Loans, not grants to strengthen bumiputra economy

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‘Tougher’ approach: Rafizi said the pivot to providing credit instead would ensure applications from those who are serious about building a business. — Bernama

CYBERJAYA: In a break from past practices, the unity government is moving away from giving grants to bumiputra entrepreneurs. Instead, it will assist them with loans as part of its agenda to strengthen the community’s economy.

By getting entrepreneurs to pay back what they borrow, the government hopes to create a steady supply of funds that could benefit more such businessmen, said Rafizi Ramli.

Under the initiative, the government also hopes to build a sustainable business ecosystem producing the right kind of professionals and businesses that will see micro and small enterprises scaled up to create value, the Economy Minister told reporters after an event here yesterday featuring three of the ministry’s agencies tasked with bumiputra empowerment.

The agencies – Teraju, Ekuiti Nasional Berhad (Ekuinas) and Yayasan Peneraju (Peneraju) – have been realigned to focus their resources and energies on creating the bumiputra business ecosystem envisioned by the ministry.Rafizi emphasised that the “tougher” approach of building an ecosystem and assisting businesses with credit instead of grants, would be more effective at creating successful bumiputra firms.

“One of the differences (from the past) is focus. For instance, in the past, Teraju gave out grants to everyone, large or small. They did not focus on building an ecosystem,” Rafizi said.

“Peneraju also gave scholarships to every bumiputra who wanted to be professional, but it was up to them to decide what kind of professional they wanted to be.”

This approach, he said, “did not connect the dots” between the professional talent being nurtured and the grants being given out to entrepreneurs.

As part of its own realignment, Peneraju, which was previously tasked with creating bumiputra professionals such as chartered accountants and chartered financial analysts, will now focus on nurturing business leaders.

Peneraju chief executive officer Ibrahim Sani said that instead of just creating more professionals to join the workforce, the foundation’s new accelerator programme will train talent to start venture capital funds.

“This will hopefully create a cycle, and bumiputra entrepreneurs need people to invest in their companies,” he said during the event.

Similarly, Ekuinas, which previously concentrated on assisting large bumiputra companies to become listed on the stock market, will now offer loans and credit to mid-size businesses to enable them to scale up.

Ekuinas chief executive officer Datuk Syed Yasir Arafat Abd Kadir said this was because medium and small firms often had trouble getting loans from banks, which then hobbled their ability to expand.

On the strategy of providing credit instead of grants, Rafizi said this would ensure that only those who are serious about building a business would apply for the funds.

“If you give out a grant of RM500,000 to someone and, at the end of two years, he says the business flopped, that money would be wasted. It could’ve gone to so many other people.

“We want people who want to really do business because they have to repay what they borrowed. They will only take money if they are confident they can pay it back.

“We don’t want our funds to just go to 500 people; we want them to go to thousands, but in order to do that, we have to roll the money.”

Rafizi stated that this strategy would generate additional funds and opportunities for bumiputra firms to expand, enabling them to list on the stock market and achieve sustainability.

“We must work on the assets and the funds. It is controversial, but my hope is that people will know that a tougher approach is what is needed for bumiputra entrepreneurs to accelerate their competitiveness.”

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No grants 'not the right way'

https://www.thestar.com.my/news/nation/2024/05/22/no-grants-not-the-right-way

PETALING JAYA: Many bumiputra entrepreneurs have no problems accepting the government’s new approach of giving them loans instead of grants to grow their businesses.

However, the “harder approach” of doing away with grants under the bumiputra development agenda could result in a backlash from the community, they say.

“I think that this is not quite the right way of doing it,” said Malay Economic Action Council (MTEM) senior fellow Ahmad Yazid Othman.

“It must be understood that grants are given to those who may not be able to support themselves. I don’t think it would be welcomed by the community and may not have the right impact,” he said.

However, he said the council supported the announcements by Economy Minister Rafizi Ramli on the new approach.

Although the new approach could prevent abuses, Ahmad said the situation for bumiputra enterprises may not improve if the policy is ill-implemented.

On Monday, Rafizi announced that the unity government was moving away from giving grants to bumiputra entrepreneurs but would instead assist them with loans as part of its agenda to strengthen the community’s economy.

The minister said that by getting entrepreneurs to pay back what they borrow, the government hopes to create a steady supply of funds that could benefit more such businessmen.

