Hedging on Insurance

Are Malaysians in need of insurance or are they overbuying?

Let us read  Lim Ai Lee's article in the online STAR on the current insurance situation in Malaysia.

"Rising medical costs have prompted more Malaysians to take up multiple health insurance policies, with some even extending their cover up to the age of 100.

A check with several major insurance firms showed good demand from the working population on extending their medical cover until at least the age of 80.

Industry experts attributed the growing demand to healthcare costs escalating at between 13% and 15% annually, longer life expectancy and more patients turning to private hospitals to avoid long queues at public hospitals.

As most employers do not provide post-retirement medical coverage, more working people aged between 25 and 50 are taking up private medical insurance policies to avoid exhausting their savings should they be stricken with a major illness.

Prudential Assurance Malaysia Bhd chief product and marketing officer Heng Zee Wang said someclients were buying more than one medical plan to ensure they had “sufficient cover all the way.”

“Each medical plan comes with an annual claim limit. If a person is hospitalised and the bill exceeds the existing limit, the patient will have to pay the remaining amount from his own pocket if he or she does not have a second policy,” he told The Star.

Heng said more insurance companies were now offering policies that covered a longer period as Malaysians were living longer due to improved living conditions and medical advancement.

“The average life expectancy of a Malaysian male and female was only 55.8 years and 58.2 years respectively in 1957. Today, it is 71.9 years for men and 76.9 years for women.

“By 2050, the average lifespan is expected to increase to 77 years for men and 82 years for women. This upward trend presents a need for insurance companies to provide medical plans that would cover the policyholders beyond the current life expectancy,” he said.

Heng cited as an example, the firm’s PRUhealth policy which was sold as a rider to its investment-linked insurance plans and provided comprehensive coverage up to age 100.

A 70-year-old client who buys the PRUhealth plan will pay about RM480 a month as premium (for cover expiring at age 80), or RM611 for cover expiring at the age 100 based on the lowest plan PRUhealth100.
For those aged between 26 and 30, the premium for the plan with cover expiring at age 80 starts from RM94 a month.

MAA Healthcare and Medical Insurance assistant vice-president (accident, health & group) Chong Chee Yoong said they had received “very good” response towards their guaranteed renewable medical policy until the age of 80.

“Malaysians are finding private medical treatment to be more expensive,” he said, adding that medical policies now contributed 15% of the company’s new business.

“By setting aside some reserve funds in the form of insurance premiums, policy holders when faced with a claim on critical illness, will not need to deplete their bank accounts, EPF savings or sell off assets to pay for medical treatment.

“It’s good to buy when one is healthy and have a medical savings plan in case of a rainy day. When the insured retires, this is the age that the health condition will already have changed and treatment will be needed most,” he added.

An insurance consultant with AIA concurred, saying it was important to take up an insurance policy when one was in good health. “This is because you may not be able to buy it when you need it most,” he said.

Property:Boom or Bust?

Crystal-balling the near future circa 2011-2013, OSK Research  has postulated that the Malaysian   property  will see the biggest property boom ever in a decade to be led by medium- to high-end properties.

Thereafter, a possible slump may take place.

Let us read OSK Research's thinking on this.

It said a major mass housing boom will likely occur in the first half of this decade.

It added that the sector was already entering the early stage of a property "super cycle".

"Although the expected peak in 2012/13 may have dire consequences, the phenomenal boom that immediately precedes it gives investors an excellent opportunity to profit from the trend for at least the next 12 months.

"We, therefore, seize the opportunity to upgrade our property sector call to overweight from neutral," OSK Research said in its research note to investors yesterday.

Although location is key to identifying real estate opportunities, what is equally important but often overlooked is timing, it added.

It noted that the current 20-year boom in the medium- to high-end residential properties since the early 1990s might peak in 2012/13, after which mass affordable housing could dominate the real estate industry around 2015/16.

Stocks with focus in the medium- to high-end segment, such as Sunrise, YNH Property, IGB Corp and Bandar Raya Developments, are some of the best bets for the next 12 months.

"Mass housing developers, especially the 'fallen angels' such as LBS Bina and MK Land, may come to the fore as another major investment theme after that," OSK Research noted.

For "best of all worlds" exposure during this period, OSK Research recommends buying SP Setia.

It said the country's current boom in higher-end residential properties is probably in its longest "bull run" ever, spanning almost two decades since the early 1990s.

"This, unfortunately, has also given rise to the illusion of the infallibility of properties. We are now entering the final phase of this secular boom, which will be characterised by a period of fast-rising property prices in the medium- to high-end residential segment, particularly landed ones."

