2010: RPGT Kicks In

This article in the Malaysian Insider was written by Lee Wei Lian

I will abridged and highlight the salient issues.

The real property gains tax (RPGT), which takes effect in 2010, is likely to hit long-standing homeowners and foreign investors the most.

The five per cent tax, which was announced in October, is normally imposed to curb speculation but due to its flat structure does not differentiate between homeowners who have been holding a property for 20 years or those who are flipping properties within one or two years for a profit.

The property sector was also taken by surprise by the announcement and worries that it will send a message to potential investors that the government has not been consistent in its policy-making.

An exemption on the RPGT was given in 2007 and its removal two years later with little warning could heighten the feeling of uncertainty among investors.

Real Estate and Housing Developers Association of Malaysia (REHDA) president Datuk Ng Seing Liong said the RPGT should be structured so that it curbs short-term speculation and take into account interest paid on the property as well as inflation.[Such a logical proposal]

"The RPGT will hit those who hold property for more than 10 years the most," Ng told The Malaysian Insider. "It also does not ensure that the interest that was paid is tax deductible like in Australia. If you pay a housing loan over 20 years, the interest you pay is substantial and it should be deductible."

Ng said the RPGT has also introduced an element of uncertainty for foreigners looking to invest in property in Malaysia, noting that the exemption was introduced fairly recently.

"They will now feel that government policy is not consistent and the five per cent tax can be increased anytime in the future," says Ng.

One leading property developer told The Malaysian Insider that the impact will not be as bad as it originally seemed right after the announcement.

"The government has clarified some things since then," he said. "However, it would be good if they can keep their policies consistent."

This perception of "flip flopping" in policy-making could pose a challenge for the Najib administration which is trying to chart a new growth path for the country with an emphasis on private investment.

Property website thinkproperty.my says that investor confidence has fallen as a result of the RPGT.

Its Property Outlook Index dropped to 29 per cent at the end of November 2009, down from its all-time high of 68 per cent on the day before the re-introduction of RPGT was announced.

"The level of RPGT at 5 per cent is de minimis. However, people are concerned that this will make Malaysian real estate less attractive relative to other options for both local buyers and foreign investors, the latter of whom have plenty of other countries where they can invest their money. In addition many are worried that this is the first step towards further increases in RPGT, something that the government has not ruled out," said thinkproperty CEO Asim Qureshi.

It will indeed be a sad day for many potential property sellers when January 2nd dawns on the eastern horizon.

Berlusconi: Sharp Shot to the Head!

You may be loved. You may be hated.

That is the way Italian President Silvio Berlusconi felt after receiving a blow to the head from a piece of Milan Cathedral miniature hurled by a sharp thrower in the crowd who loves him not.

The result: A broken nose.

Obama: A Kodak Moment!

This is a gem of a picture. A Kodak moment at its best!

Would the London cop ever imagined that he will be meeting with his "brother" who is a President of the most powerful nation in the world?

You bet, he didn't and yet the magic moment came!

And that, my friend is life............

Nevada, USA: First Male brothel

This is news indeed!

For those with “closeted” sex preferences for male prostitutes,look no further.

Now that the health authorities have approved a method to test men for infectious diseases, a brothel mum will start hiring its first brood of male prostitutes. Since the world in the good old USA is now ready to sell sex legally, both male and female customers can now avail themselves of male prostitution services. The brothel is just two hours’ drive from sin city Las Vegas

Currently there are many male revues being staged in Vegas. So it is only natural,as a follow-up, for interested clients to come to satisfy their inner cravings in this brothel.

Interestingly, what has barred males from legally plying the world's oldest profession in Nevada was the specificity of a state health law requiring prostitutes to undergo frequent cervical testing for sexually transmitted diseases. The health board has now approved a regulation to allow urethral testing for men - a crucial rule change by the state agency with ultimate powers over whether prostitutes can or can't work. Now the coast is clear for the legal advent of male prostitutes in Nevada.

For your information, for more than 25 years, no licensed female prostitute in Nevada has contracted HIV, the virus that causes AIDS, said a Reno wedding chapel owner and longtime lobbyist for the Nevada Brothel Owners Association.

However, Davis, Flint and Nye County Sheriff Tony DeMeo all acknowledged that county approval is still necessary before any of the state's 24 legal brothels offer a lineup of men.

Prostitution has been legal in rural Nevada counties since 1971 under strict state health board oversight but is against the law in the Las Vegas and Reno areas.

Isn’t this an interesting bit of news?

Singapore: Medical Tourism on the Mend

The Straits Times today (13 December 2009) reported that thehe medical tourism industry looks to be in the pink of health again.

