Credit Card Spenders, It Pays To Pay Up!

Effective 1 June 2008, the Central Bank of Malaysia (Bank Negara Malaysia) will introduce a new Tiered Interest Rate Structure on retail purchases using credit card. This structure has been introduced to inculcate prudent financial management among credit card users. Card users who demonstrate good track record in settling at least their minimum payment promptly will enjoy reduced finance charges.

Currently, all outstanding payment after due date will be charged a standard 18% interests per annum calculated on a daily basis. The banks are therefore often labeled as the "legal loan shark" as a result of charging such an exorbitant high rates! Anyhow, the intention was to deter credit card defaults or using credit card as a debt instrument. However, the results often showed an increasing trend of debts and/or bad debts, which is not the intention!

As for late payment, the current policy is to charge 1% on the minimum payment amount.

On the other hand, interest free period is currently set to 20 days, for card holders to enjoy 20-day interest free period upon purchase.

With the tiered structure, different interest rates will be charged based on past payment track record:

Card users with prompt payments for 12 consecutive months - 15%

Card users with 10 or 11 times prompt payments in the last 12 months - 17%

Card users with 9 or less prompt payments in the last 12 months. - 18%

Sounds good for card holders with prompt payment track record? Read carefully! First of all, the interest-free period for card holders who do not pay in full will be effectively removed! That means, although one may pay the minimum payment promptly but without paying full settlement, all amount from new transactions posted will be charged interest on the day the purchase happens! Secondly, the late payment charge is now set at a minimum of RM10 or 1% on total outstanding balances!

The outcome of all these is that the card holder may end up paying much more interests than before if the person does not settle the outstanding card balance in full!

At a start, paying such an exorbitant amount of interest is not right, let alone paying more!

How is this differ from your country?

Malaysia Real Estate Outlook: To BUY or not to BUY?

Last week I was invited to attend a property conference organized by one of Malaysia's leading universal broker, RHB Investment Bank. The conference aimed to provide the latest outlook analysis of the regional property market with emphasis of course on Malaysia's property market, mainly residential, commercial and retail in the mainstream Klang Valley arena. Key speakers include reputable senior personnel from Jones Lang Wootton, REHDA, Regroup Associates and Axis REIT.

"To BUY or not to BUY! Where are we in the Malaysian Property Cycle"? This was the exact catchy tag line presented by RHB before the event. It has certainly caught my attention! However, as some of my past experience tells me, this could be yet another one of those event that was somehow "engineered" to inform people of all the rosy outlook and the exciting stories such as record land or property prices transacted around the area! Worst still, they may even come with some marketing flavour!

Well, i was rather pleased to see that first and foremost, the event was very professionally organized, with nice food being served too! Secondly, i reckon i did get quite a fair bid of value from the speakers whom have (to a great extent) shared a rather unbiased view and offered some real intricacies within the local property scenes!

In a nutshell, NOT ALL IS ROSY! The following key phrase probably reflected the current environment pretty rightfully: "cautious but optimistic outlook" Well, what it means really is left to anyone's interpretation! On a personal note, i do agree with the consensus view that real estate property may soften for the foreseeable future, particularly going into 2009. According to one speaker, certain degree of "adjustment" is possible depending on location and choice of property, but it SHOULD NOT be a case of gate crashing! For 2008, it should still be a relatively good year (for the high-end condominiums and Klang Valley commercial sector, particularly quality or "grade A" office sector).

Other key takeaways include:
- Malaysia property prices are still relatively "cheap" among the other regional countries such as Thailand, Singapore, Indonesia, Vietnam, Hong Kong and major cities in China. However, the bad news is there is still an impression that Malaysia is relatively under-marketed! (i.e., no good if it continues to be a hidden jewel!)

- quality or "grade A" office sector in Kuala Lumpur is expected to offer a better prospect than other sectors for at least the next two to three years, due to current shortage in good quality supply.

