How to protect your sole proprietorship

  

How to protect your sole proprietorship ...

While your business may be thriving under your sole proprietorship, it is important to realise the consequences of having a business ownership tied to you individually, and how it may impact your family in the eventuality of your death. 

THERE are many ways in which middle-income Malaysians make their money; the most common is through a sole proprietorship business, which forms a major part of the business owner’s overall wealth value.

There are many upsides to owning a sole proprietorship – it is fairly easy to set up, the startup costs are low, you have full control over the business as you’re the sole boss and, of course, the main draw is that you keep all the profits you make.

However, a sole proprietorship also has its disadvantages. One of the major disadvantages is that there is no distinction between your private assets and business assets.

As such, there is unlimited liability for debts, which has a potential to eat into your personal wealth should you not take measures to manage your business well.

An aspect commonly overlooked is the need to protect or preserve the business value and continuity should something happen to the owner.

Therefore, while setting up a business may be a positive step to take to help bolster one’s income, there’s also the stark reality every sole proprietor would eventually face – their business will also be terminated should any unforeseen circumstances happen to the owner.

This can be especially daunting for the families of the sole proprietor, who may face immense difficulty in managing their finance and preventing the families’ wealth from being affected after the death.

The case of Leong

Let’s take the example of Leong, a sole proprietor of a successful accounting practice in Puchong with 15 non-professional staff.

Leong’s business was doing so well that even with overhead costs of RM80,000 a month, he could easily draw RM45,000 per month from his practice.

Due to his lucrative business, Leong’s wife stopped working to spend more quality time with their children. One day, Leong met a fatal road accident and passed away. And with his sudden death, came a financial crisis to his family.

Clients who were once close acquaintances of Leong’s practice switched to competitors who offered the same services. Leong’s wife, not a qualified accountant, was unable to pick up her late husband’s business to continue offering these services.

Eventually, the business was forced to wind down as the dwindling income was not able to pay off the company’s overheads.

Since Leong was the sole breadwinner for the family, having no business income meant having no income for the family to survive off. His personal savings was only able to last the family 11 more months without any further influx of income.

As grim as this recollection sounds, it actually happens a lot more often than one might guess.

The question is – how do we avoid such situations for ourselves and our families? What could Leong have done to avoid this financial tragedy befalling his family?

First, let’s see some of the options that are available to Leong’s wife in such a circumstance.

> Liquidation of business by estate administrator.

Unless authorised by the will or court order, the administrator or executor must wind up and liquidate the business as soon as possible. Forced liquidation usually results in severe loss of business value, sometimes ranging as much as 40% to 90%.

> The estate administrator or executor continues the business until it can be sold as going concern.

In this alternative, the sole proprietor’s will gives the power to the administrator or executor to continue the business and exempt him from personal liabilities for the appropriate actions taken during this period.

However, the administrator or executor may still be liable for any losses caused by his or her negligence or imprudence.

Inexperienced administrator

The risk here is that, the administrator or executor may not be experienced or familiar enough to run the business operation.

Secondly, after settling the outstanding estate liabilities, administration expense and taxes, the administrator or executor may not have sufficient working capital to continue the business.

> The heirs inherit the business through a will.

In the sole proprietor’s will, the business can be transferred to the heirs as a gift. However, the heirs may not have sufficient knowledge or ability to run the business profitably.

If they are not successful in running the business, there’s the risk of dissipating their other estate inheritance in order to save the business. As such, the business gift may turn out to be a liability rather than an asset for the heirs.

> Sale of the business through as agreement prior to the death of the sole proprietor.

Before his death, the sole proprietor may offer the sale of his business to his employee or an interested outsider.

Under this alternative, the potential buyer enters into a contractual agreement with the sole proprietor so that the sole proprietor binds his estate to sell and the buyer to buy the business at an agreed price.

Now let’s take a look at some actions that sole proprietors can do while they are living to ensure that their surviving family members are not put into a tough position financially.

> Get a proper business valuation assessment as part of your estate planning.

As sole proprietorship is the trickiest to sell, it is important to have a licensed financial planner to help assess the business value.

He or she would be able to highlight the probable shrinkage in its value under different circumstances, and prevent the sole proprietor from overvaluing their business and thus under preparing the cashflow needed upon death.

Power to executor

> Give the executor of your will the decision-making power to continue or sell the business.

Without this instruction, the executor is bound by law to protect the assets in the estate, and thus may default to winding up the business as soon as possible, which could result in losses.

If the heirs are interested to continue the business, owners of the sole proprietorship may want to instruct the executor to transfer the business to them.

> Seek out a buy-sell agreement with friends or network in the field.

