
Malaysia has been well positioned to absorb this volatility compared to 10 years ago. Our financial sector is now more developed and diversified. Our financial institutions are very much stronger and resilient. Our financial markets are deeper and broader, she said.On how the loan-to-value ratio imposed by Bank Negara would impact the property market, Zeti said it was monitoring the sector.
She added that loans growth remained healthy. There is still a lot of growth in loans, 11% to 12% (in October from a year ago). That's very good growth, she said.
IDB is the first multilateral development bank to list its foreign currency sukuk programme on Bursa. The proceeds raised from IDB's sukuk programme would be used for general corporate purposes, including financing projects in IDB member countries.
We have not identified specific projects for this sukuk issuance. However it will all be developmental projects in sectors such as health, roads, airports and industrial projects. The projects depends on the economic plan of the particular country, said IDB president Dr Ahmed Mohamed Ali.
He said IDB was in expansion mode and would be going to the market to raise funds either through the sukuk programme or private placement exercise. This year, IDB has mobilised more than US$1bil for its development projects.
The global financial crisis has brought Islamic banking to new heights. Malaysia is at the forefront to create its leadership in this sector, he said.
IDB's sukuk programme is a multi-currency programme established by IDB via a special purpose vehicle, IDB Trust Services Ltd. It was given triple A ratings by Moody's,Standard & Poor's and Fitch Ratings.
Education loan issue: S'gor govt blames BN predecessor
By B Nantha Kumar
SHAH ALAM: The Selangor state government has blamed its Barisan Nasional predecessor for the lack of non-Malays obtaining education loans from Yayasan Selangor.
Exco for education Halimah Ali said since 2000, more Malay students had received the loans compared to their non-Malay counterparts.
“This was because of the lack of information and publicity,” she told a press conference here.
She said Yayasan Selangor was still following the system put in place by the previous state government.
However, she said the Pakatan state government would intensify its publicity campaign on the issue, and explain the benefits of the loan to the people regardless of race.
"The state government's education loan is open to all races and there is no quota set," she added.
The exco also slammed MCA and MIC for turning the matter into a racial issue and questioned why they did not voice out when BN was running the state.
Meanwhile, Yayasan Selangor manager Anizen Ibrahim denied that the state-run boarding schools were only meant for students from national schools.
Responding to a question from a parent present at the press conference, she said students with excellent exam results, irrespective of whether from national or vernacular schools, would be admitted.
The parent had complained that her daughter, who studied in a Tamil school, was denied admission despite scoring 7As in the UPSR examination.She said a Yayasan Selangor officer had rejected the application and told her that the boarding schools were only open to students from national schools.
SHAH ALAM: The Selangor state government has blamed its Barisan Nasional predecessor for the lack of non-Malays obtaining education loans from Yayasan Selangor.
Exco for education Halimah Ali said since 2000, more Malay students had received the loans compared to their non-Malay counterparts.
“This was because of the lack of information and publicity,” she told a press conference here.
She said Yayasan Selangor was still following the system put in place by the previous state government.
However, she said the Pakatan state government would intensify its publicity campaign on the issue, and explain the benefits of the loan to the people regardless of race.
"The state government's education loan is open to all races and there is no quota set," she added.
The exco also slammed MCA and MIC for turning the matter into a racial issue and questioned why they did not voice out when BN was running the state.
Meanwhile, Yayasan Selangor manager Anizen Ibrahim denied that the state-run boarding schools were only meant for students from national schools.
Responding to a question from a parent present at the press conference, she said students with excellent exam results, irrespective of whether from national or vernacular schools, would be admitted.
The parent had complained that her daughter, who studied in a Tamil school, was denied admission despite scoring 7As in the UPSR examination.She said a Yayasan Selangor officer had rejected the application and told her that the boarding schools were only open to students from national schools.
Saturday, November 13, 2010
More signs to property bubble?
Q&A: Should we buy now or should we just wait?
Dear Azizi Ali,
I have recently just got married and wish to start a family by buying our first property. As you know, housing prices in Klang Valley are rocket high. Even if both my husband and I can afford to down for a new house or second hand, the monthly instalments will take up a big portion of our net disposable income (which puts a strain on us). We are now looking at an area known as Bukit Subang (next to Denai Alam). The price is half of Denai’s (same size). We want a house that will have reasonable appreciation as a form of future investment and for current purpose, for own stay.
However, we are receiving opinions that we should delay the purchase as the property bubble may burst. Reason being, that a lot of executives whose monthly salary is in the region of RM5,000 to RM6,000 are buying houses that are worth almost a million for investment and when it’s time to start paying the instalment, defaults will begin and foreclosure will kick in. At the same time, supply is more than genuine demand (i.e. investor demand is more than genuine purchase).
