Bloomberg TV Takes a Look at the Iskandar Economy

Posted on January 26, 2016 by Curious Cat

Bloomberg TV Malaysia’s Cynthia Ng examines slowing growth in Iskandar’s real estate sector and the prospects for Johor Bahru.

The report states that 650,000 jobs have been added in Iskandar between 2006 and 2014. It also references a forecast for Iskandar to add 800,000 more new jobs by 2025.

The report pushes the notion that the housing market has been overdone and other areas (health care, tourism, education, banking…) should be targeted by investors. Manufacturing is a significant focus and has been doing fairly well (it is the only area with more investment than housing).

I raised the issues mentioned in the report (such as the over-reliance on luxury condo development) in my 2014 post Iskandar: Present and Future (and in other posts).

The Precipitous Fall of the Ringgit Shows the Economic Risk in the Malaysian Economy

Posted on August 28, 2015 by Curious Cat

The Malaysian Ringgit has collapsed in the last 6 months. This is largely due to the large amount of consumer and government debt (that I mentioned were problems for the Malaysian economy previously) with a large amount of that debt help by foreigners, the collapse of the natural resource prices (oil and gas and others) and dumping of Malaysian assets by investors losing confidence in Malaysia’s government and economy.

The economy is actually surviving better than you could hope given the problems listed above. The economy continues to grow, even if the rate of growth has decreased. The most serious problems remain the high debt level and finding some way to replace natural resource income. It also puts a spotlight on corruption problems which are easier to ignore when economic growth is strong.

chart of the Malaysian Ringgit v USD from 2005 to 2015

The chart shows the recent collapse of the Ringgit versus the US $ (the chart shows the 10 year history of exchange rates). The Ringgit has collapsed not just against the USD but also other currencies (for example reaching an all time low against the Singapore $).

Malaysia still has strong potential but the risks have increased greatly. The collapse of the Ringgit is an indication investors have lost confidence in Malaysia’s ability to address the long term issues with the economy. Part of the problem is natural resource income (including oil and gas and palm oil) have allowed Malaysia to not address issues and still prosper. Without very strong natural resource pricing propping up the economy the debt load and lack of confidence proved too great and the Ringett collapsed.

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Timeline for Extending Singapore’s MRT to Johor Bahru Slips Into 2020, or Beyond

Posted on May 7, 2015 by Curious Cat

I have mentioned before that the most important factor to the economic potential of Iskandar and Johor Bahru is the extension of Singapore’s MRT to Johor Bahru. I mentioned being skeptical of the claimed timeline years ago. And, in fact, that timeline has proven to be wrong.

Map of proposed Singapore to Johor Bahur MRT

Map shows the most sensible place for the first station in JB but that hasn’t been decided yet. Map by Seloloving

MRT link to Johor Baru unlikely before 2020

Hopping onto an MRT train and arriving in Johor Baru is unlikely to be a reality before 2020, as Malaysia has yet to determine a station site for its end of the line.

This Rapid Transit System link was first announced by Singapore and Malaysia in May 2010, and was initially targeted to be ready by 2018.
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Rail construction experts said even if work started today, the line would be completed by 2020 at the earliest. But work is unlikely to start any time soon because no decision has yet been made on where the JB station will be.

And this article is only addressing 1 Johor Bahru MRT station. While that would still be useful. The discussion 4 years ago was starting with 5 stations in Johor Bahru which seems like a much more sensible starting point. Getting to 5 stations by the end of 2021 seems unlikely unless those responsible change the approach and treat this as a critically important project.

The importance of an MRT transportation system interlinking Singapore and Johor Bahru has only grown more critical in the last few years. Transportation issues are going to become increasingly annoying in Johor Bahru as all the luxury condos come online. And getting people into those condos that can afford them is still unrealistic without jobs in Singapore, for which the MRT extension is critical.

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Iskandar: Present and Future

Posted on July 6, 2014 by Curious Cat

The potential for Iskandar, and the extended Johor Bahru, region remains strong. But the lack of progress on transportation issues for getting back and forth from Singapore are a huge problem for anyone wanting to think about living in the area now. I also remain worried about the huge imbalance between a huge boom in luxury condo development and the lack of a similar visible increase in high paying jobs to afford the huge numbers of luxury condos coming on the market now, and over the next 5 years.