For some professional practices like accountant, doctors, land surveyors, architects, consulting engineers and others, a good practice would be for the sole proprietor to reach out to friends or network in the same field to enter into a buy-sell agreement as an alternative.

Such an agreement will ensure that the surviving professional will purchase over the practices from the deceased’s estate.

An agreement like this would not only help one, but both sole proprietors to ensure the continuity of the business in the event of one of the owner’s demise.

> Identify key employees who can succeed the business.

Depending on the nature of your business, you may want to invest some effort into identifying a potential successor and prepare them to take over the business one day.

Involve any prospective successor in the day-to-day operations to give him or her more experience. You could also consider entering into a buy-sell agreement with the potential successor to buy your business in the event of your death.

> Protect your family with life insurance.

This solution acts as a buffer to provide a safety net to your family. Protecting your family with life insurance while you’re still alive could help bolster losses incurred from a forced wind up of the business.

Forced liquidation

In some cases, the forced liquidation could result in liabilities in excess, of which the life insurance coverage will be able to compensate the business value loss.

In the case that your business does not go through a force winding up, the life insurance claim proceeds will buy your family time to transition through settling your estate, learning the ropes of your business, and/or provide your family accessible working capital during the transition period of settling your estate.

In the case of entering a buy-sell agreement with an interested buyer, he or she can consider purchasing life insurance on the life of the sole proprietor.

This may sound crude and calculated but when the time comes, it can provide additional funds needed for the purchase of the business.

While your business may be thriving under your sole proprietorship, it is important to realise the consequences of having a business ownership tied to you individually, and how it may impact your family in the eventuality of your death.

If you are a sole proprietor, I invite you to evaluate your risks while things are going well with your business. The best way to do this is to employ the expertise of a licensed financial planner.

The licensed financial planner would be able to help identify the pros and cons of each alternative to your business and incorporate your intended wishes into your comprehensive financial planning.

Yap Ming Hui is a licensed financial planner. The views expressed here are the writer’s own. Any reliance you place on the information shared  is therefore strictly at your own risk.

The Star - StarBiz By YAP MING HUI 

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How to Protect Assets in a Sole Proprietorship

 https://smallbusiness.chron.com/protect-assets-sole-proprietorship-10492.html

 

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The fund flow conundrum

 

THE FBM KLCI closed above 1,600 points this week for the first time in five months since March 23, 2021.

It has been six consecutive days that our index continued to scale impressively. The index was single-handedly lifted due to the foreign funds flowing back into Bursa Malaysia with limited support by local institutions and retail investors, who have been net sellers.

Interestingly, this coincided with the resolution of the political impasse in our country with the eventual appointment of Datuk Seri Ismail Sabri as the new Prime Minister, the third in three years.

As of end-July 2021, foreign participation in terms of market capitalisation in our local equity market was at a record low of 20.2%.

After 25 months of a consecutive selloff by foreign funds of Malaysian equities, is this the inflection point that stock market investors have been fervently looking forward to?

There are many layers of questions to this overarching theme, but in my view, the most important would be the need to understand what investors want.

Investors ultimately want returns. So if they were to invest in our local stock market, they hope to be able to get the returns, as otherwise, they might as well invest elsewhere.

Malaysia’s weightage on global indexes has shrunk since its peak pre-1997/98 Asian Financial Crisis.

A simple gauge would be the MSCI Emerging Markets Index, where the FBM KLCI’s weightage has been declining from 19.94% in 1994 to 1.36% as at Aug 30, 2021 as shown in the pie chart (see chart).

This simply means how insignificant the Malaysian stock market has become in the eyes of global investors.

There is also a direct correlation to the performance of the companies in our local index.

Could it be that our listed companies are either undervalued or underperforming to regional peers, especially in the context of emerging markets?

There is no absolute answer to this as it is at times, a chicken-and-egg issue. Which one actually comes first?

Without foreign fund flows, the valuation of listed companies will remain low, as the market participants would be limited, resulting in a constrained money supply in the local bourse.

Conversely, it is true as well. Why should foreign funds invest in our local stock market and listed companies if the valuation versus their growth trajectory or earnings is not in tandem?

A good example would be Singapore. The Singapore Exchange (SGX) for the past 10 years has suffered a wave of delistings.

In 2010, there were 783 listed companies on the SGX. As at end-2020, there were only 715 listed companies remaining.

The peak of the Straits Times Index (STI) was 3,575 points and it has been on a downtrend ever since. Due to the country’s Covid-19 resilience, the STI started picking up ahead of regional peers towards the end of 2020 and reached 3,087 points as of Wednesday.

The predicament that Singapore went through is rather perplexing as any investor who has scoured the SGX would realise the companies are mostly undervalued not only in terms of valuation but also yields.