Three agencies – Teraju, Ekuiti Nasional Berhad (Ekuinas) and Yayasan Peneraju (Peneraju) – will realign to focus their resources and energies on creating the bumiputra business ecosystem envisioned by the ministry.

Ahmad, who is also Malay Chamber of Commerce Malaysia secretary-general, lauded the move by Teraju to widen the scope of those in the eco-system that contribute towards the success of the new approach.

He also said the relevant ministries must not work in silos but should collaborate to ensure the success of programmes.

Malay Businessmen and Industrialists Association of Malaysia (Perdasama) president Mohd Azamanizam Baharon also said the grant scheme should be maintained but given out to bumiputra companies based on merit and high level of competency.

Grants via Teraju should still be made available, he said, particularly for bumiputra companies involved in the renewable energy sector. However, he too added that Perdasama agreed that bumiputra businesses should not rely solely on government grants or aid.

Is real estate still a viable investment asset?

 While Malaysia remains a nation of growing young working population, the main challenge with regard to homeownership is the lack of wage growth rather than the lack of affordable products.

In the case of real estate, it has its own merits because it is tangible and with the title of the property under your name, it is physically yours.

FOR the longest time real estate is the preferred investment asset class for many people. There are fond memories when it comes to making the right investment and more so for property owners who have enjoyed capital appreciation or significant rental yield by investing in real estate.

We also frequently hear of stories on how ordinary working and middle-class families successfully provided education for their children through the refinancing or selling of their own real estate assets.

Even in the grander scheme of things, real estate constitutes 7% of the total RM1 trillion in asset under management of our Employees Provident Fund.

How is it that this popular asset class has fallen out of favour with so many investors today?

Whenever I speak to clients on investments and their allocation, I would hear all kinds of unconventional investments schemes (regardless of whether legitimate or not) but at the mention of real estate, they would tell me that the golden days are long over.

It is rather demotivating to hear such comments, especially when I have been involved in this sector for a large part of my professional career while witnessing its heydays.

Economic cycles come around

The study of economics and its application may be subjective at times but there is one single theory that holds true over the course of time – that is the economic cycle.

Every asset class goes through a cycle, including real estate. From boom to bust and boom again, various factors play a part throughout the cycle.

If at all we look deep into the real estate cycle, we would easily realise the trend or pattern through each cycle.

Many decades before, real estate was scarce and buying property was a very expensive affair due to the high interest rates on loans.

In the 1990s, the loan interest rate per annum is close to double digits.

In addition, there are no full flexible or auto balance reduction loan offerings unlike today.

Coupled with very low margin of financing, mortgages are costly becoming the main barriers to homeownership. Then there is the issue of the law on property development which is not as comprehensive as it is today hence from a project commencement to completion, it was largely an unpredictable timeline.

Today, the laws are extensive both in terms of the development process as well as for the protection of property owners.

As a result, we have seen many companies with unrelated expertise or core business in property venture into development.

At last count, there are close to 200 companies listed on Bursa Malaysia which has property development or construction related businesses.

Coupled with the Strata Title Act, landbanks can be unlocked vertically rather than just horizontally unlike how it was before. This contributed to an oversupply.

On demand side, while Malaysia remains a nation with growing young working population, the main challenge towards homeownership is the lack of wage growth rather than the lack of affordable products.

In the residential segment, National Property Information Centre data shows that the unsold units have largely fallen in the past year from 36,863 units worth Rm22.79bil at the end of 2021 compared with 27,746 units worth Rm18.41bil as of December 2022.

There are also substantial number of units of residential overhang in the country with units totaling 14,000 units worth Rm4.63bil (which is 53% of total unsold inventories) within the affordable price range of less than RM500,000.

This means the stagnant wage growth in the face of global inflation has seen the people’s purchasing power weaken.

When disposable income falls, debt level rises, naturally big-ticket purchases with long term monthly commitment fall on the back burner.

Accommodative measures and policies

Real estate cycle is highly susceptible to changes in economic policies and government regulations including tax regimes.

When there is an accommodative policy such as a low interest rate environment or in Malaysia’s case when Developer Interest Bearing Scheme (DIBS) was allowed, it spurred huge demand for real estate because holding on to cash has little value.

Funds would either move into equity markets or real estate markets and other instruments to generate yield.

