Right Ways: Loans

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Friday, May 24, 2024

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.

Saturday, April 29, 2023

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.