OSK Research observed that those born in the 1950s had become more risk-averse in their investments since 2003/04.

"As they approach retirement, they will divert a significant portion of their wealth into savings and traditionally perceived defensive asset classes such as real estate.

"However, their eventual absence may bring an end to the boom if there is no credible demand force to fill the void."

Emkay Group senior general manager Mazrita Mazlan said the wealthy do not mind paying a little bit extra as long as the properties are away from congested towns.

"As an example, MK Land (MK Land Holdings Bhd) will launch its Rafflesia high-end project, which has units starting at RM2 million apiece.

"Already the project has sold 100 units even before its launch," Mazrita claimed.

Mercury Securities head of research Edmund Tham said the boom will only benefit certain areas and selected developers.

"When it comes to the so-called boom, it depends on who you talk to. I believe there is a property overhang project in Mont'Kiara and some buyers are facing financing problems."

Independent property valuation surveyor Sharizal Supian said the trend right now is to go for boutique projects complete with gated communities and modern facilities and townships, such as UEM Land's Symphony Hill which saw units snapped up within days of its launch.

"The boom, however, only benefits the rich and does not benefit the general public," Sharizal said.

An Island & Peninsular Bhd executive said that only foreigners will benefit from Malaysia's property boom due to the cheaper ringgit. 

My Take:

The ringgit is heading northwards. It is not getting cheaper. Moreover high-end properties will face rental issues as FDI has not been forthcoming. Foreign expatriates have left for other more competitive nations.

Also the politics here has not been re-assuring of late and will deter property purchase by foreigners.

On the local scen, many foreign expatriates from Japan and Kore have apparently left the Mon't Kiara area towards KLCC and Ampang.

So it could be a zero-sum game here as far as high end residential units are concerned.

Positive Capital Flight Or....?

Is this just the appeal of plain economic sense or is there any more to it?

Angie Ng's article in the STAR is worth reading.

These are the oft touted reasons.

Situationally, he ringgit’s current strength and generally lower property valuations in the UK are drawing more Malaysian investors, both retail and institutional, to London and the latest to make the move is the Employees Provident Fund (EPF).

The pension fund has allocated a war chest of £1bil (RM4.88bil) to invest in properties in the UK and has appointed ING Real Estate Investment and Deutsche Bank’s property investment arm RREEF to manage the investment. They will each invest £500mil in European property markets, focusing on the UK.

Lai Voon Hon says the strong ringgit will benefit the EPF

In a statement on Monday, the EPF said the investments would be for long term with expected annual yields of 6% to 7%.

Property consultants lauded the fund’s move as being prudent and far-sighted as the diversification of its property investment portfolio would ensure a more balanced portfolio and spread the risks to more developed markets outside Malaysia.

Henry Butcher Malaysia president Lim Eng Chong said London was a very active international real estate market where income asset class was a major sector of the financial market.

»London is no more a rock-bottom country but you have to have a permanent presence here to take advantage of investment opportunities« KUMAR THARMALINGAM

“Since last year, there has been an influx of foreign funds from Russia, the Middle East and the Far East, including China, into London to take advantage of the positive environment,” Lim told StarBizWeek.

“There’s much more depth and breadth in the UK market. Very often, its economy moves in different direction from Malaysia’s, thus affording a more balanced and resilient portfolio. Presently, the UK is only (barely) coming out of a recession and, although the market has started to move, there is still some way to go.”

London is also the financial capital of Europe and it is the de-facto choice capital in the EU for foreign companies.

“It is a very opportune time to invest in the UK property market now. The ringgit is at record high against the pound sterling while the historic low interest rates in the UK (interbank rate is only 0.5%) make yields attractive,” Lim pointed out.

He said commercial properties with strong convenants for at least seven years offered potential for upsides upon market recovery and there were deals which were bankable to capitalise on the low interest rates now.

Malaysia Property Inc chief executive officer Kumar Tharmalingam, who was in London when contacted, said the EPF was a well-regarded pension fund internationally with a reputation for prudent investments.

“London is no more a rock-bottom country but you have to have a permanent presence here to take advantage of investment opportunities. Using the old-boy network in the city of London that the EPF is doing is the right strategy. It has appointed probably the best property advisers and managers in Europe and I believe they will guide the fund to the right quality investments,” he said in an e-mail response.

Kumar said as the EPF had to guarantee a dividend on all contributions, “it will be looking to buy completed assets which have been tenanted and have a structured and forecast return that is tangible.”