Do you think we should buy in that area? Should we buy now or should we just wait? If we do buy, do you think that it is wise to stretch ourselves (i.e. instead of buying Bukit Subang, we buy in Denai Alam?)
Advice and opinions are appreciated.
Regards,
Aquila
————–
Dear Aquila,
Firstly, congratulations on your marriage. May you and your husband live happily and prosper!
Next, I understand your concerns about the property market and they are valid concerns indeed. Prices in selected areas in KL and PJ have risen by some 50 percent in the last two years. I doubt that anyone’s income have risen by that much in the same period. As property prices have to bear some semblance to income, there is a bubble in these areas – which is my way of saying, there are pockets of bubble today.
While prices can still rise and defy gravity for a little bit longer, they cannot be sustained. And when that happens, it will come down. By how much it comes down is anyone’s guess.
Third, you are right again about the default rate. There is no way (or perhaps more correctly, little way) that anyone earning RM6,000 a month can afford to pay a mortgage costing close to RM1 million. The people who are doing this is hoping that the price will rise fast and high enough so they can sell the property before their obligations to repay the mortgage kicks in. Otherwise, they will be in serious trouble.
Actually, some people are already in trouble. I have noticed that the quantity of auction properties have increased lately. More importantly, is the quality of the properties being auctioned. While most of the properties used to be in the not-so-hot areas before, my eyes light up when I see houses even in the hot areas today. This trend will only continue in the near future.
Fourth, your thoughts of buying in a place slightly further from the CBD (central business district) areas just confirms the pockets of bubble theory. Prices in the hot areas are way too expensive, so you are looking at the cheaper and usually, further suburbs. You are not the only person thinking of doing this; tens of thousands are thinking the exact same thoughts. And it actually makes sense, “Why pay through the nose and suffer when you can buy a cheaper property elsewhere?” Yes, you have to travel a little bit further to get to work (and shop at the designer boutiques) but it is better than suffering every month paying for a monster mortgage. By the way, this happens every time prices rise to astronomical figures. I remember the same thing happening in the late-1980s when property prices in downtown San Francisco rose substantially. So, instead of paying ridiculous prices buying in downtown areas, people just rented or bought the cheaper properties in the suburbs. As a result, the downtown prices soon collapsed. By the way, in case anyone is wondering, I did not live there; I just read about it!
Now that the introduction is done, let me answer your question – finally! If you do not want to wait, buy the property in the cheaper (and further) areas. That way, you are paying a more down-to-earth figure for a property and also avoid carrying the burden on paying off a monster mortgage. A house is supposed to make you happy. I cannot see how anyone can be happy for long if the mortgage is taking 50 percent of their income every month!
On the other hand, there are also good deals in the hot areas today, in the form of ‘motivated’ sellers and auctions. Look deeper and you will find them. Finally, I’d like to share one last piece of advice – wanting to become rich is glorious; wanting to become rich next week is asking for trouble!
I wish both of you the best.
Regards,
Azizi Ali
Dear Azizi Ali,
I have recently just got married and wish to start a family by buying our first property. As you know, housing prices in Klang Valley are rocket high. Even if both my husband and I can afford to down for a new house or second hand, the monthly instalments will take up a big portion of our net disposable income (which puts a strain on us). We are now looking at an area known as Bukit Subang (next to Denai Alam). The price is half of Denai’s (same size). We want a house that will have reasonable appreciation as a form of future investment and for current purpose, for own stay.
However, we are receiving opinions that we should delay the purchase as the property bubble may burst. Reason being, that a lot of executives whose monthly salary is in the region of RM5,000 to RM6,000 are buying houses that are worth almost a million for investment and when it’s time to start paying the instalment, defaults will begin and foreclosure will kick in. At the same time, supply is more than genuine demand (i.e. investor demand is more than genuine purchase).
Do you think we should buy in that area? Should we buy now or should we just wait? If we do buy, do you think that it is wise to stretch ourselves (i.e. instead of buying Bukit Subang, we buy in Denai Alam?)
Advice and opinions are appreciated.
Regards,
Aquila
————–
Dear Aquila,
Firstly, congratulations on your marriage. May you and your husband live happily and prosper!
Next, I understand your concerns about the property market and they are valid concerns indeed. Prices in selected areas in KL and PJ have risen by some 50 percent in the last two years. I doubt that anyone’s income have risen by that much in the same period. As property prices have to bear some semblance to income, there is a bubble in these areas – which is my way of saying, there are pockets of bubble today.
While prices can still rise and defy gravity for a little bit longer, they cannot be sustained. And when that happens, it will come down. By how much it comes down is anyone’s guess.
Third, you are right again about the default rate. There is no way (or perhaps more correctly, little way) that anyone earning RM6,000 a month can afford to pay a mortgage costing close to RM1 million. The people who are doing this is hoping that the price will rise fast and high enough so they can sell the property before their obligations to repay the mortgage kicks in. Otherwise, they will be in serious trouble.