When the policies started to tighten with higher interest rates making borrowing cost higher, or removal of DIBS and even imposing higher Real Property Gains Tax amongst others, there was a flight of capital from the real estate sector.

We are now beginning to see some ray of lights at the end of the tunnel following eight years of market oversupply since the peak in 2014.

The flood of newly completed projects and unsold inventories in the balance sheet of developers which naturally became a bane for the industry is seeing some improvement following the auto correction in the economy cycle due to two years lost to the pandemic.

In addition, higher raw material costs, inflationary pressure and the diminishing value of our currency has slowly helped the market adjust to the property price as what was once deemed expensive becomes more tenable. This will help with the rejuvenation of the real estate market with the exception for commercial office segment.

Hedge against inflation

When we talk about investment, we need to consider the underlying assets’ ability to hedge against inflation apart from its absolute return.

Ultimately, so long as the underlying asset over a duration of time can beat inflation and preserve the value of your money, that would make it a viable investment asset.

Apart from that, it is important to make comparisons across asset classes to determine what best suits your personal need.

Everyone has their own risk tolerance and investment horizon.

Subject to your individual preference, one should choose the asset class that one is most comfortable with. Some may find insurance products pragmatic, some may prefer to invest in safe-haven commodities like gold or silver, others may prefer equities or bonds.

In the case of real estate, it has its own merits because it is tangible and with the title of the property under your name, it is physically yours. This makes it a highly acceptable asset class to most people including some who are not particularly financially astute or do not fancy complex capital markets products.

Any time is a good time for own use

No doubt when it comes to investing, everyone wants to make money. Otherwise, it defies the objective of investment.

If investments do not reap returns, might as well leave the money in fixed deposit.

However, real estate is a one of-a-kind asset class that has tangible benefits and allows enjoyment of the assets with the benefits of investment value.

Unlike gold or silver, the enjoyment is limited to seeing it glitter in your safe deposit or alternatively, melting it to design custom jewelry.

For real estate, specifically residential, one can move in and reside in it while for commercial or industrial properties, one can use it for business purposes.

This makes the investment thesis in real estate different from other asset class such as equities or fixed income.

The benefit of tangible use and enjoyment makes the timing of investment less significant if one has actual use for it.

Quoting Li Ka-shing, if you are looking to buy property for your own stay and not for speculation purposes, anytime is a good time. 

Ng ZHU HANN Ng zhu Hann is the CEO of tradeview Capital. He is also a lawyer and the author of Once Upon a time in Bursa. the views expressed here are the writer’s own.

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Uptick in loan defaults likely

 

Average NIMs of some local banks are expected to broaden slightly this year from the 2.28% registered in 2021. 

 

Higher loan defaults, among individual borrowers and corporates, are expected to emerge as interest rate hikes to reduce inflationary pressures grip the economy.

Although the higher rates are good news for banks in terms of profitability, they may also result in loan defaults in the near term.

UCSI University assistant professor in finance Liew Chee Yoong, who is also a fellow at the Centre for Market Education, said the gross impaired loans (GIL) ratio would be higher due to the latest interest rate hike. 

UCSI University assistant professor in finance Liew Chee Yoong

“The rise in interest rates will raise the interest expense of loan borrowers and increase their financial risk.

“Therefore, I will not be surprised if more individual and corporate borrowers will be in financial distress due to higher interest servicing this year.

“More loans will be impaired due to the higher likelihood of credit default by borrowers,” he added. StarPicks Sunway TES ICAEW- The ideal pathway towards a global career for SPM leavers

The GIL ratio is defined as gross impaired loans as a percentage of gross loans, advances and financing.

Bank Negara has raised its overnight policy rate (OPR) by 25 basis points (bps) to 2.25% on July 6 amid positive economic growth prospects. It was the second consecutive increase after the 25 bps hike in May, which was also the first time the OPR was raised since the onset of the Covid-19 pandemic.

The OPR, which is a benchmark rate that allows banks to determine their lending and deposit rates, had been reduced by a cumulative 125 bps during the pandemic to a historic low of 1.75%.

RAM Rating Services Bhd co-head of financial institution ratings Wong Yin Ching said higher interest rates could impinge on some highly leveraged borrowers, although most borrowers would likely be able to absorb the slightly higher loan instalments.

