GEORGE TOWN: Penang has acknowledged that nine out of 29 hill clearing cases on the island, as reported by Penang Forum , were illegal.
Penang Forum representative Rexy Prakash Chacko said state Local Government Committee chairman Chow Kon Yeow and Penang Island City Council (MBPP) had a discussion with them last week.
This came about after the forum’s first Penang Hills Watch (PHW) report on hill clearing cases was submitted to the state on Jan 2.
“They investigated the report and concluded that only nine were illegal clearing activities while the rest were legally permitted land works (14) and natural slope failure (one). The other five cases are still being investigated by the relevant departments.
“The illegal clearing cases have been issued with stop work orders or are being followed up by court action,” he said on Saturday.
Chacko commended Penang’s concern and transparency in responding to the PHW report.
He urged for close monitoring on the nine illegal clearing cases and for mitigation action to be taken to rehabilitate the areas if necessary.
“For those with permits, the forum hopes that the clearing will strictly adhere to the state laws on land works and drainage.”
Chow, when met at Datuk Keramat assemblyman Jagdeep Singh Deo’s CNY open house in Taman Free School, said he had discussed with Penang Forum members about the report and answered their queries.
The public can view the PHW report as well as the response from the state government at the Penang Hills Watch Facebook page (@PenangHillsWatch) or the Penang Forum website, and see them interactively on a map at the Penang Hills Watch page.
PHW, a citizen-oriented initiative to provide a platform to monitor activities affecting the hills of Penang, was launched in October last year by Penang Forum, a loose coalition of non-political civil society groups often critical of the state government’s plans and policies. – The Star
Jan 28, 2016 … PENANG’S drainage system is unable to cope with heavy rain falling within a
short ….. Penang Forum concerns over hill clearing and flood.
GEORGE TOWN: The only city councillor here who dared to go against the state government does not want to continue after his term ends on New Year’s Eve because he is disappointed with the Penang Island City Council (MBPP).
Dr Lim Mah Hui (pic) said he no longer wanted to serve because “the change in Penang that we want doesn’t seem to be happening”.
“I will remain active as a Penang Forum committee member. I will still speak up on public issues.
“I believe people in public offices should serve for limited terms. Perhaps it will take a fresher mind with new ideas and approaches to make things happen for the better,” he said.
Dr Lim, who has served as a councillor since 2011, also believed that the council should allow the public to observe council committee meetings.
“The committee meetings are where decisions are made. If people are watching the deliberations, then public scrutiny can help temper political interests,” he added.
The press and the public are allowed to witness full council meetings, but Dr Lim said these were formal meetings to confirm matters that had been decided upon.
Dr Lim is the sole city councillor out of 24 with no political ties. A former professor and international banker, he was nominated to MBPP by Penang Forum, a loose coalition of numerous NGOs in the state.
His appointment stemmed from the current government’s 2008 move to swear in councillors representing NGOs. Four such councillors were initially appointed but since 2012, although the official NGO councillors still stand at four, only Dr Lim is known to come strictly from civil society.
He made his maverick nature clear less than a year after being a councillor when he joined a group of 30 people to publicly protest against his own council outside City Hall months after being appointed.
In March this year, he was involved in a heated exchange with Chief Minister Lim Guan Eng during an NGO dialogue session over parking woes, road-widening projects and the council enforcement’s car-towing figures.
In July, Dr Lim criticised the state’s Penang Transport Master Plan (PTMP) and suggested an alternative better, cheaper, faster transport master plan.
A month before that, he sent a letter to Unesco expressing fears that the PTMP would jeopardise George Town’s World Heritage Site status.
Throughout his tenure in MBPP, Dr Lim has been called a liar, back-stabber and betrayer of the state government by local politicians. NGO members, however, hold him in high regard.
“Nobody can live up to Mah Hui’s standard as an example of integrity and representing public interest without fear or favour.
“He had been talking about stepping down for some time.
“Maybe he needs to take a break and we hope he will accept the post again,” said fellow Penang Forum member Khoo Salma Nasution, whom the group has nominated to take Dr Lim’s place.
Former DAP member Roger Teoh, who was initially at loggerheads with Dr Lim over the PTMP, said it was a shame that local politicians had painted him in a negative light.
“Something was not right about how the state was reacting to Dr Lim’s Unesco letter. I felt he was unfairly labelled as treasonous. If his concerns were heard internally, would he have needed to write to Unesco?” he asked.
Teoh had initially supported the PTMP and openly criticised Dr Lim.
He changed his stand after doing a Masters thesis research on car use in 100 cities around the world, which led him to resign from DAP recently.
Sources: Arnold Loh The Star/Asian News Network
“I have declined to be nominated for the reappointment as a councillor next year. I have served six years.