He said at the height of the downturn in early 2009, yields of London assets went up as high as 8% but they had since gone back to their normal base of 5%.

“But with the pound sterling and the euro at historical lows since the mid-90s, this may be a good time to buy well-positioned assets where there is an opportunity for rent values and currency appreciation in the medium term,” Kumar said.

It has attracted many institutional funds, including South Korea’s National Pension Fund which purchased a building in Canary Wharf and also took a stake in Gatwick Airport in February.

Kumar, who made a quick check with some of the major property agents in London, said he was told an Asian sovereign fund had made bids for a business park near Heathrow Airport.

Ireka Development Management Sdn Bhd chief executive officer Lai Voon Hon, who was also responding from London, said with Europe heading towards a double-dip recession, a number of prime commercial properties with blue-chip tenants in the UK would be available to investors at very attractive yields.

“The advantage of UK commercial properties is that the lease is normally very long term so the income is fairly stable. As such, commercial properties with blue-chip tenants at high rental yields will be ideal for the EPF. The strong ringgit vis-a-vis the pound sterling is certainly to the EPF’s advantage,” he added.

According to CB Richard Ellis executive director Paul Khong, with the strengthening of the ringgit, investors are now able to buy more with the same ringgit compared with a year ago.

“The top favourite destinations for both institutional and individual investors are still the UK, Australia and Singapore markets,” he said.

So,is there something more to these overseas purchases or ............

Berjaya Assets: Another Feather in the Cap

Berjaya Assets Bhd (Bassets) is enroute to taking over the development of Lido Boulevard, the multi-billion ringgit integrated waterfront development project by Central Malaysia Properties Sdn Bhd (CMP) which has been unduly delayed.

As soon as negotiations are over, Bassets will work on the project almost immediately. The time-line for the wrapping up of negotiations is 6 months.

“The project will be in a better hand with Bassets handling it in terms of project management and the most important thing is the strong financial backing from Berjaya Group,” a source told StarBizWeek.

The source added apart from the strong financial backing from the conglomerate, Lido Boulevard would benefit from Berjaya’s marketing experience to market the property to local and foreign buyers.

The flagship project by CMP, a company linked to business tycoon Tan Sri Vincent Tan Chee Yioun, is a joint-venture between CMP and Johor State Secretary Inc.

The latter is an investment holding company of the Johor state government, which is also the land owner.

Tan owns 60% equity in CMP while the remaining 40% is held by CMP managing director Datuk Chan Tien Ghee. Both Tan and Chan made headlines recently when they bought over the Welsh’s Cardiff City Football Club.

CMP had in March this year awarded a deal worth RM238.6mil to the Belgium-based dredging company Jan De Nul to carry out reclamation works on the site.

The works would take about 15 months to complete, once completed; about 38.11ha would be reclaimed land while 11.39ha would be on a piled concrete desk.

According to Wikipedia, major projects realised in part or whole by Jan De Nul include the expansion of Panama Canal, Australia’s Port Botany expansion, the Manifa Field Causeway and Island project in Saudi Arabia, the Palm Jebel Ali artificial island in Dubai and the adjacent Dubai Waterfront.

“Jan De Nul has set an office in the city (Johor Baru) but the reclamation works have not started as schedule due to the takeover exercise,” said the source.

About 6.8 million cu m of sand sourced from Teluk Ramunia on Johor’s southeast is needed for reclamation works. The sand will be transported by a dredger anchored at Stulang Laut near the Causeway, then pumped to the site via a 2km floating and sunken pipeline.

Located on 49.51ha, the project will be developed in phases stretching 2.4km along the Tebrau Straits from the now defunct Lot One shopping complex to the Harbour Master’s office.

The project comprises four main components – luxury condominiums, waterfront office suites, a hotel and a shopping mall.

Lido Boulevard, with a gross development value of RM4bil, is expected to take shape by 2016 and it will completely rehabilitate Lido Beach and give Johor Baru a facelift.

Bassets has clarified in a posting to Bursa KL that the controlling shareholders of Central Malaysia Properties Sdn Bhd (“CMP”) had in fact invited Bassets to consider taking up an equity stake in CMP, which is the developer of the multi-billion ringgit integrated waterfront development project known as “Lido Boulevard” along the Tebrau Straits in Johor.

Bassets is considering the proposal and an appropriate announcement will be made to Bursa Malaysia Securities Berhad in due course should the Company decides to proceed with the investment.
So, this looks like another positive cash-flow for Bassets.

Will the price of Bassets shares increase to factor in the new potential values?

We will see.