If we were to compare Singapore’s listed companies today, they are still undervalued comparatively to our local companies.

The blue-chip tech, banking and utilities companies in terms of valuation are on average more attractive than those listed on Bursa.

In the midst of this earnings season, looking at the reports, apart from the commodities sector, blue chips and select consumer/FMCG companies which were exemplary, others showed improvement but it is still far from recovery.

On face value, many did well if we take into consideration that the same quarter last year was the worst quarter for most companies as they had felt the full impact of MCO 1.0.

Bigger pull: The bull and bear fronting the Bursa Malaysia building. The local bourse needs more companies which can command a dominating position in the global market.

Whether our local stock market can remain competitive and capture the interest of foreign funds rely on many factors, among which are:

> the ease of entry and exit (access),

> low barriers of entry (cost),

> economic growth prospects (potential),

> political stability (certainty),

> unique value proposition (world-class companies only available in Malaysia), and

> favourable tax regimes (policies).

With all these factors in play and every market in the world vying for the same pool of funds, there must be a unique proposition for our local stock market.

Of course, the vibrancy of the local stock market would also require emphasis placed on local retail investors apart from our local institutions (mostly the sovereign, pension and government linked funds) which act as the anchor.

Only with that, Malaysia can break away from the usual stigma of “small population, limited growth trajectory”.

A good place to start would be the reform on market policies to be more investor-friendly.

However, the game changer would be favourable policies which can nurture, support and grow industries or SMEs such that they would be able to become world-class companies someday yet continue to list on Bursa.

The United States and Hong Kong markets are able to attract global investors’ interest primarily due to the unique companies which are listed on their bourse such as Amazon, Netflix, Tencent, JD.com, Google among many others.

Our own stock market need such companies to attract foreign funds and sustain their interest.

Bursa does have some good names which are not readily available elsewhere in the world such as those in the technology semiconductor space, glove sector, palm oil sector and plastics packaging sector.

We need more companies that either command dominating position in the global market share within their sector or trailblazers that move the country towards the preferred sectors.

This would be more sustainable to ensure foreign funds investing in our markets is not solely because our listed companies are undervalued but rather for the companies’ unique position itself.

In my humble view, a two pronged approach of encouraging good companies and getting them to list locally can address this predicament.

As an example, the precursor would be favourable policies accorded to foreign direct investment entities should also be given to local home-grown companies which meets the criteria, be it tax incentives or cheap land and so on.

Once the companies grows to a healthy size, to encourage them to list on Bursa, lower listing fees, ease of listing requirements or tax breaks for cornerstone investors or funds investing in home-grown companies listing on Bursa would go a long way.

That way, investors around the world who want a piece of these companies would have little alternative but to invest in our local stock market.

The fund flow conundrum of our local stock market will then eventually see some light at the end of the tunnel.

 

Ng Zhu Hann

 
Hann, is the author of Once Upon A Time In Bursa. He is a lawyer & former Chief Strategist of a Fortune 500 Corporation.

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Why should investors get out of the stock market?

 

 

Learn to invest in stocks properly

Why should investors get out of the stock market?

 

3 influential factors that can make or break your stock market investment

My sole intention for writing this piece is to prevent investors from losing more money in the stock market.

Allow me to tell you briefly my back ground so that you can accept my advice to ask you to cash out from the stock market.

Dato Yap Lim Sen, my collegemate and I were the original founders of Mudajaya, Gamuda, IJM, IGB, Rubberex, MBM Resources, major controlling shareholder of Perodua Cars.

I have been investing in the stock market for more than 50 years. This is the first time I have practically sold all my stocks holdings and cashed out.

When you buy a stock, you hope to gain from share price increase and also dividend yield. In Malaysia all listed companies give out very small dividend. On record, Public Bank gives out the best dividend yield of about 5% per year. So, unless the stock price goes up, investors cannot make money.

What pushes the share up?

Among all the stock selection criteria such as account balance sheet, cash flow, NTA, no debt or cash rich etc, profit growth prospect is the most powerful catalyst to push up share price. Never buy any stock that has no profit growth prospect.

Why investors must believe in price chart?

Price chart cannot lie because it is a record of the daily trading. Down trend means there are more sellers than buyers in most days. Never buy a down trending stock.

A stock price can only go up if the company has reported increased profit. But if it reports reduced profit, its share price would drop because there would be more smart sellers than stupid buyers.

In the last 6 months, almost all the listed share prices have been dropping as shown on the KLCI Chart below. Why?

 

There are 2 main reasons for the listed companies’ share prices to drop.