RAM co-head of Financial Institution Ratings Wong Yin Ching, https://apicms.thestar.com.my/uploads/images/2022/07/11/1654838.jpg

“We may see the banking sector’s GIL ratio rise to 2.5% by end-2022, which is still deemed manageable in our view.

“Provisioning expenses, however, are not anticipated to increase in tandem with impaired loans as banks had judiciously built up provisioning reserves since the start of the pandemic.

“With most of the loan relief measures being progressively wound down in the first half of the year, defaults have begun to trend up,” she added.

The banking industry’s GIL ratio rose from 1.5% as of end-December 2021 to 1.64% as of end-May.

CGS-CIMB Securities analyst Winson Ng also expected higher GIL ratios this year.

“We expect the gross impaired loan ratio to increase 1.8% to 2% at end-December due to the credit risks from the Covid-19 and negative impact from higher inflation and interest-rate hikes.

“Headwinds, including higher inflation, could also be negative for asset quality and loan growth,” he said.

AmResearch banking analyst Kelvin Ong saw a gradual uptick in GIL ratio as the broad repayment assistance (including the Pemulih moratorium) had expired at end-June.

Asset quality ratio for the sector is expected to be higher at around 2% compared with 1.4% as of end December 2021, amid the transition towards targeted repayment assistance, according to him.

Commenting on the downside risk for the sector this year, Ong said: “Any prolonged or worsening supply chain disruptions will impact the pace of economic recovery and consequently affect our estimates for earnings growth of banks.

“Higher inflation pressures will impact consumer spending as well as profit margins of business loan borrowers which will lead to a potential deterioration in asset quality.”

Although most analysts expected the higher net interest margins (NIMs) to boost banks’ earnings from the latest OPR hike, UCSI’s Liew disagreed.

“I don’t think the higher OPR will improve the NIMs of banks. My prediction is that it will be reduced due to lowering demand for bank loans, which reduces the banks’ interest income and average earning asset value (that is, the amount of bank loans that are given out to borrowers).

“The increase in interest rates by the central bank will reduce the demand for bank loans from companies and individuals as the cost of financing becomes more expensive,” he said.

On the other hand, Liew said lenders would need to continue paying interest to risk-averse depositors who put their monies in banks during an economic uncertainty and this would reduce the NIMs.

According to RAM’s Wong, rising interest rates are a boon to NIMs as a majority of the domestic banking industry’s loans are floating-rate facilities, which would reprice faster than deposits.

That said, Wong added that the uplift in NIMs would be moderated by the increasingly deposit competition, as well as slower current and savings account expansion as some depositors go for term deposits.

Overall, Wong said the average NIMs of some local banks are expected to broaden slightly this year from the 2.28% registered in 2021.

NIM is a measure of the difference between the interest income generated by banks and the amount of interest paid out to deposits.

CGS-CIMB’s Ng, who forecast loan growth of 4% to 5% for this year, is projecting a 4% net profit growth, mainly driven by the OPR hike and lower loan loss provisioning.

Ong is maintaining a loan growth projection of 5% to 6% this year, premised on an expected gross domestic product expansion of 5.6% this year.

With the additional taxes due to Cukai Makmur or prosperity tax, the earnings growth for banks are expected to be flat at 1.5% this year, according to Ong. 

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Financial literacy and bankruptcy

  Stretching your ringgit: The importance of knowledge in this space cannot be more timely, especially when Malaysians are doing their level...

Financial literacy and bankruptcy

 

Stretching your ringgit: The importance of knowledge in this space cannot be more timely, especially when Malaysians are doing their level best to stretch their ringgit in order to cope with the increasing cost of living from inflationary pressures, which are spiralling out of control.

It is not enough to be good at your job. Managing your money well is as important as having good hygiene.

Lack of financial discipline reasons for bankruptcy

Using a credit card or apps wisely to accumulate points for future spending, waiting for bargains such as free shipping options or vouchers on ecommerce platforms on special days of the months to purchase necessities are just a few examples of being financially aware. 

FINANCIAL literacy is an important agenda for a country’s economic well-being.

Most governments around the world would like for their citizens to be financially literate, be it entrepreneurs, working professionals, white collar or blue collar workers.

It is not enough to be good at your job. Managing your money well is as important as having good hygiene.

Recently, the Malaysia Department of Insolvency (MDI) reported that 287,411 people in the country have been declared bankrupt as of March 2022.

