Malaysia’s Illicit Outflows

Prof. Jomo K. Sundram and Raisa Muhtar reported last year (Oct 2017) in an article entitled “Malaysia’s illicit financial outflows”.  A Global Financial Integrity (GFI) report estimated that Malaysia lost upto USD431 billion (RM1.8 trillion) in illicit outflows.  Even half of this was recovered, we could settle all outstanding loans/ guarantees that Malaysia currently has.  We were listed fifth amongst countries for illicit capital flight after China, Russia, Mexico and India.  On per capita basis, we were No. 1 – thanks to Najib, Jho Low, Taib Mahmud, Musa Aman and a whole host of other lesser luminaries.  Malaysia accounted for about 6% of total illicit outflows of all developing countries.

The estimates of illicit financial outflows from developing countries. ― Picture by Global Financial Integrity

According to the GFI study, 87% of illegal financial flows from developing and emerging economies, was due to fraudulent misinvoicing of trade.  In 2014 alone, illicit financial flows were from fraud, drug trafficking, illegal logging, human trafficking, illegal mining, illegal fishing and wild life trade, crude oil theft, weapons trafficking, organ trafficking and trafficking in cultural property.

To curtail misinvoicing (what a euphemism!), GFI suggested customs agencies scrutinize trade transactions involving a tax haven.  Governments should train customs and other authorities in detecting misinvoicing.  Cooperation with international agencies will also be helpful.

The Minister of Finance in his budget 2019 intends to strengthen MACC and also provide an amnesty for funds not previously reported to IRD.  That’s helpful but more needs to be done.  Why not engage private bounty hunters licensed by an authority, to share the loot on a “success” basis?  Or, we may use MBS method of confining some people at the Ritz Carlton until they give up some of the ill-gotten gains?

Reference:

Up to US$431b in illicit outflows from Malaysia over past decade – Malay Mail 02 May 2017

Malaysia’s illicit financial outflows – Jomo KS and Raisa Muhtar, FMT 19 Oct 2017

Hot Deals for Monday WW46'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Marketing and retail footwear looking for new investors to acquire 20% stake in company.  Consistent dividends of 5% or more for over 5 years.

Opportunity 2

Property development company with good results and dividends.  Sale of about 25% equity interest in company.

Opportunity 3

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.

Opportunity 4

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.  Asking price RM3 p.s.f.

Opportunity 5

“Edupreneurship” opportunity!  An established education provider is offering an exceptional opportunity to grow entrepreneurs in higher education field.  The potential “edupreneur” will be given the chance to manage a college by taking a minor equity position (40%) in the education group for RM2.0 mil, with an option to buy-out the company later.

Opportunity 6

A European company is looking to acquire or JV with beverages company (including water or milk players) in Malaysia, Myanmar or China.

Opportunity 7

Sale of Software & IT business with revenues of over RM100 million and net income in the range of RM1.5 - 2.0 million.  Controlling stake (approx. 70%) is available.

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!

FundMyHOME Scheme, who bears the risk?

FundMyHOME scheme, according to their website, is developed by EdgeProp Sdn Bhd, FundMyHome.com brings together first-time homebuyers and institutions in a mutually supportive relationship. Buyers pay 20% of the property price to own the home, choosing from a wide array of high-rise and landed homes of different prices and locations showcased on FundMyHome.com. The balance 80% of the cost of the property is contributed by participating institutions, who share the returns from changes in the future value of the home.

With no bank loans and monthly payments to worry about, the result is a simpler, safer and faster home ownership arrangement that also provides greater emotional and financial security (Read more here).

Sounds like a good deal?  Why do institution investors would like to fund the 80% of the property price?  Let’s look at the table that illustrates the possible scenarios after five years of the scheme, which is taken from their website (Read more here).

Basically, the institution investors downside risks are borne by the house buyer.  For example, if the house price is RM300,000 initially, the house buyer needs to pay 20% of the price, which is RM60,000 while the institution investors pays RM240,000.  Five years later, if the house price drops to RM270,000, the sales proceeds to the house buyer will be RM30,000 while the institution investors still get back their capital of RM240,000.

On the other hand, the potential price appreciation of 20% or less will not be enjoyed by the house buyer as well.  House buyers are only entitled to share the gain of the property if it has appreciated more than 20%.  Who has the good deal?

Helicopter Money and BR1Ms?

Helicopter money is a reference to an idea made by American economist, Milton Friedman in 1969.

The basic principle is that if a central bank wants to raise inflation and output in an economy that is below its potential, one effective tool is to give targeted people with direct money transfers. In theory, the B40 would then spend freely and increase economic activity. That’s BR1M!

The problem is when they save (or hoard) instead of spending, which then reduces aggregate demand. So it is better to have vouchers or tokens that could be used to purchase specific items for daily living at specific places instead of cash transfers into accounts.

The second issue is when people are “addicted” by helicopter money it is difficult to wean them off. People expect a life-long grant. In addition, economic output by the recipients may diminish as they see helicopter money as another, stable alternative source of income.