“I think I have served long enough and we need new blood and new people to take up the cause,” he said at the council’s monthly meeting yesterday.
He later told a press conference that Penang Forum suggested Khoo Salma Nasution, the forum’s steering committee member and Penang Heritage Trust vice-president, as his replacement.
“We have nominated Khoo as the representative for Penang Forum and NGOs. We will have to wait for the state executive council to decide on the nominations.
“Nobody told me to step down. It was my own decision. Penang Forum wanted me to continue but I told them I had done more than my share.
“I will remain in the Penang Transport Council,” he said.
Dr Lim, however, said he would continue to be vocal and speak out.
He urged the Penang Island City Council to open its meetings to the public to promote greater transparency and participation.
“Section 23 of the Local Govern-ment Act 1976 gives the local council the power to do so.
“Members of the public can also be invited to sit in, possibly as observers, at the council’s committee and sub-committee meetings where decisions are made.
“This is the challenge I put forward. If they are truly taking about change and a new type of government, then they should do that,” said Dr Lim.
Dr Lim has raised various concerns during his stint as a councillor and forum member on issues related to hill clearing, land reclamation, heritage conservation and the proposed Penang Transport Master Plan. – The Star
GEORGE TOWN, March 16 — Developers in Penang no longer fear flouting the law as the authorities seem to be “toothless” in taking punitive actions, an activist group claimed.
Referring to the latest hill-clearing incident on Bukit Gambir and similar past incidents, Penang Citizens Awareness Chant Group (CHANT) coordinator Yan Lee said the developers knew they could easily get away with illegal earthworks or structural demolitions.
This was because the state government and the municipal council were not prepared to take stern punitive action against them, he said in a text message yesterday.
The council has come under fire in the past few days after a developer defied a stop-work order to carry out earthworks on the hill slope of Bukit Gambir in Gelugor.
CHANT cited the demolition of the 19th century Khaw Sim Bee Mansion and illegal hilltop clearing of Bukit Relau, commonly referred to as “Botak Hill”, as examples of the developers’ fearlessness.
Yan Lee claimed that the developers were fearless because they knew a contribution to the state heritage fund (SHF) “can do magic”.
A check by Malay Mail yesterday showed the developer had stopped work for two days on the hill slope, located behind the Gambier Heights apartments.
The council had issued the stop-work order on Thursday.
The hill was cleared to build a temporary 500m-long access road and fencing for a housing project site on the hill slope.
Trees were chopped down to make way for the road, while a lorry and an excavator were parked at the construction site.
According to some residents, the earthworks began early this month.
The residents also complained of pollution caused by dust, and noise caused by the frequent movement of vehicles.
Traffic management and flood mitigation committee chairman Chow Kon Yeow called on the council to take stern action against the developer for “jumping the gun”.
He said the developer should have waited for the council to issue a commencement of work certificate.
Sahabat Alam Malaysia urged the state authorities to stop the developer from clearing the hill, and to implement firm policies to protect the hills and greenery in the state.
It warned against a repeat of the “Botak Hill” incident.
An MPPP councillor also said the developers had no respect for the authorities.
“Even if the council were to haul them up for violating the law, they know they will get away with a token fine,” the councillor, who asked not to be named, said.
He cited a previous case where a developer completed a housing project despite the case for carrying out illegal earthworks pending in court.
Sources: Athi Shanka, MalayMail online
“First of all, the Malaysian Anti-Corruption Commission (MACC) can only compel someone to declare his assets. Once the assets are d…
SUNGAI BULOH: The fees for childcare centres across the country are expected to increase by at least 10% next year, says the Association of Childcare Centres Selangor.
This was due to the revised minimum wage, said association president Mahanom Basri.
“The increase depends on the management of the centre. If the rent, salaries and other expenditures have gone up, it will increase by between 5% and 10%.
“It won’t be a lot, but there will definitely be an increase,” she said here yesterday.
For example, Mahanom said a 10% increase from the RM300 fee per child would result in a new fee of RM330.
Besides the minimum wage, she said childcare centre operators also had to install CCTVs for extra security.
“Quality facilities require money so I hope parents are ready to pay for them,” she added.
The Government introduced the minimum wage policy in 2013.
On July 1, the monthly minimum wage was increased from RM900 to RM1,000 for peninsular Malaysia and from RM800 to RM920 for Sabah, Sarawak and Labuan.
Mahanom, together with more than 300 childcare centre operators, attended a dialogue session with Deputy Women, Family and Community Minister Datin Paduka Chew Mei Fun yesterday.
One of the issues raised during the two-hour closed-door dialogue was the licensing fees charged by local councils.
“We have proposed to the local councils that they could treat childcare centres as community service instead of commercial business.
“By doing so, they can reduce the licensing fees,” Chew said.
She said the ministry was also looking into easing some regulations.
