Tag Archives: economics

Malaysia State Pension Fund Investments, Including Large Purchases of European Real Estate

A recent articles shares some interesting details on the Malaysian state pension fund. For one thing they say the pension pool is the 6th largest in the world at $160 billion. I find that pretty amazing.

The article also say the fund aims to increase foreign holding to 23% (from 18% currently) within 2 years. As part of that the fund is investing in industrial property in Germany and office buildings in Paris and London and is considering buildings in New York City. 70% of Singapore’s sovereign wealth fund, Temasek, is invested overseas (it stands at $170 billion, just ahead of Malaysia).

The current distribution of the Malaysian portfolio is: 55% bonds, 35% equity, 5% in real estate and 5% unspecified.

Mandatory deposit into the fund of nearly a quarter of Malaysians’ salaries (by the employee and employer) have build up the large investments in the fund.

It is somewhat ironic that Malaysia is simultaneously encouraging others to invest in Malaysia and choosing to invest retirement assets outside Malaysia (due to high valuations and low yields in Malaysia). While it is ironic, I think it also makes sense. There is great potential for land in Malaysia so investors seeking to capitalize of potential could make wise decisions to invest in Malaysia. And it makes sense to diversify investments for Malaysia retirement funds.

Malaysia pension fund to spend 500 million euros on German, French properties

German industrial land is a third of the price of comparable areas in Malaysia, where speculation has driven up prices sharply.

The EPF’s move to diversify its investments and secure higher payouts comes as Malaysia’s government grows concerned its citizens are not saving enough for their retirement, with 70 percent of retirees exhausting their EPF funds within 10 years of leaving the workforce.

I am a bit confused (I don’t have enough details) by the conflict between 25% saving rate and using up retirement funds in 10 years. The most sensible way to reconcile these seemingly odd statement would be to guess that the fund was only “recently” established. If you save 25% of your salary for 40 years you should have a very good retirement income. If you only saved for 10 years that would be a problem. Also if you saved 5% for 30 years and 25% for 5 years before retirement that would be a problem.

Related: Investing in Palm Oil PlantationsSingapore and Iskandar MalaysiaThe Potential of Iskandar is Very High but Investing in Iskandar has RisksHow Much of Current Income to Save for RetirementMalaysian Residence Pass for Skilled ProfessionalsIskandar Housing Real Estate Investment ConsiderationsSaving for Retirement

Best Retirement Options: Ecuador, Panama, Malaysia

The MarketWatch web site (connected to the Wall Street Journal) provides a list of top international retirement destination and places Malaysia in the 3rd spot, after Ecuador and Panama.

The article notes the benefits of Malaysia as

  • Good and reasonably priced health care
  • English as the unofficial “first language” (it is a bit of a stretch to claim this, in my opinion, but you can get by in English).
  • Good weather with beaches, islands and jungles to enjoy.
  • Good food
  • Affordable prices

I would add the MM2H visa and the ability to buy property.

The list is packed with Central and South American options along with 2 in Europe and 2 in Asia. Rounding out the top 10 are: Mexico, Costa Rica, Uruguay, Colombia, Spain, Thailand and Malta.

Related: Retiring Overseas is an Appealing Option for Some RetireesMinimum Housing Prices for Foreigners Investing In Malaysia Rise to RM 1,000,000 (lower for MM2H participants) – Penang Condo MarketHotels and Accommodations for Travelers in Malaysia

Minimum Housing Prices for Foreigners Investing In Malaysia Rise to RM 1,000,000

Excerpt from a speech by the Penang Chief Minister Lim Guan Eng, 19 April, 2012:

As a first step to protect the interests of local Malaysians, the state government is proposing to increase the minimum limit for foreign purchases of all properties from the existing level of RM 500,000 to RM1 million with a higher limit of RM 2 million for landed properties only in Penang island and retaining the present RM 500,000 limit for Permanent Residents.

In 2010 and 2011 there were 774 and 890 property transactions involving foreigners. These transactions constitute only 2.98% and 2.26% respectively of the total number of transations in Penang. However to protect the interests of locals to ensure that they enjoy priority for less expensive properties, this restriction will help to provide a level playing field since foreigners have the advantage of a higher currency.