- High-end condos, while promising (from price perspective), may not be everyone's cup of tea, due to high holding cost and likely unsustainable yield factor. This is better suited for investors (particularly foreigners) with deep pockets and people who just care more about the brand and prestige, and long term capital growth potential. Yield is not something these group of people are too concern about. (Bad for conventional wisdom, i.e., positive cash flow, good ROI)

- There are still signs of abundance of interests coming from foreign investors, particularly from Singapore, Hong Kong, South Korea and the Middle East.

- One speaker advocated that we are only in the beginning of the boom cycle, assuming it started from 2005.

- For the retail sector, market has generally soften, particularly for some mid to high-end shopping malls, due to lower consumer spending. In some cases, vendors have to give substantial rental rebates to merchants at some high end mega shopping malls including The Gardens and Pavilion!

To sum it up, it's fair to say that there is no best time or worst time to buy a property. However, it is likely that more better buys will emerge during challenging moments like this or if market soften further. At the end of the day, having a fair understanding of the potential demand and supply always helps.

Overall, i believe the economic slowdown has already happened since Q2 of 2008, ironically further accelerated by the recent "astonishing" 40% fuel price hike! I happen to call this a "political suicide" at the worst possible moment....A classic case of pouring "fuel" to fire!

Happy With A Savvy Investment Return!

This year has been a very challenging year in terms of the global investment climate...it has been series of negative events followed by another, don 't you agree? Same old concerns keep popping up, from sub-prime to credit crunch, escalating crude oil prices, inflation, etc! So the key question is how fast and how far the bugs are going to spread? God knows, really!

Some experts say 2009 will be the end of the boom cycle. To me, it appears more like 2008! Light at the end of tunnel? Well, may be traces of light at best but still dim, i should say!

Malaysia of course is no exception, although the country has not been hit so badly by credit crunch. However, the current political uncertainties have indeed thrown a large spanner, where speculations constantly alive that the leading opposition party may overturn the Government within the next few months! It does not help the fact that no opposition party has ever led the country to become the Governor. So i could understand the jitters everywhere, especially from abroad!

Like I always emphasize, it's good to diversify one's investment portfolio, instead of putting all in one basket! For the Warren Buffet fans, of course you would say otherwise?

Real estate property is definitely one of the most defensive and stable asset class of investment. Arguably the best hedge against inflation, and generally stands good against time. Of course there are some exceptions, particularly for places where huge price increase occurs and bubble formed. In the not so distant past, we have witnessed that happened for Hong Kong, followed by recently US residential market and Vietnam! Well, the good thing was at least they had a good run once upon a time!

Recently i manage to dispose off one of my real estate property for a decent 45% gain (gross) within 4 years! Not bad indeed! Not to mention the positive cash flows that I had been earning from rental income for the past 4 years too! My gross rental yield averaged 11% to 13% per annum! I have decided to cash out due to receiving an excellent offer at a time when the economic climate is going through rocky roads. I believe i could certainly keep the spare cash for the next better opportunity out there, especially during times of crisis!

Bullish Outlook for US?

In the current doom and gloom over the global financial markets and US stock indices, who would bet there is a bullish outlook for US stocks?

The following post is a direct extract from an article posted by iCapital that i think serves an interesting global view for further market digestion.

As opposed to the doomsday scenario, iCapital thinks the US economy is not falling off the cliff.
We all know that the US housing industry is in dire straits. And based on what is being reported, it would seem that there is no end in sight yet.

On the other hand, when the US housing industry was expanding robustly, there were few who worried there would be a nasty end until the end actually occurred.

Whatever the asset class may be, the behaviour of investors is the same; they are often one-track.

This means that when there is an expansion or contraction, they expect that trend to persist until the trend eventually changes. The same applies to the current housing contraction.

For now, most see the current contraction and the accompanying woes as having no end. Such thinking, of course, does not make sense. Why?

One, the contractions in both sales and starts have been very prolonged.

Two, the contractions in both starts and sales have been steep.

Three, interest rates have dropped, even at the longer end.

Four, as opposed to the doomsday scenario, i Capital thinks that the US economy is not falling off the cliff.

As house prices get lower, the houses become more affordable, which means that eventually housing sales would pick up again. Finally, the population of the US is growing relatively fast.