Between 2018 and May 2022, there was an increase of 46,132 new bankruptcy cases.

Of this number, 59% (amounting to 27,365) of the bankrupt were aged below 44.

This led to the Prime Minister highlighting his concern on youth bankruptcy and requesting for the relevant authorities to look into this matter including potentially revamping the laws on insolvency.

It is important to note that due to the pandemic, our government has in fact raised the threshold of bankruptcy from RM50,000 to RM100,000 in 2020.

Many legal actions against defaulters of loans were also postponed due to the effects of the pandemic.

Personal loan main reason for default

Diving into the MDI’S statistics, I realised that the main reason for bankruptcy was due to default of personal loans with an overwhelming percentage at 42%, followed by hire-purchase loans (15%) and business loans (13.5%).

Personal loans have often been touted to charge exorbitant interest rates, especially credit card schemes.

A simple illustration: when month end comes, there are often three options to settle your credit card bill, namely statement balance, outstanding sum or minimum sum.

The right thing to do would be to settle the statement balance. Settling the outstanding sum in full means that the credit card user is paying down the credit card debts which isn’t yet due, which defy the purpose of utilising credit card in the first place.

Paying only the minimum sum, which many people often do, would lead to one incurring high interest on the outstanding credit card debt.

This would snowball to levels which are highly exorbitant.

The statistics above is telling because it shows that excess consumption pattern is a key reason for bankruptcy.

In terms of youth bankruptcy, it makes sense especially with social media propagating binge spending, splurging on luxury goods and the shallow mindset of keeping up with the Joneses.

Living beyond one’s means owing to social pressure simply isn’t going to go out of fashion, more so in today’s digital age.

Proliferation of get-rich-quick schemes and scams

There is no doubt the lack of financial discipline and bad spending habits are reasons which contribute to this social issue.

However, I believe another major contributing factor is the increasing number of scams and get-rich-quick schemes. These schemes often tap on the most vulnerable segment of the society, namely those who are greedy, desperate or naive.

Greed is one of human nature’s biggest weaknesses. Despite the evolution of mankind, this primal instinct has continued to flow through the DNA of mankind. I do not doubt the importance of greed as a driver for progress, but too much and it becomes fatal.

Desperation, especially in the case of hardcore poverty or extreme emergency without anyone to rely on, there is hardly any choice to seek help.

We have seen this episode played out, especially in the times of economic recession, high unemployment not unlike the period of pandemic we have all been through recently.

Of the three, the most addressable would be the one who is naive, in short, one who lacks the necessary knowledge.

Stretching your ringgit

The importance of knowledge in this space cannot be more timely, especially when Malaysians are doing their level best to stretch their ringgit in order to cope with the increasing cost of living from inflationary pressures, which are spiralling out of control.

I would like to put it on record: Accumulating financial knowledge does not mean becoming an investment prodigy. It can be as simple as understanding the various options for people to stretch their money.

One of the most common savings hacks would be to channel your monthly salary to a “flexi” or “semi-flexi” home loan account. This simple gesture every month automatically lowers the interest on the loan to be incurred.

Your unused funds will be utilised to further reduce the principal and interest while you have the option to withdraw the excess amount if you require to use the funds.

Using a credit card or apps wisely to accumulate points for future spending, waiting for bargains such as free shipping options or vouchers on ecommerce platforms on special days of the months to purchase necessities are just a few examples of being financially aware.

Of course, the best thing to do is to be prudent in spending, in essence practicing delayed gratification at all times.

The best investment is knowledge

It is a good sign that there is an increasing number of licensed financial professionals such as Chartered Financial Analysts and Certified Financial Planners out there today.

We also do see many more collaborative efforts between industry professionals working hand in hand with regulators in adopting social media to reach out to the masses.

With the advent of social media, it is also crucial to sift out genuine financial literacy advocates. After all, there are many free resources online today.

It is not to say the smartest people from the top of their professions cannot be hoodwinked. We have seen how 34-year-old Ng Yu Zhi of Envy Asset Management and Envy Global Trading swindled prominent people like the general counsel for Temasek Holdings Pek Siok Lan, criminal lawyer Sunil Sudheesan, ex-president of the Law Society Thio Shen Yi, chairman of Vickers Capital Group Finian Tan and CEO of Chuan Hup Holdings Terence Peh, among others.