1 Covid 19 pandemic

Covid 19 pandemic frequent lockdown restricts people’s movement and all listed companies’ business operation. Workers cannot go to work and business activities are reduced. As a result, almost all listed companies cannot report increased profit in the next few quarters until Covid 19 pandemic is fully under control. Many medical experts predicted that the pandemic will not be under control for at least 1 or more years. That simply means our stock market will be depressed for at least 1 or more years. The above KLCI chart shows that it has been dropping for the last 6 months and it will continue to drop for another 1 or more years.

2 Political Uncertainty

Investors do not like political uncertainty. In the last general election about 2 years ago, Pakatan Harapan won the right to form the Government and Dr Mahathir became the Prime Minister. Within a couple of months, he resigned suddenly and Muhyiddin became the PM by the back door. Currently he is seriously terminally ill with cancer in KL Hospital. Apparently, he has pancreatic cancer.

Who will be the next PM?

As you know, Politicians make rules and regulations which often affect business operation and their balance sheets which is creating more difficulties in making investment decisions.

That is why many investors especially foreign institutional investors are constant net sellers and some of them have already left the stock market. 

Yesterday I posted my article namely “A safe strategy during the pandemic” in which I said the Covid 19 pandemic lockdown is affecting everybody’s movement. Workers cannot to go to work and all business operation will naturally slow down. Almost all the listed companies will not be able to report increased profit in the next few quarters until the Covid 19 pandemic is fully under control which will take at least 1 or more years.

For example:

All the steel products manufacturers have reported increased profit in their latest quarter due to the steel price increase. Currently, due to Covid 19 pandemic lockdown, workers cannot go to work to make steel products and construction workers also cannot go to work. Contractors will not require to buy steel products. As a result, all the steel products makers will report reduced profit in the next few quarters. Many smart investors already could foresee this situation. That is why Leon Fuat, the most profitable steel company price chart is showing down trend as you can see below.

 

Leon Fuat’s last traded price is 99 sen and its latest EPS for quarter ending March 2021 was 11.65 sen. Even if I assume its EPS for the next 3 quarters is the same as 11.65 sen, its annual EPS will be 46.6 sen. Leon Fuat is selling at PE 2.

Other Industries also suffer the same fate

In fact, almost all other industries also suffer the same fate as steel companies. For example, Supermax and Top Glove have to close down a few times because the government authorities found Covid 19 cases in their factories.

Supermax price chart below:

 

Investors must always remember price chart is the more important investment consideration than financial analysis. Down trend price chart means there are more smart sellers than stupid buyers.

Statistics shows that in the stock market, there are about 70 % of investors lose money, 10% of investors break even and only 20% of investors are real winners. But under the current condition all investors including myself are losing money.

All investors must examine their track record to their performance. Even if they have been winners, they should sell all their holdings as soon as possible before they lose more money and get out of the stock market completely.

My mistake

I must admit my mistake in recommending Leon Fuat recently because I did not foresee earlier how Covid 19 lockdown and our political uncertainty can cause serious damage to the stock prices. That is why I sold practically all my stock holdings and cashed out of the stock market.

A best strategy during the pandemic for all investors is to cash out because all listed companies will not be able to report increased profit in the next quarters..

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More articles on Koon Yew Yin's Blog >>

• A safe strategy during pandemic - Koon Yew Yin - Jul 10, 2021
• What is the fastest way for Malaysia to stop Covid-19? Koon Yew Yin - Jul 10, 2021
• What do women really want? Koon Yew Yin - Jul 07, 2021
• Glove supply exceeds demand - Koon Yew Yin - Jul 06, 2021
• Leon Fuat is best steel stock to buy? Koon Yew Yin - Jul 05, 2021
• I had heart bypass surgery in 1983 and how pineapple prolongs my life - Koon Yew Yin - Jul

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Invest early for your golden years

Many procrastinate on starting a retirement fund thinking there is still a long way to go to retirement age. However, they fail to realise the effects of inflation on their retirement funds. To ensure you have enough time to build a stress-free retirement, here are some reasons you should start saving while you are young.

• Financial independence – As the saying goes, “Sikit-sikit lama-lama jadi bukit.” When it comes to investing your savings, the earlier you start, the greater the accumulated returns on your original investment thanks to compound yield. By investing consistently and regularly, you will be able to secure yourself a comfortable retirement without having to depend on others. Work towards accumulating enough to cover the cost of your basic necessities, lifestyle expenses and occasional splurge on luxuries.

• Saving is a good habit to develop – If you start saving for your future from a younger age, you will find that it becomes second nature. It will be easier to put aside some money for retirement. It helps to start with small amounts, especially for young adults who are just entering the workforce, so it is not as overwhelming. How you manage your paycheck will determine how you save for the rest of your earning years. A person who is used to saving on a monthly basis will find it easier to set aside 10% of her salary for retirement as opposed to an individual who is not used to spending her money prudently.