The chart shows the US population, in total and percentage change, from 1950 to 2007.

During this period, the US population doubled or increased by almost 150 million. In that same period, Japan’s population increased 53% or 44 million.

From 1990 to 2007, the US had an increase of 52 million people or a jump of almost 21%.

In this 18-year period, Japan’s population increased only 4.16 million or 3.4%. Japan’s population peaked in 2004 and is now declining.

From 2004 to 2007, the US added 8 million people.

i Capital strongly believes that the population growth is an important factor.

Besides helping one to understand that the US economy in the coming years will not be like the Japanese economy, post-1990, the sustained and rapid population growth of the US means that the current drop in demand for housing is only temporary.

When the recovery comes, there will be quite a fair bit of pent-up demand to fulfil.

If the current housing contraction ends in 2008, the contraction would have lasted three years and, in that time, there would be eight million to nine million more people in the US.

Taking all the above factors into consideration, one should not be like the lemmings and expect the housing woes and contraction to go on forever.

While it is easy to be caught up with the pessimism, it is time to look beyond the housing valley.

The implication of this for the US economy is simple.

Over the next 12 months or so, instead of being a negative drag on the US economy, i Capital opines that the US housing industry would become a positive contributor to US gross domestic product growth.

Since the subprime problem broke out in August 2007, i Capital has remained steadfastly optimistic over the New York Stock Exchange (NYSE).

If there were one single factor that can prevent a rally or bull market from breaking out on the NYSE, it would not be a prolonged, weak US economy.

As advised previously, the factor would be an overheating US economy and an inflation rate that is too high to bear.

Many economists, investors, strategists, etc have been very pessimistic over the US economy. i Capital does not share this doomsday view.


In fact, i Capital is concerned that all the recent prognosis, worries and fears have resulted in the US politicians, policymakers and central bankers taking too many stimulus actions at the same time and that the end result would be a too-strong US economy.

Such an outcome, which has a reasonable chance of unfolding, would be a major dampener on the NYSE.

Assuming that this overheating, inflationary scenario does not materialise, i Capital’s bullish outlook for the NYSE remains unchanged.

iCapital is a close-end fund listed in Malaysia's KL Stock Exchange. iCapital is owned by Capital Dynamics, the first independent investment adviser in Malaysia. It has been described as "one of the country's most iconoclastic and critical research outfits".

How To Deal With Inflation?

With the recent whopping petrol price hike and rising cost of living, here are 18 ideas to tackle inflation and stretch your dollar to the limit...

1. Budget and Plan for your shopping and prepare a shopping list - keep to your budget and do not spend unnecessarily;
2. Monitor prices of shopping list among different locations and opt for the least expensive pricing;
   
3. Buy in bulk or bigger quantities - generally comes with bigger savings. However, make sure there is no wastage;
4. Buy generic or household brands - they are generally cheaper due to savings passed on to consumers due to zero advertising;
5. Buy local goods instead of imported goods, unless it's absolutely necessary due to for instance, better feature and/or safety;
   
6. Time your purchase during special promotion period - this is particularly applicable for non-essential items such as clothing and electrical;
7. Less dining outside and more dining inside - cook at home will save you money from dining at fancy restaurants;
8. Look out for loyalty programs and earn reward points while shopping - save on loyalty programs (such as petrol card where certain amount of rebates given in return for petrol pumped) and convert the reward points to free merchandising;
9. When dining out, try avoiding places which charge additional service charges and/or taxes;
10. Pick lunch over dinner when dining out is necessary - lunch time typically offers better set-lunch prices;
11. Plan your journey, especially when involving multiple locations - save on making duplicate trips and better planned journey;
12. Choose a nearer local holiday destinations where driving a car is necessary;
13. Choose an appropriate mobile phone call package that suits your lifestyle. eg., prepaid vs postpaid;
14. Consider to switch or replace your car with a fuel-economy vehicle;
15. Consider on-line banking and online utility payment - save on petrol and time;
16. Cut down on utility consumption such as gas, electricity and water;
    
17. Refinance your real estate property - take advantage of lower interest rates of repayment. For the more savvy investors or business people, the surplus cash (from refinancing) can be applied to investments with better return and/or working capital. Caution - this is only for people with the right discipline!
18. Choose wisely - Go for better alternative credit card debt instruments such as Balance Transfer and/or personal loan which carries a much lower interests. Do not go for the normal credit card debt that charges as much as 18% p.a.!
19. Make you money grow faster than inflation! There's no better than Save and Invest!
    