This purported nickel trading scheme amounting to S$1bil (Rm3.2bil) was the largest fraud or Ponzi scheme in Singapore’s history. The best part, red flags were obvious where both of the perpetrator’s entities above were not licensed by Monetary Authority Singapore and he was promising 15% returns in three months to his clients.

Ultimately, it comes down to the individual and a good sense of financial awareness when managing one’s own hard-earned money.

The best investment is in yourself. Whether it is learning a new skill or advancing your education, self enrichment gives the best return on investment.

As Benjamin Franklin once said, “An investment in knowledge pays the best interest”. He can’t be wrong considering his face is literally on the US dollar bill even till today. - StarBiz,

Ng Zhu Hann, the CEO of Tradeview Capital. He is also a lawyer and the author of “Once Upon A Time In Bursa”. The views expressed here are the writer’s own.

 

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Startups can apply for seed financing from S’pore fund

LuneX to provide funding to blockchain firms based in Malaysia

“Together with MAVCAP, we are actively looking for Malaysian-based blockchain startups, particularly in the early stage"

 - LuneX Ventures founding partner Kenrick Drijkoningen

 Meanwhile, MAVCAP CEO Shahril Anas said with blockchain technology being increasingly adopted in Malaysia, the VC firm saw the opportunity to increase availability of funding for innovative start-ups in this space and invested in LuneX.

PETALING JAYA: Blockchain startups based in Malaysia can apply for growth funding from LuneX Ventures (LuneX), a Singapore-based dedicated blockchain and cryptocurrency fund.

Launched in 2018, LuneX partners Golden Gate Ventures, a venture capital firm that invests across South-East Asia.

Government-backed Malaysia Venture Capital Management Bhd (MAVCAP), the country’s largest venture capital (VC) firm, also invested in LuneX in 2019.

“Together with MAVCAP, we are actively looking for Malaysian-based blockchain startups, particularly in the early stage, to back and grow, ” said LuneX Ventures founding partner Kenrick Drijkoningen, noting that Malaysia has a lot of tech talent and a relatively young population picking up new trends rapidly.

“In Malaysia, we see the crypto finance movement being adopted by young people in droves, meaning for many of these products, there is a large market to find product market fit, ” he added.

Drijkoningen also pointed out there were bright prospects for blockchain start-ups in Malaysia as the country has a very open economy with a lot of cross border movement and finance - areas that blockchain technology will make significantly more efficient in years to come.

LuneX usually invests at the seed stage of financing, meaning the company is raising anywhere from US$100,000 to a few million dollars.

LuneX looks at whether the blockchain start-ups fits its investment thesis and the size of the markets they are operating in, in addition to the experience and passion of the founding teams.

“The best entrepreneurs are those who are able to pivot quickly if they see changing market conditions, ” said Drijkoningen.

He added that an oft-overlooked criteria is whether there is good working chemistry between the blockchain start-up and LuneX.

“An investment is very much a long-term commitment and working with each other should be productive, fun and an overall good experience for both parties, ” he said.

Drijkoningen said South-East Asia has boomed as a start-up ecosystem over the past 10 years and LuneX aims to ensure it also develops as a leading region for blockchain start-ups.

He recalled that while the blockchain ecosystem was heating up in 2017, there was no dedicated VC fund in South-East Asia specialising in the industry.

With this knowledge gap at traditional venture capital companies, it was hard for blockchain entrepreneurs to raise equity financing. Thus, tapping on the emerging blockchain ecosystem in South-East Asia, LuneX invests in blockchain and cryptocurrency-related early stage start-ups, as well as application tokens, protocol tokens, app coins andother digital and cryptofinance technology.

LuneX has a portfolio that is diversified across tokens in key players like Ethereum, Terra and Kyber; to equity in crypto finance infrastructural companies like Propine (custody), Merklescience (AML solution), Sparrow (Exchange) as well as blockchain application technology like Accredify and Keyless.

Other companies LuneX has invested in include Fleek, Stakewith.us, DEXTF, Blue Wallet, Accredify and Bank of Hodlers.

Drijkoningen said LuneX draws on a wide network to support its portfolio companies and help with business strategy, hiring, marketing and fund raising.

“Specific examples include placing senior management, working on a rebrand, introducing new round lead investors and helping prepare pitch decks, ” he said.