The Penang state government stresses that we welcome foreign participation in our economy including our property market. The state government feels that foreign participation can be profitable to both Penangites and foreigners in the higher end market where they can add value by helping Penang to transform itself into an international and intelligent city.

We would like to get feedback and opinions from NGOs, property developers, foreigners and the public on this proposal. The state government hopes to implement this proposal the earliest by 1 June 2012 or the latest by 1 July 2012.

It would be good to know what percentage of the sales from RM 500,000 to RM 1,000,000 for condos, and RM 2,000,000 for landed properties were purchases by foreigners. But it seems like an overly drastic measure given a 2.5% rate of foreign purchasers. To slow the rise in prices I believe increasing the downpayment requirements (including the extremely minimal downpayment requirements on housing in the process of being built. To be effective this should be done on all purchases (not just foreigners).

Without more focused data on the foreign purchases in the ranges being targeted however it is hard to determine what the impact of any measure could possibly be.

Participants in MM2H (as well as permanent residents) are permitted to buy/own 2 properties at the RM 500,000 minimum level; which could definitely increase the applications for that program. That could be one of the reasons this action was taken.

Related: Penang’s Economic GainsPenang Condo MarketConsiderations for Investing in Iskandar Housing

Treasures and Books Store: Used English Language Books in Permas Jaya

Treasures and Books Store in Permas Jaya. Johor Bahru

Treasures and Books Store in Permas Jaya. This photo is taken as you exit McDonald's.

The Treasure Store has a new name and new location. The store has moved to Permas Jaya (where the Straits View Condos are) from the Danga City Mall in Johor Bahrus’ CBD. The new Treasures and Books Store is strait ahead as you step out of the McDonald’s. It is on the same block as the Time Hotel.

It is a great book store for anyone interested in English language books in Johor Bahru (they also have Chinese language books). Books cost quite a bit in Malaysia and Singapore. I am not exactly sure why. I would imagine maybe due to tariffs of some kind, and maybe low demand. Though the book stores seem busier than the average stores in malls, not just for browsing but for purchases. There are very few used books stores (that I have seen) which is odd (since the high new book prices should stimulate the used book market.

photo of books on shelves in the store

Inside the Treasures and Books Store

The Treasures and Books Store has a great selection of “beach reading” (light, enjoyable, escapism) and also offers many used books (which saves money). And you can return books and they will buy them back (for a bit less) so if you read quite a bit you can save a lot over buying new books and just stacking them up in your room.

The store has lots of books by authors such as: John Grishham, J. K. Rowling, Jefrey Archer, Robert Ludlum, Tess Gerritsen, James Paterson, Robert Harris, Sue Grafton, Michael Crichton, Douglas Preston, Stieg Larsson, Richard North Paterson.

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Danga City Mall in Johor Bahru

View of Inside of Danga City Mall

Inside the Danga City Mall in JB - unfortunately the upper floors have far too many vacant store fronts.

The Danga City Mall is my favorite mall in JB. It has several very nice small restaurants and a high number of technology stores. The top floors also include a bowling alley, paintball arena and archery range. Unfortunately the mall also has quite a few empty shops. At least for now it also has my favorite store, the Treasure Store (which has lots of great used english language books): the Treasure store is moving to Permas Jaya next month.

photo of authorized Apple reseller store in Danga City Mall

Ascentouch (authorized Apple reseller) part of the large IT Valley area in Danga City Mall, JB Town.

The IT valley has the richest collection of technology stores in Johor Bahru including Samsung, Sony, HP, and Ascentouch (Authorized Apple reseller) used computer stores, computer repair, computer equipment stores. They have the normal assortment of phone stores and internet providers.

The restaurants offer some really good food very inexpensively. Two of my favorite are JB Station Kopitiam and Agena Sea (which moved next to the exhibit hall recently). On the lowest level there are about 8 good restaurant choices including Hokka Hokka Japanese Food, A1 Cafe. And there are probably about 8 more upstairs, including a small Italian restaurant which is decent (and better than I would think it could be for such a small location) though the seats are not very comfortable (more suited to drinking than eating). There is also a small grocery store that has some things but it would be better if it were a bit larger.

photo of the bowling alley

Bowling alley in the Danga City Mall - there is also a paintball arena.