As a short-term, targeted tool it may be used to stimulate the economy which is deemed performing below its potential. But this measure cannot be sustained on a long-term basis especially in a down cycle.

This Photo by Unknown Author is licensed under CC BY

Budget 2019: Some Initial Thoughts!

Owing to massive debt and the 1MDB Scandal, the Minister of Finance had limited options to manoeuvre and present a dynamic, people-focused budget.  But he did it with several commendable measures, amongst others:

·        RM3 billion Industry Digitalisation Transformation Fund;

·        Fund (RM2 billion) for strategic sectors and new growth areas;

·        Crowd funding for first-time home-buyers;

·        Amnesty for unreported income;

·        Targeted subsidies for the B40;

·        Focus on education (largest allocation); and

·        Taxes that do not really matter, unless you are into gambling or being obese.

But what more could he have done?  He could have helped the following:

·        Renewables with a subsidy for solar panels placed on houses, buildings and factories;

·        Carbon tax on thermal and other energy sources to fund the strategy on renewables;

·        Reduced taxes/ prices for electric vehicles;

·        Higher taxes for individuals and companies with “super” incomes/ profits (this could fund new initiatives);

·        Focus on biotechnology and biosciences for the future.  Have one or more hubs for this – and encourage young people to get into research;

·        Develop medical tourism in a bigger way so we would outdo Singapore and Thailand;

·        Encourage language centres – especially English, Mandarin, Hindi or Tamil.  Why? To meet present and future requirements;

·        Promote entrepreneurship and start-ups especially for graduates and those with skill sets that industry need;

·        Create separate motorcycle lanes for highways/ state roads.  (The highest fatalities have always been motorcyclists).

Pakatan Harapan has made a good start and maybe will do better in the future with greater integration and integrity in the country.

Property Overhang: What Is The True Picture?

On 25 October 2018, the Minister of Housing and Local Government mentioned that the property overhang is valued at RM22.5 billion and 73% comprised affordable houses priced at RM250,000 and below.

Earlier (early October 2018) the National Property Information Centre (NAPIC) in a press conference mentioned that as of June 2018, there were 29,227 units worth RM17.24 billion of unsold homes. This Preliminary Property Market Brief 2018 was by NAPIC and covered the first six months of 2018.

According to Bank Negara Malaysia (BNM) the total unsold residential properties stood at 130,690 units for end first quarter 2017. According to BNM, 83% of total unsold units were in the above RM250,000 category. In a press release on 26 September 2018, BNM stated the number of unsold housing units increased to 146,196 units as at end of first quarter 2018. And more than 80% of unsold units are priced above RM250,000. Please see Charts 1 and 2 below:

So is it 29,227 units or 130,690 units or RM22.5 billion overhang with 73% priced at RM250,000 and below as the Housing Minister says? What is the true picture? What is affordability?

BNM is a credible source while NAPIC is only reflecting a first-half 2018 position. And the Minister (of Housing) has got her numbers from a source that gives us a really contrary picture – if the overhang is for houses below RM250,000 then we are in dire straits!

Following BNM, the total number of unsold units by Q2 2017 was 146,497. This is an increase of 15,807 units from Q1 2017. The historical average of unsold units is 72,239 units (between 2004-2016). Why are there so many unsold units? The short answer is: Mismatch between house prices and affordability! Median house prices in Malaysia are 5 times the annual median household income in 2016. International affordability standard is 3 times. The median household income is RM5,228 and maximum affordable price in Malaysia should be no more than RM282,000. Prices have increased faster than household incomes!

What do we do? BNM suggested centralised affordable housing initiatives, registry of housing database amongst others. Meanwhile, what happens to the existing excess stock of 146,500 units? Developers have to take a “cut loss” approach and sell the units at 50% of current value to a central agency (“Danarumah”) that then re-sells to prospective purchasers. Who owns Danarumah? It is a new subsidiary of BNM which is best placed to fund and channel existing housing stock to buyers. This may require some form of legislation and persuasion to implement.

Good luck!

References:

1. BNM Quarterly Bulletin (3^rd Quarter 2017)

2. BNM Press Release, September 26, 2018

3. New Straits Times, October 25, 2018

Hot Deals for Monday WW45'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Marketing and retail footwear looking for new investors to acquire 20% stake in company.  Consistent dividends of 5% or more for over 5 years.

Opportunity 2

Property development company with good results and dividends.  Sale of about 25% equity interest in company.

Opportunity 3

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.

Opportunity 4

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.  Asking price RM3 p.s.f.

Opportunity 5

“Edupreneurship” opportunity!  An established education provider is offering an exceptional opportunity to grow entrepreneurs in higher education field.  The potential “edupreneur” will be given the chance to manage a college by taking a minor equity position (40%) in the education group for RM2.0 mil, with an option to buy-out the company later.

Opportunity 6

A European company is looking to acquire or JV with beverages company (including water or milk players) in Malaysia, Myanmar or China.

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!