According to Drijkoningen, the Covid-19 pandemic has been positive for digital transformation and growth in blockchain and crypto finance has accelerated, as more things need to be done digitally.

“That being said, it has been more difficult to make investment decisions, as we do prefer to meet people in person, visit their office and spend some time socially.

“Nonetheless, we are in active talks with a number of start-ups and will continue to seek out opportunities to expand our portfolio, ” he said.

Regarding LuneX’s partnership with MAVCAP, Drijkoningen said both companies share similar long-term views and look to grow the industry together.

“MAVCAP has an amazing reputation and this helps with finding great talent and companies and providing them with the resources needed to succeed.

“Also, MAVCAP really understands how the future of finance, fintech and blockchain are merging into a new era of innovation, ” he said.

Meanwhile, MAVCAP CEO Shahril Anas said with blockchain technology being increasingly adopted in Malaysia, the VC firm saw the opportunity to increase availability of funding for innovative start-ups in this space and invested in LuneX.

“With our participation in this fund, we can provide greater opportunities for Malaysians entrepreneurs with innovative blockchain-based solutions, combining the expertise of LuneX in the blockchain industry with MAVCAP’s track record and deep knowledge of the local VC ecosystem, ” said Shahril.

He noted that LuneX has a wealth ofexperience in blockchain, which for MAVCAP is an uncharted sector.

“We are able to tap into the knowledge and experience of LuneX to provide training and actively engage with industry players, including regulatory bodies and start-ups, to create a conducive and secure blockchain framework for Malaysia.

“Also, our local VC talent pool gains technical know-how to be able to identify local start-ups with good potential and make investments in this sector, ” said Shahril.

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Where does the money go?

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

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

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

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

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

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

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

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

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

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

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

Central bank concerned

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

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

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

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

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

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

By Alan Tong

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



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House buyers' traps: purchasers lose their homes because of defaulting developers

WHY does this keep happening to house buyers in Malaysia?

This incident happened two years ago in Taiping where a laid-back community of mainly retirees found the roof over their heads nearly, and in some cases, actually, blown away. The purchasers had paid the developer and had moved into their houses and lived there for 10 years. Problem was that the purchasers paid the developers in cash remittance without taking out end-financing loans.

Unknown to the purchasers, the developer did not pay the developer’s bank to settle the developer’s loan vide bridging loans. The developer’s charge remained and grew into bigger indebtedness to the bank.

Apparently, the developer’s bank had not been collecting payment of the loan from the developer, even as the developer was collecting the instalments of the purchase price from the purchasers, as provided in the sale & purchase agreement (S&P) schedule.

Having waited for 10 years for the developer to settle his loan, the bank realised that the developer was not going to pay; that foreclosure was unavoidable.

The bank had a problem. Apart from the developer’s loan having ballooned over the years because of the bank’s laxity in not insisting on the developer paying promptly, there was also political repercussion. There are a few issues here, namely, the destruction of a settled community in a pleasant location, the injustice of the S&P; the solicitousness for developers in preference to purchasers on the part of the powers that be; and the embarrassment resulting from the bank’s philanthropic ramifications.

Has the bank breached the fiduciary duty of care to the purchasers as the bridging loan financier to the defaulting developer?

The crux of the problem is that the Housing Ministry-prescribed S&P allows the developer to build the purchaser’s house with the instalments of the purchase price paid by the purchaser from the day the S&P is signed. On top of this, and even more seriously, the developer is allowed to borrow from the developer’s banks on the security of the purchaser’s property.

Where a purchaser has paid the purchase price in full to the developer, and the developer does not pay the developer’s loan secured by the purchaser’s property, the developer’s bank may foreclose, auction off the purchaser’s property to recover the developer’s loan.

The developer suffers nothing. It has received the purchase price and pocketed it. The developer borrowed from its bank and gave the purchaser’s property as security, and with foreclosure the developer’s bank recovers its loan, and so the developer owes no money to the bank. It takes no risk, suffers no loss.

Purchasers the victims

It is the purchaser who loses. He loses his house and he has to settle the loan he took to buy the house with increasing interest on it. He is blacklisted, which means he can never borrow again. He may never buy a house again! Is this fair to the buyer who never did anything wrong to the developer or to the developer’s bank? In the Taiping housing fiasco, some of the purchasers had to buy their houses again at prices bloated by 10 years’ arrears of interest (i.e. pay the developer’s debt) to stave off foreclosure.