• Gain control over your future – When you set aside money for your retirement, remember that you are shaping your future. This is a task no one else will perform for you or push you to do. By saving consistently, you are ensuring that you are well prepared for any outcome when you leave the workforce. With sufficient savings, you will most likely be able to live your dream lifestyle even during your retirement years – promising you the peace of mind of a secure financial future.

Steps to successful retirement planning

Building a substantial sum for your retirement nest egg can be easy and painless if you start investing early and regularly. Public Mutual’s Direct Debit Authorisation facility allows you to invest regularly while employing the Ringgit Cost Averaging strategy.

Not only that, you can enjoy tax relief of up to RM3,000 per annum if you contribute to the Private Retirement Scheme (PRS) fund. PRS contributions are creditor-protected. Public Mutual’s PRS contributors can also enjoy a free insurance or Takaful coverage of up to RM100,000, subject to terms and conditions.

To cater to diversified investors’ needs and investment objectives, Public Mutual offers six PRS core funds and three non-core funds, which make a great pool of funds for investors to choose from. Young investors who have long-term investment horizons can consider investing in PRS non-core funds, which can yield better potential returns in the long term.

For more financial tips and investment guidance, visit instagram.com/invest_with_public_mutual

Disclaimer:

These articles are prepared solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by Public Mutual. No representation or warranty is made by Public Mutual, nor is there acceptance of any responsibility or liability as to the accuracy, completeness or correctness of the information contained herein.

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Parcel rent bills mailing soon

Stratified property owners given till December 31 to settle dues for 2019

Chow (second right) with (from right) Jagdeep Singh, State Land and Mines office director Akmar Omar and State Secretary Datuk Seri Farizan Darus, showing the new bills for the parcel rent in Komtar, Penang.

OWNERS of stratified properties will now have to pay parcel rent directly to their respective district and land offices.

Chief Minister Chow Kon Yeow said the billing for parcel rent, replacing quit rent, would be sent out to all parcel owners next month through their respective management corporations.

“Previously, it was paid by the respective management corporations of stratified properties.

“Since the bills will be sent out late, parcel owners are given until end of this year to pay up although the deadline is usually May 31 each year,” he told a press conference at Komtar on Friday.

Chow said the parcel rent came into effect since January this year.

He said the rates for parcel rent would be based on the size of each unit, while quit rent was based on the total plot of land which the building was built on.

“Parcel owners will need to update their addresses with the respective district and land offices when paying their parcel rent this year,” he said, adding that the parcel rent billing for next year will be sent to their addresses.

Citing an example, Chow said the total quit rent collected from a specific stratified property last year was RM28,268.

“The collection in parcel rent for the same property will be lesser at RM24,239, as it will not take into account common areas, unlike for quit rent,” he said.

State housing, town, country plan­­ning and local government committee chairman Jagdeep Singh Deo, who was also present, said the arrears for quit rent has amounted to RM65mil to date.

Parcel owners are advised to update their mailing addresses at the land and district office or online at etanah.penang.gov.my

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Five challenges young Malaysians face with home ownership

For many young Malaysians, the road to owning a home is riddled with speed bumps. — Pexels

PETALING JAYA, Feb 26 — Most would agree that you truly reach adulthood the moment you own your own property.

Just like any other major milestone in life, getting there comes with its own set of challenges that many young Malaysians have to overcome before they can successfully purchase a home.

Here are five hurdles Malaysian millennials might encounter on the path towards home ownership:

1. Worrying about making the wrong choice, when is the ‘right’ time to buy?

 

Purchasing a home can be a major decision that many Malaysian youths feel overwhelmed by. — Pexels pic

Making the decision to buy a piece of property is a huge step that young locals aren’t quite brave enough to take yet.

Social news website SAYS’ 2019 Malaysian Home Survey among 8,568 Malaysians reports that one in five respondents had “(worries) about making the wrong decision”, especially since home ownership requires a hefty financial investment.

2. Unsure about loan application and loan rejections.

Pexels pic Do you have enough saved up for a home in the future? — Pexels pic

A difficult loan approval process is a huge factor that dampens many Malaysians’ prospects of owning a home.

PropertyGuru’s Consumer Sentiment Survey in 2017 states that 33 per cent of Malaysians reported a tough approval process for bank loan applications which presents a major roadblock on the path to home ownership.

3. Starter salaries, not enough money saved for a downpayment.

The average Malaysian needs to plan carefully if they want to own a house with their current salary. — Reuters pic

The thought of dealing with a mortgage on the salary of a fresh graduate is making many millenials think twice about owning a house.