Actually, some people are already in trouble. I have noticed that the quantity of auction properties have increased lately. More importantly, is the quality of the properties being auctioned. While most of the properties used to be in the not-so-hot areas before, my eyes light up when I see houses even in the hot areas today. This trend will only continue in the near future.
Fourth, your thoughts of buying in a place slightly further from the CBD (central business district) areas just confirms the pockets of bubble theory. Prices in the hot areas are way too expensive, so you are looking at the cheaper and usually, further suburbs. You are not the only person thinking of doing this; tens of thousands are thinking the exact same thoughts. And it actually makes sense, “Why pay through the nose and suffer when you can buy a cheaper property elsewhere?” Yes, you have to travel a little bit further to get to work (and shop at the designer boutiques) but it is better than suffering every month paying for a monster mortgage. By the way, this happens every time prices rise to astronomical figures. I remember the same thing happening in the late-1980s when property prices in downtown San Francisco rose substantially. So, instead of paying ridiculous prices buying in downtown areas, people just rented or bought the cheaper properties in the suburbs. As a result, the downtown prices soon collapsed. By the way, in case anyone is wondering, I did not live there; I just read about it!
Now that the introduction is done, let me answer your question – finally! If you do not want to wait, buy the property in the cheaper (and further) areas. That way, you are paying a more down-to-earth figure for a property and also avoid carrying the burden on paying off a monster mortgage. A house is supposed to make you happy. I cannot see how anyone can be happy for long if the mortgage is taking 50 percent of their income every month!
On the other hand, there are also good deals in the hot areas today, in the form of ‘motivated’ sellers and auctions. Look deeper and you will find them. Finally, I’d like to share one last piece of advice – wanting to become rich is glorious; wanting to become rich next week is asking for trouble!
I wish both of you the best.
Regards,
Azizi Ali
Property bubble about to burst in Malaysia?
This piece of article is from The Star 13th November 2010
More restrictions to ease property bubble?
THE rising prices of houses is still one of the hot topics among average Malaysians as the threat of higher inflation is growing by the day.
The fact that Bank Negara had early this month imposed a lower loan-to-value ratio (LVR) for those taking up their third and subsequent mortgage loan shows the central bank also considers the situation quite worrying. Effective from Nov 3, house buyers who have already signed up for two mortgages and are applying for their third loan will only be eligible to get financing of up to 70% of the value of their house.
Although it is largely seen as a timely pre-emptive measure to avert unhealthy speculative activities, some quarters voiced their reservation that the measure is too mild and are asking for "stiffer" measures to rein in rising prices.
Their argument is that people who can afford the higher downpayment for their property purchases will not be affected by the lower LVR although the measure may be effective on those who need financing assistance.
The LVR should be further reduced for those applying for subsequent loans. Those applying for their fourth loan should only be granted up to 60% and fifth loan up to 50%, and so forth.
Since the LVR is now used as the basis to decide on the quantum of mortgage loan that house buyers can sign up for, some properties with "unrealistic" price tags are finding it hard to get financing unless their values are adjusted accordingly. Hopefully, this situation will make developers uphold their responsibility properly and price their project according to the fair value of the property.
Just because there is strong demand for landed houses these days, developers should not take advantage of the situation by pricing their property a few notches higher and burden buyers unnecessarily.
Like some parts of the Klang Valley, the situation is also quite apparent in Penang where basic intermediate terraced houses are being priced close to or beyond RM1mil each. With house prices shooting off the roof, banks should also play a more responsible role and should not over-push their housing loans. The "war" between banks is still evident with some banks trying to outdo their competitors by offering "aggressive" interest rates of up to 2.5% below base lending rate.
In fact, banks are still aggressively pushing their credit facilities to consumers.
Although the market situation may still seem to be under control, it is important for all stakeholders to be vigilant and take note of any fast changing signs of overheating.
Like one observer says: "Bank Negara's LVR curb is not just about the restriction per se, but more importantly it is about the SIGNAL that Bank Negara has send out, and that is, the central bank is keeping a wary eye on things and more measures could be introduced if the market does become frothy."
Hence, the psychological impact of such a move is more important in that it will remind developers, potential borrowers, and bankers to be more judicious with their actions, and that is good for the market in the long run.
Otherwise, the central bank may have to impose further tightening measures if the market heats up further.
In fact, various Asian governments are already looking to impose capital controls to curb growing risk of asset bubbles in the region, signalling that the red flag has been raised on the havoc that can be wreaked by the inflow of hot foreign money into the region.