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Residence Pass for Talented Expats

I wrote about the Malaysian Residence Pass for Skilled Professionals previously. I found some up to date links to the official site, with some updated information (do see my original post, as the post shares information I don’t see on the official site now – that information may not be official but it does provide some good ideas on what was being thought of when the program was originally announced).

One part of the plan for long term economic growth is to focus on workers with highly valued talents globally: technology, engineering (oil production, construction, manufacturing…), higher education, health care… From the official TalentCorp site (this is the organization the government is putting in charge of implementation of the efforts to attract and grow talent):

a nation’s economic growth would hinge on its ability to attract, nurture and retain top talent. Malaysia has thus far achieved some success in steering its economy to current levels. Going forward, talent is expected to play a key role in supporting Malaysia achieve its objectives of propelling the economy to a high-income status.

Major cities around the world have thrived because of talent and their ability to capitalize on the best and brightest minds around. Malaysian professionals from abroad and top foreign talent complement the Malaysian talent pool, providing variety and diversity in terms of expertise and experience. Our local pool must be enhanced with the best skills and talents that can be tapped globally.

We welcome talent to Malaysia, which offers a host of opportunities for talent to develop and enhance their skills and experience in key sectors of the economy. The Malaysian Government has rolled out various initiatives and programs to engage top foreign talent in the long term.

As I mentioned the Residence Pass (which offers a long term visa without being tied to 1 employer – for skilled professionals) program was signed in April of 2011 to attract and keep top talent in Malaysia. Since my original post the program is officially providing the new passes. However, at this time, it is limited to those expats already with a current visa and having been in Malaysia on such a visa for the last 3 years.

Obviously this is a very small percentage of the talent available globally. So the program will obviously need to expand to be more useful. But I don’t see any details on when that will happen. I have asked but have not received a response yet. Please share information you have that others would find interesting.

As I said before, I think this effort to attract, retain and encourage the development of internationally valuable talent is a very wise move by Malaysia. I have written about the importance of science and engineering to economic development on the Curious Cat Science and Engineering Blog for years: How to Build a World Class Technology Economy (2006)The Economic Benefits of Engineering Excellence (2007)Keeping Out Technology Workers is not a Good Economic Strategy (2009)Science and Engineering in Global Economics (2006)Asia: Rising Stars of Science and Engineering (2007).

Related: Penang Condo MarketStrong Singapore DollarSingapore Ranks Highly as an Expat Destination

Malaysian Residence Pass for Skilled Professionals

The Residence Pass program officially launched on April 1st. I still can’t find much information on it. If I am reading things right, Talent Corporation Malaysia Bhd has been tapped by the government to lead this effort.

The Residence Pass was a new immigration instrument which offers 5 to 10 years of residence and work in Malaysia. Unlike other employment passes it is not tied to a specific employers so it allows workers to move between jobs much more easily. For the initial phase of implementation, Residence Pass applicants must hold a valid Employment Pass. The Residence Pass is targeted at world-class talents and thus, to secure approval, applicants must demonstrate a high level of professional achievements, supported by possession of relevant qualifications and work experience, especially in key economic sectors, as identified under the Economic Transformation Programme.

Currently, only those with current employment passes are eligible to apply (but eventually it will be opened to others). To requirements/materials needed to apply for the RP Talent pass are:

  • Academic Qualification: Bachelors / Masters / PHD degree in any discipline from a recognized Institute of Higher Learning, Diploma or a Professional / Competency Certificate from a recognized Professional Institute.
  • Total years of working experience: MINIMUM total of 5 years working experience.
  • Salary: MINIMUM gross annual salary of RM144,000 (approximately US$50,000)
  • Industry/Sector: Applicant from all industries and sectors are welcomed to apply.
  • Local Sponsor: Applicant must have a local sponsor i.e Malaysia Citizen, 21 years old and above.
  • Recommendation: Any recommendation from regulatory bodies will be an added advantage.
  • Years of experience working in Malaysia: MINIMUM total of 3 years working experience in Malaysia and it must be continuous.
  • Income Tax File No: Applicant must have an Income Tax File Number in Malaysia and have paid income tax for a MINIMUM of 2 years.
  • My understanding (though I could definitely be wrong) is that the last two will be removed at a later date, I believe, allowing those who have not worked in Malaysia to apply. I believe the idea is to retain and attract new talent, therefore the last two requirements don’t seem to make sense. My guess is they are just using it, initially, as a way to control applications.