The Employee's Provident Fund statement in 2016 had said that 89 per cent of the working population in Malaysia earn less than RM5,000 monthly, making home ownership especially challenging.

Most millenials wouldn’t believe that they could own a house with that salary.

4. Renting or owning?

  It’s not easy maintaining a modern lifestyle when you’ve got a mortgage weighing on your shoulders. — Unsplash pic

The hefty financial commitment to owning a home means young Malaysians will have to make some lifestyle changes if they want to stay afloat while having a house to their name.

This might mean foregoing luxuries such as weekend brunches and holidays overseas which have become staples for the modern generation.

Hence, a monthly instalment replacing these pleasures is the reason 33% of Malaysians in SAYS’ survey are saying ‘no’ to home ownership.  

5. Lack of awareness on housing deals and promotions.

Housing deals and offers don’t seem to be showing up on the radars of young Malaysians. — Unsplash pic

While initiatives are in place to help young potential homeowners, many do not even know about the resources available to them that can ease the burden of property ownership.

A shocking 65 per cent of Malaysians in SAYS’ survey said that they had no clue about current housing offers and promotions.

This means that many young adults are currently unequipped with knowledge about navigating the property market.

In light of this, property developers EcoWorld have launched HOPE (Home Ownership Programme with EcoWorld), a comprehensive solution that promises to aid young Malaysians in their journey towards owning their dream home.

HOPE aims to make the dream of home ownership a full-fledged reality for millennials with the STAY2OWN (S2O) and HELP2OWN (H2O) programmes.

S2O will allow those wanting to stay in an EcoWorld project to rent their ideal home first with the confidence that they can become homeowners in the future.

A low monthly payment similar to the market rental rate also makes it particularly attractive for first-time homebuyers.

The option to rent first before buying also gives customers ample time to get their finances in order before committing to a new mortgage.

To top it all off, the rental savings will be used to offset part of the purchase price of the home, making it even more affordable for young Malaysians.

The H2O had successfully helped approximately 1,800 young homeowners and upgraders own their choice EcoWorld home last year and you can be one of them too! For more information on owning your dream home, visit EcoWorld’s website (https://ecoworld.my/hope/) or Facebook (https://www.facebook.com/EcoWorldGroup/).

By Tan Mei Zi The Malay Mail

* This article is brought to you by EcoWorld. https://ecoworld.my/hope/

A NEW HOPE FOR YOUR DREAM HOME

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Foreigners Not Welcome as Malaysia Joins Property Clampdown

Malaysia Bans Foreigners From Project

https://www.bloomberg.com/news/videos/2018-08-28/malaysia-bans-foreigners-from-project-video

https://youtu.be/Xqnq7QFJpiI

https://youtu.be/8FJw3z0J340

• Mahathir’s planned crackdown taps into nationalist rhetoric
• Housing affordability has driven restrictions around the world

Hanging a ‘foreigners not welcome’ sign on a giant real estate development, Malaysia’s prime minister this week appeared to add to housing curbs around the world fueled by soaring home prices and populist politics.

Describing the Chinese-backed $100 billion Forest City as “built for foreigners” and beyond the reach of ordinary Malaysians, Mahathir Mohamad tapped into the nationalist rhetoric that helped secure him an election victory -- and global angst over housing affordability. Around the world, post-financial crisis property booms driven by low interest rates have left locals struggling to buy homes.

“The tension around foreign investment is always going to be much more acute when affordability is getting worse,” said Brendan Coates, a researcher in Melbourne at the Grattan Institute think tank. When locals get “priced out of the market,” foreign buyers may be blamed even when their effect is small, he said, commenting on the global picture.

Hanging a ‘foreigners not welcome’ sign on a giant real estate development, Malaysia’s prime minister this week appeared to add to housing curbs around the world fueled by soaring home prices and populist politics.

Describing the Chinese-backed $100 billion Forest City as “built for foreigners” and beyond the reach of ordinary Malaysians, Mahathir Mohamad tapped into the nationalist rhetoric that helped secure him an election victory -- and global angst over housing affordability. Around the world, post-financial crisis property booms driven by low interest rates have left locals struggling to buy homes.

“The tension around foreign investment is always going to be much more acute when affordability is getting worse,” said Brendan Coates, a researcher in Melbourne at the Grattan Institute think tank. When locals get “priced out of the market,” foreign buyers may be blamed even when their effect is small, he said, commenting on the global picture.

A wave of restrictions or taxes on foreign purchases already stretches from Sydney to Hong Kong to Vancouver. Measures targeting foreign home buyers have included stamp duties, restrictions on property pre-sales to non-residents and limits on the types of homes that can be purchased.