The measures underscore concerns over the US Federal Reserve's second quantitative easing (QE2) – the printing of money to buy US$600bil long-term government bonds – amid an ‘'extended period'' of super-low interest rates to support its weak economy.
The side-effect of depressing the US dollar and keeping borrowing costs near zero will cause speculative capital inflow to Asia as investors seek higher yields in emerging markets.
Hence, the environment is highly conducive for asset prices to spiral further leading to asset bubbles. Besides the high liquidity in the system, the low interest rates and inflow of foreign funds are bound to send asset prices soaring if left unchecked. And when these hot money pulls out, it will result in financial destability and a meltdown in the assets market.
Even without the threat posed by these hot-money, governments in Singapore, China and Hong Kong have already imposed a number of restrictions to dampen the rise in property prices and curtail speculative activities in the property sector.
So it won't come as a surprise if Malaysia also have to resort to more restrictions to ensure the financial and property markets continue to be sustainable.
l Deputy news editor Angie Ng hopes industry players are aware that the average Malaysian is still not a high income earner and that they will dedicate some of their projects for well planned affordable housing projects as part of their corporate responsibility.
More restrictions to ease property bubble?
THE rising prices of houses is still one of the hot topics among average Malaysians as the threat of higher inflation is growing by the day.
The fact that Bank Negara had early this month imposed a lower loan-to-value ratio (LVR) for those taking up their third and subsequent mortgage loan shows the central bank also considers the situation quite worrying. Effective from Nov 3, house buyers who have already signed up for two mortgages and are applying for their third loan will only be eligible to get financing of up to 70% of the value of their house.
Although it is largely seen as a timely pre-emptive measure to avert unhealthy speculative activities, some quarters voiced their reservation that the measure is too mild and are asking for "stiffer" measures to rein in rising prices.
Their argument is that people who can afford the higher downpayment for their property purchases will not be affected by the lower LVR although the measure may be effective on those who need financing assistance.
The LVR should be further reduced for those applying for subsequent loans. Those applying for their fourth loan should only be granted up to 60% and fifth loan up to 50%, and so forth.
Since the LVR is now used as the basis to decide on the quantum of mortgage loan that house buyers can sign up for, some properties with "unrealistic" price tags are finding it hard to get financing unless their values are adjusted accordingly. Hopefully, this situation will make developers uphold their responsibility properly and price their project according to the fair value of the property.
Just because there is strong demand for landed houses these days, developers should not take advantage of the situation by pricing their property a few notches higher and burden buyers unnecessarily.
Like some parts of the Klang Valley, the situation is also quite apparent in Penang where basic intermediate terraced houses are being priced close to or beyond RM1mil each. With house prices shooting off the roof, banks should also play a more responsible role and should not over-push their housing loans. The "war" between banks is still evident with some banks trying to outdo their competitors by offering "aggressive" interest rates of up to 2.5% below base lending rate.
In fact, banks are still aggressively pushing their credit facilities to consumers.
Although the market situation may still seem to be under control, it is important for all stakeholders to be vigilant and take note of any fast changing signs of overheating.
Like one observer says: "Bank Negara's LVR curb is not just about the restriction per se, but more importantly it is about the SIGNAL that Bank Negara has send out, and that is, the central bank is keeping a wary eye on things and more measures could be introduced if the market does become frothy."
Hence, the psychological impact of such a move is more important in that it will remind developers, potential borrowers, and bankers to be more judicious with their actions, and that is good for the market in the long run.
Otherwise, the central bank may have to impose further tightening measures if the market heats up further.
In fact, various Asian governments are already looking to impose capital controls to curb growing risk of asset bubbles in the region, signalling that the red flag has been raised on the havoc that can be wreaked by the inflow of hot foreign money into the region.
The measures underscore concerns over the US Federal Reserve's second quantitative easing (QE2) – the printing of money to buy US$600bil long-term government bonds – amid an ‘'extended period'' of super-low interest rates to support its weak economy.
The side-effect of depressing the US dollar and keeping borrowing costs near zero will cause speculative capital inflow to Asia as investors seek higher yields in emerging markets.
Hence, the environment is highly conducive for asset prices to spiral further leading to asset bubbles. Besides the high liquidity in the system, the low interest rates and inflow of foreign funds are bound to send asset prices soaring if left unchecked. And when these hot money pulls out, it will result in financial destability and a meltdown in the assets market.
Even without the threat posed by these hot-money, governments in Singapore, China and Hong Kong have already imposed a number of restrictions to dampen the rise in property prices and curtail speculative activities in the property sector.
So it won't come as a surprise if Malaysia also have to resort to more restrictions to ensure the financial and property markets continue to be sustainable.
l Deputy news editor Angie Ng hopes industry players are aware that the average Malaysian is still not a high income earner and that they will dedicate some of their projects for well planned affordable housing projects as part of their corporate responsibility.
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