The imbalance between office buildings and the huge numbers of luxury condo high rises continues to be a big warning sign I think. Add to that the very poor job done thus far dealing with the very initial stage of what will soon be a flood of cross border traffic is a huge warning sign that investors should heed.

The cooling measures on real estate investment were wise, though late (I would have done it a bit differently but overall taking cooling measure was, and is, a good idea).

There needs to have been more done sooner on the cross border transportation issues – a 3rd link should have been operational last year. The MRT should be under construction now. And more focus should be on bringing in high paying jobs to fill office buildings and then getting those built.

Without much more progress on transportation and many more high paying office jobs the current number of luxury condo buildings should not have been allowed. The efforts on health care and education and the good jobs they provide, as part of the Iskandar initiative, have been good but those jobs don’t come remotely close to justifying even a small fraction of the luxury condo units under construction.

Several new big hotels are a good boost for the economy (and are great tax revenue sources). Retail efforts are good (and also good for providing lots of jobs and tax revenue) but how much more can be expected there without better paying jobs elsewhere in the local economy (basically I think this is a good focus but I think everything that can be hoped for is being done)? Theme parks are a good hope for bringing in tourists and boosting the economy (and filling up those hotels and bringing in tax revenue and providing jobs). It seems to me the very bad transportation problems over the last year in moving between Singapore and JB are a big problem for investors in this area though (if I were such an investor I wouldn’t commit more investments until the situation was much improved and there was reason to believe it wouldn’t be allowed to fall back into the situation we have been living with now). The manufacturing efforts have been decent but are not very significant thus far in producing high paying jobs.

One example of a mistake that is going to cause problems for decades is failing to install fiber in brand new luxury condo buildings. Even if developers don’t want to invest in the future I would not have approved building plans for luxury condos after 2010 that did not include wiring every unit for fiber. Fiber is the future of high tech living and not investing in it is not the way to become known as a future focused location. Economic development requires thinking of the future and not allowing shortcuts and cheap solutions today from capping the potential for the future.

The potential for Iskandar remains as strong as it is for almost any region on the globe. But the next 10 years can build a solid foundation for long term success or can result in a system that is difficult to build upon (such as a huge imbalance in real estate, toward luxury condos for example, or a bad transportation system – which are hugely costly to deal with). The next 10 years is much more challenging to do well than the last 10 years – the begging was very easy by comparison to the challenges faced now. If it is done well, I can see the Iskandar/JB region paired with Singapore in creating one of the most vibrant areas on the globe and creating great jobs and lives for those living here (Singapore will also benefit greatly from this being done well).

Channel News Asia Report on Iskandar

Posted on September 10, 2013 by Curious Cat

Sadly they don’t understand the web and the video is gone. When will site with huge budgets learn the basics of web site management such as web pages must live forever.

The webcast by Channel News Asia is a 22 minute look at Iskandar in Johor, Malaysia. The current population of Iskandar is 1.5 million people which is projected to grow to 3 million by 2025. Iskandar is 3 times the size of Singapore, which is the next door neighbor to Iskandar.

Two of the big focuses for Iskandar are education (for which Educity has been established in Iskandar and has brought in several British Universities to setup campuses) and medical care.

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

Posted on July 26, 2013 by Curious Cat

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.
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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.

Pursuing a Growing Economy While Avoiding the Pitfalls That Befall to Many Middle Income Countries

Posted on January 29, 2013 by Curious Cat

This article provides some interesting data on the Malaysian, Indonesian and Thailand economies.