Who is to blame for this sad state of affairs? We will consider each one in turn. The most obvious candidate is, of course, the developer. Not so. It is the Housing Ministry for providing a standard form S&P that allows this to happen. Firstly, the S&P allows the developer to borrow money from a bank with a charge on the whole housing development land before it is sub-divided and sold. This pre-sale loan is referred to in the recitals to the S&P. This is understandable as the developer needs money before sale. The result of this is that the purchaser buys an encumbered property but the purchaser is not told how much of the developer’s loan, if apportioned equally, is borne by each purchaser’s sub-divided land (the redemption sum). After sale, the developer collects money from the purchaser from the day the S&P is signed, and should be able to make use of it to meet all the expenses of the development. However, after the sub-divided land is sold, the developer keeps borrowing, and no effort is made to keep the purchaser informed about the increasing amount of the developer’s loan/ the redemption sum.

The purchaser’s consent to the additional, post-sale loans is taken for granted. In fact, the purchaser cannot withhold his consent as long as the purchaser receives some fig-leaf protection from the developer’s bank in the form of an undertaking not to foreclose.

What is the use to the purchaser of the developer’s bank’s undertaking not to foreclose? What the purchaser needs is the absolute undertaking by the developer and the developer’s bank that a purchaser who has paid the purchase price will not face foreclosure vis-à-vis the disclaimer(s). This would have helped the Taiping purchasers. It is, therefore, a matter between the developer’s bank and the developer, with the Housing Ministry playing the proper protective role required of it by law, to ensure that such an undertaking/ disclaimer is given by the developer’s bank to the purchaser. This and other issues arising from the S&P have been raised by HBA with the Housing Ministry which continues to procrastinate.

To the developer’s bank, the loans to the developer on the security of the purchaser’s land is regarded as if it is the developer’s property entirely; it is of no concern to the developer’s bank that some of the purchasers have paid the developer and the developer may or may not have forwarded some of these payments to the developer’s bank.

The developer’s bank’s concern is whether the whole loan has been settled by the developer-borrower. If not, the developer’s bank feels secure in the knowledge that the entire housing development land is available to the developer’s bank to recover its loan/s. In so far as the developer’s bank is concerned, payments made by each purchaser to the developer is of no consequence. The transaction between the bank and the developer is the one that matters.

Under the then S&P, there is also no control over how much the developer should be allowed to borrow, for what purpose and by when it should be settled. Each loan to the developer increases the risks to the purchaser.

In the recent past, developer’s borrowed only for the purpose of meeting the expenses of the housing development. The developer was allowed to borrow twice only – once before sale and once after sale. Although the developer was not required to disclose the redemption sum, there was a very important safeguard. And that is, the developer had to settle the redemption sum to the developer’s bank before completion of construction so that at the end of the 24- or 36-month construction period, as the case may be, the property was free from the developer’s encumbrances and safe from foreclosure, even if the property was not transferred to the purchaser just as promptly. It was at least safe from foreclosure.

Bank initiatives

Banks/financial institutions should take the initiative to recover progressively the loan it had given the developer. Banks should stipulate as a condition for giving loans to their customers (developers) that the latter open its Housing Development Account (HDA), a statutory requirement, with the same bank and require the instalments of the purchase price be paid into it, and authorise the bank to deduct the developer’s loan by instalments from the HDA so that when the purchaser completes payment, the developer’s loan is also settled.

There is no such statutory requirement in the S&P so that if it happens at all, it’s serendipity!

HBA had meetings with the Housing Ministry to propose changes to the law and S&P with the view of giving greater protection to purchasers within the framework of the sell-and-build (which Rehda defend so fervently) but some pertinent ones had been objected by Rehda.

As if that is not enough, the ministry too have rejected those proposals vis-a-vis pre-determination of redemption sums in the S&P transaction. And that notwithstanding the Housing Development Act 1966 stating that it is inter alia for “the protection of the interests of purchaser.”

The next continuing article will dwell on the new “protection” or whatever in lieu thereof approved by the Attorney-General’s Chambers vis-à-vis “redemptions and disclaimers”.

Buyers beware by Chang Kim Loong

Chang Kim Loong is secretary-general of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation.

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