‘New Colonialism’

New Zealand is banning foreigners from buying existing residential properties after Prime Minister Jacinda Ardern campaigned in last year’s election on pledges including affordable housing. Canada and Australia have rolled out one restriction after another, and Singapore just ramped up a tax on overseas buyers. Denmark and Switzerland have restrictions, a Grattan report shows.

The 93-year-old Mahathir’s comments came at a late stage of the game. Globally, property shows signs of cooling from the post-crisis boom. His concern seems to be sparked not by property market overheating but, rather, foreign investments that don’t benefit Malaysia and what he terms the risk of “a new version of colonialism.”

Late Tuesday, a statement from Mahathir’s office said the nation welcomes all tourists, including from China, as well as foreign direct investment that “contributes to the transfer of technology, provides employment for locals and the setting up of industries.” It didn’t refer to Forest City.


“Mahathir has never liked the idea of Forest City or the idea of many foreigners buying up property in Malaysia,” said Ryan Khoo, co-founder of Alpha Marketing Pte Ltd., a Singapore-based real estate consultancy.

Foreigners will be blocked from buying units at the project, on artificial islands in Johor, and refused visas to live there, Mahathir said at a press briefing on Monday. That left analysts and local officials parsing his words to guess at how bans might work. The Chinese developer, Country Garden Holdings Co., said his comments clashed with past assurances. The project’s targeted buyers have included people in mainland China.

With a wall of Chinese money blamed for pushing up prices around the world, local lawmakers, media and the public can struggle to disentangle xenophobia from legitimate efforts to constrain inflows of capital. In Australia, “populist reporting” exaggerated the role of Chinese investors, according to Hans Hendrischke, a professor of Chinese business and management at the University of Sydney.

Read more on global property:

Cracks Show in Property Markets From Sydney to New York  New Zealand to Crack Down on Foreign Home Buyers  Mahathir Bans Foreigners From $100 Billion Property Project  Singapore Curbs May Hit Luxury Property The Hardest  In World’s Most Livable Cities, Few Can Afford to Buy a Home

Chinese buyers had the “bad luck” of becoming overly visible in markets around the globe, said Carrie Law, chief executive officer of Juwai.com, a Chinese international property website.

Foreign buyers get blamed for soaring home costs even when the evidence is minimal. More than 60 percent of Sydney residents cite foreign investment for price increases, according to a survey from University of Sydney academic Dallas Rogers. That’s despite research by Australia’s Treasury showing only a marginal impact. Likewise, data suggest foreign buyers play only a small role in New Zealand’s housing market.

(Updates with Mahathir statement in seventh paragraph, chart on global restrictions.)

No Chinese belt, road or bedrooms for Malaysia

Construction works going on normally at the mammoth Forest City project in Gelang Patah in Johor

PERPLEXED, wounded, indignant or still optimistic. The Chinese developer Country Garden Holdings Co can put any spin it wants on its Forest City project, a US$100bil Malaysian township whose fate suddenly has been thrown into doubt after Tun Dr Mahathir Mohamad’s pointed refusal to let foreigners buy apartments or live in them long term.

One thing is clear, though: The prime minister is not acting impulsively. The project claims to be a “new global cluster of commerce and culture,” and a “dream paradise for all mankind.” However, in Malaysian political discourse, Forest City is just a gigantic Chinatown of 700,000 residents.

Taking on the developer is part of Mahathir’s broader plan to redefine Malaysia’s relationship with Beijing, pulling Kuala Lumpur away from the client-state mindset introduced by his predecessor.

Already, the 93-year-old leader has cancelled the Chinese-funded East Coast Rail Link, dealing a blow to China Communications Construction Co, which was building the US$20bil belt-and-road route. Datuk Seri Najib Tun Razak, ousted in May, claimed the link would bring prosperity to eastern Malaysia.

But Dr Mahathir, who spoke bluntly in Beijing this month against “a new version of colonialism,” took a very different view of the railway, which would have connected areas near the Thai border along the South China Sea to busy port cities on Malaysia’s western coast, near the Strait of Malacca.


He also shelved a natural-gas pipeline in Sabah, a Malaysian state on the island of Borneo. Dr Mahathir justified the cancellations on the grounds that they were too expensive.

However, the abrupt message to Country Garden, which is neither linked to the Chinese state nor would add a dollar to Malaysia’s national debt, shows that sovereignty – and Malaysia’s racial politics – are Mahathir’s real concerns.

Two-thirds of the homebuyers in Forest City are from China. Last year, as a trenchant critic of Najib’s policies, Dr Mahathir flagged the risk that anybody living in Malaysia for 12 years would be able to vote.