    The Residence Pass Talent Application Form is required only for manual submission of applications. Required documents include: copy of passport, updated resume, and a copy of educational certificates. It seems to cost 2,000+MYR to apply (about $700).
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    Online Resources for Living in Johor Bahru

    Johor Bahru is right next to Singapore on the Southern tip of Peninsular Malaysia. Many working in Singapore live in Johor Bahru for the substantially cheaper rents and costs. Malaysia has create the Iskandar Development Region to focus on creating economic success in Southern Johor.

    Singapore and Malaysia have been moving to encourage cooperation on projects that cross the border. The 2nd link added additional capacity for car, truck, motor bikes and buses and they are now working to add MRT (Mass Rapid Transit trains) link between Johor Bahru and Sinapore.

    Here are some resources I have found online for those interested in considering a move to Johor Bahru:

    Blogs about Johor Bahru

    Sites useful for moving to Malaysia

    Penang Condo Market

    See Topic: Penang Condos 2011 forum discussion of this topic for background information.

    In general property prices can only support what local jobs support. So is Penang adding lots of jobs that can support costly condos? I don’t know, but am skeptical.

    Penang may be a bit of an exception (as a “retirement local”). For retirement locations if you have a future stream of retirees then you can support higher prices than local jobs (this is riskier to rely on as a investor). Retirement locals that are cheaper than where those worked are coming from can seem cheap so those working elsewhere are willing to “overpay.” This could be the situation for Penang.

    MM2H buyers don’t seem that can actually affect the market. Speculators are likely a big player. The smart public policy action in this case is to raise down-payment requirements and increase transaction taxes. This won’t stop a bubble from forming but will reduce the size of the bubble and limit the damage when it pops.

    I wonder if a significant portion of demand (in addition to direct speculation) is Malaysians working in KL, Singapore, USA… buying a condo today that they don’t plan on living in for years. This can be a form of speculation but is a much more solid foundation for sustaining prices. If you have a high working income, purchasing a condo in Penang could be relatively cheap. If you are buying one, to rent for 10 years and then move back into you are unlikely to be harmed greatly when prices drop. Now some people will do this and see their first condo doubled in value and then buy two more, over-leverage themselves and have a great ride up the bubble and then get clobbered when the bubble bursts.

    For the Penang area to sustain a long term boom, Penang needs to develop a sustainable long term pool of buyers. the safest way to do this is with lots of high paying jobs. That can be supplemented with some retirees (Malaysians and MM2Hers). To do either of these the government and developers must pursue strategies that attract these populations. There are other minor factors – you can have people making a lot of money buy a condo for their family or parents… But the only reliable way to sustain increasing property values is adding jobs and creating a pleasant living experience.

    In looking around Penang me sense is that rental prices are very good (for renters). The available condos for rent seem to be quite high also. My guess is this is a sign of the large percentage of speculators/investors compared to those buying condos to live in themselves. This is a dangerous sign – when the market has more capacity than people (normally due to building more housing than the job market supports). My familiarity with the market is extremely limited however, my perception could be way off.

    On the plus side the prices on a regional and global basis are reasonable. Therefor, those accustom to international prices can buy and feel they have a bargain. And this situation can support rising prices (especially if those buyers plan on retiring there – if they need to have a job there then it doesn’t matter how cheap the prices are if the jobs don’t exist). Buying with the hope that Penang is moving toward a prosperous future is reasonable. That is a bet that the island will add jobs and improve infrastructure to support a livable community that attracts people from all over Malaysia, and beyond. There is a great example of how to do this in nearby Singapore. If Penang take cues from many of Singapore’s wish moves investors could certainly be rewarded in the long term.

    One significant risk to investors is the carry cost of their investment if the overcapacity (if there actually is overcapacity) continues over a long period. That will suppress rental rates. As new condos are added it also can reduce the attractiveness of your condo to renters (or future buyers).

    Related: Home Values and Rental Rates10 million More Renters In the Next 5 Years (in the USA)Apartment-vacancy Rate is 7.8%, a 23-year High (in USA, Nov 2009)Retiring Overseas is an Appealing Option for Some Retirees