Things are looking up after the recession — which hit last year and continued for much of this year — caused some pain.

As many countries’ economies have stabilised, industry folk like Dr Wong Seng Weng are more upbeat.

Wong, medical director at The Cancer Centre, said the end of last year was “a quiet period but there’s been a return of confidence”.

Over at Parkway Health, its spokesman said it has seen a “steady recovery” since the middle of this year.

“Generally, in a downturn, patients tend to postpone non-critical surgery,” noted the spokesman.

In the fourth quarter of last year, Parkway’s three hospitals saw a 7 to 8 per cent drop in the number of Indonesian patients.

At Pacific Healthcare Holdings, which runs specialist centres and clinics, things are also looking up. It suffered a 10 per cent fall in medical tourists last year.

“Indonesians form the largest group of medical tourists. The financial crisis last year weakened the rupiah, and there were also uncertainties about the economy and when it would rebound,” said Dr William Chong, chief executive of Pacific Healthcare.

Those in the industry noted that while treatments in Singapore are not cheap, our reputation as a hub of medical excellence continues to be a draw.

Comparing prices, Nanyang Technological University’s Professor David Reisman said a procedure for cardiac bypass costs US$18,500 (RM62,909) here, versus US$9,000 at a reputable hospital in Malacca or Penang.

“The same procedure would cost US$130,000 in the United States, so Asia is still a good buy,” he added.

Medical groups are targeting patients from places as far away as Russia, Germany and Sweden. They are also attracting patients from the US who are covered by their companies, or personal health insurance.

“The medical travel sector is fairly resilient, given that health-care treatments are often a matter of necessity, and we continue to work towards the 2012 target,” said a spokesman for the Singapore Tourism Board.

It aims to attract one million patients by 2012.

Figures from SingaporeMedicine show that last year, 646,000 visitors were associated with the nation’s health-care services, up from 571,000 in 2007.

This number counts both patients and those who accompanied them here, as well as tourists who received incidental health care.

SingaporeMedicine is a government-industry partnership to promote the country as a world-class health-care destination.

Efforts include that of Dr Wei Siang Yu, who founded medical tourism portal Fly Free For Health. Users can get opinions from doctors and nurses online so that they feel reassured about travelling here, said Wei, who has also seen heavier traffic over the last four months.

Certainly, while many people may still be careful about spending, even as the global economy is mending, they take health — a matter of life and death — seriously.

Take the case of Dzung Nguyen, 30, who took his father Nguyen Van Hung, 53, to The Cancer Centre when the latter was diagnosed with gastro-intestinal cancer three months ago.

So far, Dzung, a letter carrier in Vietnam, has spent about $10,000 on chemotherapy, lodging and airfare.

“We’ve been tightening our budget because of the recession, but we decided to come to Singapore. While it’s the most expensive place in South-east Asia, it’s also one of the best and one of the closest to us,” he said.

Is it so as well for Malaysia?

Sukuk Funds: Post Dubai

I append this article by Dr. Lin See-Yan.

It is worth reading if you are investing in sukuk funds in Malaysia or else where.

"The Gulf city state’s debt problems offer an important lesson – unpredictable, unsustainable and unclear policies are a no-no.

After two difficult years, most come away with the thought that financial markets the world over should have stabilised. Sure, the extraordinary steps taken to stop the panic resulted in flooding the global system with trillions of US dollar liquidity.

In all, governments have spent, lent or guaranteed close to US$12 trillion and central banks held interest rates to near zero to end the financial crisis. Even so, as to be expected, most of the previous excesses were never quite worked off.
They can’t just make all these excesses go away, no thanks to continuing flows of cheap money around the world. So, we should not be surprised to see over-leveraged Dubai stumble towards the end of November.

Inevitably, it had to cut its debt burden down to size. Around the world, financial markets quivered. Investors – mainly banks – found themselves in a flare-up they feared would happen, but had hoped would not.
Dubai’s caustic lesson

The problems of Dubai are already well known. It is a property play that turned into a bubble that burst. The boom was fuelled by easy credit and a poorly regulated market overrun by speculators, and it was cheered on by a go-go Dubai during the heyday of the pre-financial crisis. Since then, residential real estate prices have slumped by nearly 50%. Across the United Arab Emirates (UAE), it has been reported that some US$450bil of construction work had been scrapped.
It all culminated in the recent announcement by Dubai World, the UAE’s largest state-owned conglomerate, that it wanted to impose a six-month standstill on debt repayments.

Because Dubai is not rich in oil, it borrowed heavily to fund its grand ambitions. Nakheel, a government-sponsored developer, used part of these funds to develop the Palm Islands and other spectacular land reclamation projects.
On Monday (Dec 14), Nakheel is due to repay US$3.52bil to holders of its Islamic sukuk bonds. This is part of the US$26bil debt that its parent, Dubai World, is seeking to restructure.