Country Garden should have seen the political risk in marketing the flats to mainland Chinese, who were separately lapping up long-stay visas under Najib’s Malaysia My Second Home programme. Najib’s generosity toward the mainland wasn’t the natural state of affairs. In 1965, the country expelled Singapore from the Malaysian federation out of fear that the peninsula’s majority Muslim Malays could lose their political dominance to the island’s ethnic Chinese.

If Country Garden misread the political tea leaves, it’s also wrong to bark up the legal tree after Dr Mahathir’s outburst. So what if Malaysia’s national land code permits foreign ownership? Approval of global investors may not matter all that much to a politician who has, in his previous innings, trapped their money at the height of a financial crisis.

The new prime minister isn’t as reliant on Beijing as his predecessor. If anything, he has to reward local businessmen and contractors for switching their allegiance from Barisan Nasional, the erstwhile ruling coalition that suffered its first loss of power in six decades.

It’s a given then that Malaysia under Dr Mahathir will have little appetite either for One Belt, One Road – or, for that matter, three- and four-bedroom apartments that could create a new political constituency.

Forest City could still be salvaged, but as a predominantly local project. If Donald Trump can unilaterally change the rules of game for China and Chinese businesses, so can, in his limited sphere, Dr Mahathir. As far as Country Garden is concerned, he just has.

Credit Aandy Mukherjee— Bloomberg

Related: 

Confusion over property policy - Nation

 

Setback for foreign property buyers in Malaysia - Business News

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Putting our house in order

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

Food for thought Alan Tong

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

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Too good to be true? Think twice

HAVE you ever grabbed an offer without any hesitation, simply because the price is too cheap to resist?

Many of us have this experience especially during sales or promotional campaigns. We tend to spend more at the end or buy things which we are uncertain of their quality when the deal seems too good to say no.

It may be harmless if the amount involved is insignificant. However, when we apply the same approach to big ticket items, it can cause vast implications.

Recently, I heard a case which reinforces this belief.

A friend shared that a property project which was selling for RM300,000 a few years ago is now stuck. Although the whole project was sold out, the developer has problem delivering the units on time.

The developer is calling all purchasers to renegotiate the liquidated and ascertained damages (LAD), a compensation for late delivery.

One of the homeowners said he is owed RM50,000 of LAD, which means the project is 1½ years late. When we chatted, we found that he purchased the unit solely due to its cheap pricing without doing much research in the first place.

The incident is a real-life example of paying too low for an item which can leave us as losers, especially when it involves huge sum of investment, such as property.

To many, buying a house maybe a once-in-a-lifetime experience, a decision made can make or break the happiness of a family.

A good decision ensures a roof over the head and a great living environment, while an imprudent move may incur long-term financial woes if the house is left uncompleted.

Nowadays, it is common to see people do research when they plan to buy a phone, household item, or other smaller ticket items.

Looking at the amount involved and implication of buying a house, we should apply the same discretion if not more.

It is always important for house buyers to study the background of a developer and project, consult experienced homeowners regarding the good and bad of a project before committing.

I have seen many people buy a house merely based on price consideration.

In fact, there are more to be deliberated when we commit for a roof over our heads. The location, project type, reputation of a developer, the workmanship, the future maintenance of the property etc, are all important factors for a good decision as they would affect the future value of a project.

Beware when a discount or a rebate sounds too good to be true, it may be just too good to be true and never materialised. If the collection or revenue of a housing project is not sufficient to fund the building cost, the developer may not be able to complete the project or deliver the house as per promised terms. At the end of the day, the “price” paid by homeowners would be far more expensive.

In general, the same principle applies elsewhere. It is a known fact that when we pay a premium for a quality product from a reliable producer, we have a peace of mind that the product could last longer and end up saving us money. Some lucky ones will end up gaining much more.

For instance, when we purchase a car, we should consider its resale value as some cars hold up well, while others collapse after a short period. Other determining factors include the specifications of the car, the after sales service, and the availability of spare parts.

Quality products always come with a higher price tag due to the research, effort, materials and services involved.

In addition to buying a house or big ticket items, other incidents that can tantamount to losing huge sums are like money games, get-rich-quick scheme, or the purchase of stolen cars or houses with caveats.

When an offer or a rebate sounds dodgy, the “good deal” can be a scam.

Years of experience tells me that when what is too good to be true, we should think twice. I always remind myself with a quote from John Ruskin (1819-1900) who was an art critic, an artist, an architect and a philosopher. “It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money – that’s all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

“The common law of business balance prohibits paying a little and getting a lot – it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

Food for thought by Alan Tong

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

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