Do you have other ideas to tackle inflation?

Restructured Fuel Subsidy Scheme Just Announced!

This evening, the Government of Malaysia just made an announcement the newly restructured Fuel Subsidy Scheme. Here's the gist of it....

• Effective 5th June 2008, fuel petrol price raised to RM2.70 per litre; diesel up by RM1 per litre to RM2.58; ULG 92 up 74 sen; ULG 97 up 78 sen;
• Cars up to 2,000cc, pick-ups up to 2,500cc to get RM625 annual cash rebate; motorcycles up to 250cc get RM120; rebates via postal order from July 1, 2008;
• Power sector gas raised to RM14.31 from RM6.40 per mmbtu; IPPs pay 30% windfall tax on PBIT; Tenaga can raise tariffs by next month; households using less than RM40 of power will not be affected;
• Industries using less than 2mmscfd of gas to pay up to RM24.54 per mmbtu versus RM9.40 now; industries using more than 2mmscfd to pay RM32.56 per mmbtu from RM11.32 now;
• Cars above 2L get road tax discount of RM200; motorcycles more than 250cc, road tax discount of RM50;
• Crude Palm Oil CESS removed; Instead, this will be replaced with a windfall tax at 15% at threshold of RM2,000 per tonne for the oil millers; East Malaysia millers to pay 7.5%; (CESS is a levy imposed on palm oil producers by the Government to help subsidize the cost of producing cooking oil in Malaysia)
  

With the new scheme in placed, the expected impact are:

• Annual inflation expected to rise towards 4%-5%;
• Rebates for motorists expected at RM5 billion;
• Government to maintain GDP growth at slightly above 5% (instead of the previously projected 6%);
  
• Fuel subsidy this year expected at RM18 billion versus RM57 billion;
• Government expects to save RM13.7 billion from fuel subsidy; savings to go towards essential items such as food security, cooking oil, rice, bread, flour, among other things.

Wow! Fuel price went up by a whopping 40%! Worst thing is this could well be only the tip of the iceberg!

What's your view on this re-engineered fuel subsidy scheme?

Growth & Inflation: A Double-edged Sword?

The US sub-prime and credit crisis have affected most parts of the world in terms of huge tightening of funds availability, and a slowdown in global economy. However, we have yet to see whether the scenario of recession would happen to these major countries such as US, UK, parts of Europe and other emerging markets. On the other hand, the skyrocketing crude oil prices have caused severe inflation across the globe, the collapse of airline companies, food crisis and severe increase in cost of material!

Vietnam, for instance, has been labeled as the next emerging China, with solid GDP growth , rising real estate property prices and one of the best performing stock market last year! By the mid of 2008, the scenario has reversed completely, with property prices falling as much as 40% since late last year and is expected to continue until the end of the year, stock market crashing by about 55% year-to-date, and a dizzying 25% inflation that could potentially tear down Vietnam's economy!

In the meantime, US is still experiencing jittery economic environment, UK is potentially experiencing a real estate market collapse and financial tightening, China had just experienced a tragic earthquake that it should derail its solid growth going forward!

Back home in Malaysia, the Government is about to announce a new petrol subsidy program in order to reduce its huge budget deficit as a result of the huge subsidy it has to shoulder, despite the huge increase in the price of crude oil. Although the reduction (and ultimately the removal) of petrol subsidy is good to achieve an efficient economy in the long term, this will certainly put a huge dampener to all Malaysians and their consumption! It will also certainly create a spiral effect on inflation on all aspects of consumptions too! If this is not managed carefully, it could ultimately affect economic growth, something the present Government cannot afford to let it happen, given already the political pressure and uncertainties.

Stagflation, perhaps?