In all, Dubai’s sovereign and its state-controlled companies’ debts could reach US$80bil, in excess of the size of its gross domestic product (GDP) (nobody knows for sure).

Viewed in perspective, Dubai makes up less than 0.1% of the global economy and the UAE, just 0.4% of outstanding global cross-border lending.
What caught investors “feeling wrong and wrong-footed” were reports that Dubai’s ruler had only weeks earlier assured investors that enough funds would be raised to meet “current and future obligations”, the emirate had only hours earlier raised US$5bil from two state-controlled banks in Abu Dhabi, having raised US$10bil from this neighbour in February, and banks in particular felt sure that the emirate would make good on publicly traded papers (particularly Nakheel’s sukuk) rather than lose face and damage the reputation of the Gulf as a business and financial hub.
So, investors can no longer take the “UAE umbrella” for granted. In the end, there are hints that it may still “pick and choose when and whom to assist.”
Over the past year, moral hazard appears to be firmly embedded throughout the global financial system. So for bankers, Dubai offers an expensive lesson. Most had expected the government to stand behind its “ward” (Dubai World).
In the wake of the Dubai debacle, it looks like Dubai is set to make investors share the pain, rather than foster moral hazard. Indeed, lenders are still reeling from the spectacular Saudi defaults not so very long ago.
Fair enough, Dubai World was technically not government-backed. But investors had perceived it to be so and acted accordingly. Dubai’s repudiation of such an implicit guarantee leaves a bitter taste in the mouth of most investors, something they are unlikely to forget anytime soon.

Tail risk resurfaces

Credit worries are back. Two years ago, few investors would worry about “fat-tail” risk. This refers to the occurrence of seemingly remote risky events, carrying with it blotted (hence, fat) devastation. The rest is history.

But the lesson is not easily unlearnt. Indeed, the mere sound of a crack can get everyone running for cover. Little wonder for the knee-jerk reactions to recent developments – from the sharp rise in risk premium for Greek bonds and Turkish as well as Hungarian credit default swaps (following their profound budget mess) to the Dubai debacle when investors fled from risks.

Wall Street tells us government debt is “risk-free.” Don’t you believe it. History is littered with sovereign defaults.
The charade continues. Early this week, reality came home to roost. Greece’s and Spain’s sovereign credit rating were downgraded. Even Britain and the US are not spared.

Moody’s rating for them were set apart from other top-rated sovereigns, calling them “resilient” and not “resistant” (a label kept for Germany, France and Canada).
In Dubai, lack of confidence continued to spread. Tuesday’s tumble in Dubai’s stocks wiped out its whole year’s gain; Moody’s downgraded six Dubai government-controlled companies, citing lack of government support. The carnage goes on.
The moral of the Dubai saga is clear: nasty fiscal shocks are not confined to just emerging nations. Markets soon realised that debt fundamentals in Dubai are no different from those in developed nations, even Britain and the US. Indeed, the line between emerging and developed gets more blurred; the rush to judgement that stability has returned is premature; fundamental imbalances created during the crises (for example, excess leverage) have yet to disappear. Beneath it all, huge vulnerabilities remain. The Dubai saga is a welcome wake-up call.

Sukuk’s dilemma

No doubt, the problems of Dubai will have a chilling impact on the market for sukuk bonds.

These are a class of financial instruments that complies with Islamic investment principles, which prohibit the payment of interest (ironically, bonds theoretically are associated with interest payments).
In the past decade, the market for such US dollar denominated debt-like instruments has gained popularity. This year, US$19bil was raised in the international sukuk market; it peaked in 2007 with US$25bil.

The range of issuers, investors and instruments has since widened and deepened. About a month ago, General Electric’s financing arm became the first western industrial company to issue a sukuk bond for US$500mil. It attracted a new source of investors.

The debt standstill sought by Nakheel has thrown a spanner in the works and so close to the repayment date of Dec 14. In the past week, activity in sukuk bonds came to a virtual standstill in the face of its potentially biggest default.
By any standard, sukuks are small potatoes in the bond world. Less than US$1 trillion of such debt is outstanding – smaller than the amount of new bonds sold by non-financial institutions this year alone.