Malaysia’s High Real Yields Mean Flows Top Peers in Southeast Asia

Foreign ownership of the local-currency notes [in Malaysia] rose by $8.4 billion in the first 11 months, compared with a full-year increase of $4.9 billion in Indonesia and $6.6 billion in Thailand, according to official figures. Malaysia is rated A3 by Moody’s Investors Service, three levels above Indonesia and one step more than Thailand, while its 10-year bonds pay 2.3 percent after accounting for inflation, versus 0.9 percent and 0.1 percent for its respective peers.
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Bhd. Malaysia has the lowest inflation in Southeast Asia even as the central bank kept borrowing costs on hold since May 2011, while limiting ringgit appreciation to 0.6 percent over the past two years.
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Malaysia exempts foreign investors from paying income tax on bond earnings to boost investment in the $289 billion economy, Southeast Asia’s third largest. Thailand imposed a 15 percent levy in 2010 to stem gains in the baht, while Indonesia, the biggest of the three in terms of gross domestic product, introduced a similar tax of 20 percent in 2009.

Overseas investors held $42 billion of ringgit-denominated government bonds as of November 2012, central bank data show. That compares with $17 billion of baht securities in December and $28 billion in rupiah notes as of Jan. 21, according to data from the Bank of Thailand and Indonesia’s finance ministry.

Malaysia’s worsening fiscal deficit and high household debt, if not addressed, may add downside risk to the sovereign credit rating, said Wong.
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Gross domestic product in Malaysia will increase 4.5 percent to 5.5 percent this year, compared with the 5 percent estimated for 2012, according to a government forecast in September. Indonesia’s GDP will rise 6.6 percent to 6.8 percent, Finance Minister Agus Martowardojo said Jan. 14, versus the central bank’s projection of 6.3 percent for last year. Thailand’s economy will expand 4.9 percent, compared with 5.9 percent in 2012, Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said on Jan. 18.

There are some significant strengths in each of these economies and Malaysia has some distinct advantages including a strong natural resource base and fairly small population along with a strong current accounts surplus (exporting more than they are importing).

The biggest worry in Malaysia is the large government debt even after the advantages of selling natural resources. The lower population is an advantage in trying to rapidly increase median income. Malaysia has been doing well at this, but continuing it is not easy and perils have far too frequently interrupted other countries success at doing so. Balancing fast enough growth without tipping over into unsustainable bubbles (often with high leverage) is tricky. Malaysia will have to find a way to decrease the budget deficient while continuing the many things they are doing right to continue to succeed.

Balanced growth is important. Growing numerous strong economic sectors (say health care, manufacturing, natural resource, tourism, education, finance, housing) is critical to creating a robust economy that can grow over the long term even as individual segments suffer. It seems to me the housing sector is a bit over invested in which is a risk. Making sure to develop an economy that provides many good jobs is the key (as a strongly diversified economy will – for all different types of workers, highly education, technically skilled, vocational trained, even unskilled). Lots of expensive houses people can pay for has created many problems recently all over the globe, Malaysia hasn’t experienced that yet but it seems to me there is a risk of that problem. Avoiding that drain (overbuilding housing) will be key to how rapidly median income can increase in the next 20 years.

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

Posted on July 8, 2012 by Curious Cat

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.

CIMB Takes Aggressive Investment Bank Actions

Posted on June 26, 2012 by Curious Cat

CIMB is one of Malaysia large and highly rated banks (several Malaysian banks have yet to fall prey to the level of problems those in Europe and the USA have). Investment banking is a very tricky area. There are huge unnecessary profits to banks such as Goldman Sachs taking from the current investment banking situation (which is just a lousy system that pours billions into a few banks for activities not worth close to what they take).

However the USA and European banks have often set up compensation structures that encourage bad risks, and bad pricing, and bad service to customers. If CIMB falls into that trap they almost certainly would fall to the same problems all other investment banks have fallen to – which required massive taxpayer funded bailouts.

Hopefully CIMB is not going into the gambling with huge leverage aspect of “investment banking” that most of the USA and European companies have made the main factor in their operations.

If CIMB just takes a simple approach to managing investment financing deals they can take huge profits and give customers huge savings off the current lousy deals they are offered by the current limited investment banking options. I would be worried though. The temptations to create huge cash incentives that will result in the company taking on huge risks and undermining customers have been impossible for most investment banks to avoid. If the investment bank is attached to a normal bank then you run into all sorts of risks of taxpayer funded bailouts.

Iskandar Overview Video

Posted on May 8, 2012 by Curious Cat

This video shows an overview of Iskandar and Johor Bahru. It is primarily targeted at investors.

Living in Malaysia

Tag Archives: investing