More Bad News for Malaysia

Not only have foreign fund managers down-weigh investments in Malaysia,today Shannon Teoh reported in the Malaysian Insider today (20 January 2011)that  Malaysia is ranked in fifth place for illicit money  amongst developing economies.

According to a report by US-based financial watchdog Global Financial integrity (GFI) released this month,.illicit money outflows from Malaysia has tripled to US$68.2 billion (RM208.1 billion) in 2008 from US$22.2 billion in 2000.

GFI defines illicit financial flows as generally involving the transfer of money earned through illegal activities such as corruption, transactions involving contraband goods, criminal activities, and efforts to shelter wealth from a country's tax authorities.

The report titled Illicit Financial Flows from Developing Countries: 2000-2009 said that illicit financial outflows from Malaysia totalled US$291 billion (RM888 billion) in that period.

It said that the increase was “at a scale seen in few Asian countries.”

“The volume of illegal capital flight from Malaysia has come to dwarf legitimate capital inflows into the country in recent years,” said the report.

Top of the list of 125 developing countries was China at US$2.18 trillion in that period while Philippines, at 12th, was Malaysia's closest regional neighbour at US$109.3 billion.

Zimbabwe was 73rd at US$4.1 billion and Myanmar at 85th with US$2.9 billion.

The report said that it is clear that significant governance issues affecting both the public and private sectors have been playing a key role in the cross-border transfer of illicit capital from the country.

It noted that there have been media reports that large state-owned enterprises such as national oil company Petronas could probably be driving illicit flows.

GFI said its research indicates that political instability, rising income inequality, and pervasive corruption are some of the structural and governance issues that could be driving illicit capital from many developing countries.

“In the case of Malaysia, the additional factor could well be the significant discrimination in labor markets which move people and unrecorded capital out of the country,” it stated.

GFI identified deliberate trade mispricing - which allows companies to avoid paying taxes — as the cause of 54.7 per cent of illicit outflows from developing countries.

The report said that between US$1.26 to US$1.44 trillion flowed out from developing countries alone in 2008.

“Increasing transparency in the global financial system is critical to reducing the outflow of illicit money from developing countries,” the report said.

According to GFI, illicit financial flows pertains to the cross-border movement of money that is illegally earned, transferred, or utilised.

The Washington-based GFI says that it promotes national and multilateral policies, safeguards, and agreements aimed at curtailing the cross-border flow of illegal money.

It is a programme under the Center for International Policy, which was founded in 1975 to promote a US foreign policy based on international cooperation, demilitarization and respect for human rights, according to its website.

So, I do hopepolicy makers will study this seriously particularly its ramifications.

It may just cause more outflow of foreign funds to happen if we are not careful!

Property:The Magic RM100bil Mark

This is the first time transactions value has reached this figure

The likelihood of property transactions breaching the RM100 billion mark is definitely possible.

For the period, January to November 2010, a record RM96.77 billion were transacted according to Knight Frank Malaysia managing director Eric Ooi.

He remarked that this was the first time transactions value has reached such figures. 

Considering the penchant  of Malaysians for property investments, Ooi is of the opinion that it is unlikely that property values would fall. He believes that even if it may not rise as much as it did last year, the uptrend is there.

Ooi, together with Henry Butcher chief operating officer Tang Chee Meng, said property value rose between 30% and 40% last year.

Tang added that he had never seen such record growth for the property market in 30 years.

“The condominium market saw a price rise of between 60% and 100% between 2003 and 2008. This pales in comparison to the rise in value of landed units which rose as high as 40% in just one year. If one were to average out the rise in condominium prices, it is about 20% a year,” Tang said.

Earlier, in his overview of the Malaysian economy and the Malaysian property market, director general of Valuation & Property Services Department Abdullah Thalith said it was very significant that the transaction volume between the 11-month period increased 12.2% year-on-year, but the value of transactions increased at a higher rate of 35% from RM71.67bil to RM96.77bil.

“The recovery of the Malaysian economy has reinvigorated the overall property market,” he said.

In terms of lending in the broad property sector, the purchase of residential property took up the lion share of bank loan, at 58.8% compared with the purchase of non-residential property, at 22.1%. Construction took up 9.6%.

“Credit expansion for the broad property sector in the banking system increased from RM342.09bil as at the end of September 2009 to RM391.25bil as at end-September 2010,” he said.

“This means the residential property sub-sector remained the main mover of the property market,” he said. In this residential market, transactions in Kuala Lumpur recorded a growth of 8.2%, Selangor 7.2%, Johor 3.6% and Penang (island) 9.7%.

Terraced houses continued to dominate the market, especially in Selangor with 27,165 transactions, Johor with 12,555 transactions and Penang 4,358 transactions.

The city of Kuala Lumpur recorded more condominiums changing hands, 10,333 units versus terraced housing at 3,756 units.

Let us see how the trend pans out in 2011.