Nevertheless, it’s a big deal since it is now unclear how sukuks can be restructured. It will be a test case for how well investors are protected because these are viewed as quasi-sovereign credit, i.e. akin to government debt.
There have been at least two defaults so far – one in Kuwait and the other in the US by a small oil and gas company. At issue is whether investors can take possession of the underlying assets or are simply entitled to the assets’ cash flow.
There are no precedents in the Dubai courts. Further, sukuks are structured to comply with Islamic law but are created under English law. Further complications can arise since Nakheel’s assets are situated in the UAE. Moreover, investors have the benefit of Dubai World’s guarantee whose enforcement is subject to some local law issues.

Be that as it may, the episode looks likely to be long drawn out. Bankruptcy in UAE do allow for a protective moratorium, which can be a double-edged sword. Whatever the outcome, Dubai’s action has done the sukuk market a great disservice.
While Islamic finance wasn’t at the root of Dubai World’s problems, investor reaction so far in the face of delicate markets and an uncertain global recovery make people nervous about the future.

At the very least, short-term activity in sukuk will remain stalled. Credibility in the manner restructuring is being handled will determine the future. Indeed, investors are fast learning that no matter how buoyant potentials look, resources are not limitless.

Looking past the sandstorm

As it now stands, the Gulf markets are soft and under continuing pressure. To be fair, the structural underpinnings of these markets need to be viewed in perspective over the longer term.

Lest it’s forgotten, Dubai’s hydrocarbon-rich neighbours – Saudi Arabia, Kuwait, Qatar and Abu Dhabi – command two thirds of the world’s oil and 45% of gas reserves.
Debt levels are very low and high oil prices have enabled them to accumulate more than US$1 trillion in reserves. A few key elements set the stage.
These Gulf nations need some US$2 trillion in infrastructure spending to diversify from oil. This fiscal spending can be financed out of current reserves (viable even at US$40 oil price); offer strong benefits viz no taxation, cheap feedstock, and virtually free land; give rates of return on equity hovering historically around 25%, as against 10%-15% in other emerging markets; and provide access to low-cost funds made possible by accommodative monetary policy, with Gulf currencies pegged to the US dollar.

As with any market, risks loom large. It is always possible for oil prices to fall below US$40 per barrel; geopolitical risks don’t lend readily to being well managed; and opaque family groups dominate markets that are not really transparent.
But these oil-rich nations are known to be basically conservative. No doubt the Dubai excesses present lessons to be learnt. Throughout history, nations have defaulted and live to fight again, and succeed, even prosper.
To regain confidence, a number of things need fixing: call for fiscal transparency, opaque family business groups need to heed the lessons of Korean chaebols, and clarity on the road-map to government prudence over the longer term. This includes a credible plan on debt management once global recovery becomes sustainable.
Dubai teaches an important lesson. Unpredictable, unsustainable, unclear and uncertain policies are a no-no."

[Former banker, Dr Lin is a Harvard-educated economist and a British chartered scientist who now spends time promoting the public interest. Feedback is most welcome at starbizweek@thestar.com.my.]

Singapore: No More Angpow packets!

This is one interesting article. Does it foretell about the return of the banking sector health in Singapore?

Let us read this article which I appended unabridged.

"If anyone doubts the strong recovery of Singapore’s banking sector, just ask Alvin Tan, the ang pow king who, two months before the Chinese New Year, is turning away new customers.

“It was unexpected that the market would recover so fast,” said Tan, co-founder and creative director of Caston Pte Ltd, which this year marks 20 years of making the red packets, mainly for banks. Banks make up 80 per cent of Tan’s customers.

“I have slowed down order taking. I can’t do more new customers, only regular customers,” said Tan. The reason is that the raw material — paper and foil — has to be ordered from Europe and the United States which requires four to five months lead time. “My production schedule has reached full capacity,” he revealed.

Last year, because of the financial crisis, Caston’s ang pow sales fell 15-20 per cent due to smaller orders from foreign banks. Some customers disappeared, such as Lehman Brothers which collapsed in September 2008.

Tan estimates that sales this year have risen 10-15 per cent as overseas orders have increased as well as new private banks setting up in Singapore. In addition, local customers such as DBS and OCBC Bank have increased their orders to cater to their expanding overseas branch networks such as in China.

Orders from the local banks run into several million pieces while foreign banks can buy from 50,000 to 500,000 pieces.

New foreign bank clients have come from Europe and Australia, Tan said. Caston has also got around 20 private bank customers, up by three to four from before, he added.

Caston’s deluxe ang pows are in such demand that it gets orders from banks based in China, Hong Kong, Taiwan and Malaysia — markets which have thousands of ang pow producers.

Caston expects to produce about 60 million pieces of ang pows this year. Prices range from 3.5 cents (RM8.4 sen) to 25 cents (RM0.60 sen) apiece. — Business Times Singapore"

Looks like Singapore is getting its old financial health back. Can Malaysia follow suit?