“We will be looking at the ratio; such as how many children should be cared by one minder without compromising on safety.
“Childcare service is important and the demand is big. Many families have both parents working so we need to have a strong childcare service,” she added.
By Nurbaiti Hamdan The Star/Asia News Network
Sep 11, 2016 … A childcare centre in a single storey terrace corner lot is allowed to house a …themselves to ensure our children get quality care and education.
KUALA LUMPUR: Structural failure possibly caused the collapse of an under-construction pedestrian bridge at KL Eco City near Kampung Haji Abdullah Hukum here.
Department of Occupational Safety and Health (DOSH) director-general Datuk Mohtar Musri said the initial investigation suggested that a defective structure could have led to the disaster on Wednesday.
He said the department would refer to the Construction Industry Development Board (CIDB) and Kuala Lumpur City Hall regarding the quality of materials used in the construction of the bridge.
Works Minister Datuk Seri Fadillah Yusof said a task force has been set up to probe the incident.
He said the result of the investigation was expected to be made public in a month, and that tough action could be taken against the developer if it was found to have flouted safety regulations.
“We can bring them to court, not just under DOSH but CIDB too. Under the CIDB Malaysia Act 1994, they can face a RM500,000 fine or a two-year jail sentence,” he said.
The RM7mil pedestrian bridge linking the planned KL Eco City project to the Gardens Shopping Mall in Mid Valley, which was still under construction, collapsed and killed one worker and injured five others on Wednesday.
The search-and-rescue operation at the site of the incident was halted after it was confirmed that there was no worker trapped underneath the mangled brick-and-iron structure.
City Fire and Rescue Department deputy operations chief Ruhisha Haris said K-9 teams had confirmed that there were no signs of a body.
However, the mystery of the missing construction worker remains.
“We first received information that a worker might have been trapped because a colleague saw him under the bridge minutes before it collapsed.
“A head count by the developer also revealed a missing worker, but they were unable to give us a name,” he said.
The dead victim has been identified as Tran Xuan Vang, 21, from Vietnam. Two other Vietnamese, Tran Van Hai and Luong Van Guyet, as well as Indonesian Nor Syamsi, Bangladeshi MD Jashim and Pakistan national Rais Aman Majid were injured and are currently being treated at Universiti Malaya Medical Centre.
Medical staff were forced to amputate Rais’ left leg on site to save his life.
In a statement issued on the day of the incident, SP Setia, the developer of the project, said it deeply regretted the incident and was working with the authorities in the investigation.
“The project team is still assessing the situation,” it said.
Work on the KL Eco City project – a mixed development comprising three residential towers, one serviced apartments tower, three corporate office towers, 12 boutique office blocks and one retail podium – started in 2011 and is scheduled to be fully completed by 2023.
Commenting on the incident, National Institute of Occupational Safety and Health chairman Tan Sri Lee Lam Thye said the time had come for players in the construction industry to practise their commitment to safety.
“All these accidents are preventable if the person in charge puts into practice good occupational and safety health measures and the site safety supervisor makes sure work is done properly,” he said.
By M. kumar and Nicholas Cheng The Star/Asian News Network
THE Consumers’ Association of Penang (CAP) is horrified with the news of the collapse of the incomplete pedestrian bridge meant to connect KL Eco City and Mid Valley Megamall in Bangsar, Kuala Lumpur.
Not even a month after a couple was crushed by a piling rig that fell on them at a construction site along Persiaran Astana, Klang, another tragic incident leading to serious injury and death has occurred.
If all the parties involved in the building industry – including the local councils, developers, contractors, architects, quantity surveyors, structural engineers, DOSH and all the others – had carried out their roles and functions efficiently, this could have been prevented.
Despite our repeated calls for the Government to conduct a full inquiry into the operations of the Department of Safety and Health (DOSH), it would seem like the relevant authorities are unable to comprehend the gravity of the situation.
When incidents like this happen, it becomes clear to us that DOSH and developers do not have their priorities right.
Instead of working on preventing such incidents, they wait until it happens before scrambling to take corrective measures to fix the problem.
The issue here is that there are no corrective measures that can be taken once a life is lost; that is not something that can be recovered.
Universiti Sains Malaysia’s (USM) Professor Datuk Dr Mahyuddin Ramli has been reported saying that incidents of this nature can happen when contractors do not comply with safety standards.
In this case, he said that concrete takes at least a week to dry and harden; the wet weather we have been experiencing means it will take even longer.
The USM professor also said that another way something like this can happen is if contractors do not use proper scaffolding during the construction process.
The distance between scaffolds and the size of the scaffolds used are very important as they will vary according to the structure they are meant to hold up.
DOSH’s director-general, Datuk Mohtar Musri, has stated that their initial investigation suggested that the incident happened because the structure was defective.
He said that they need to look into the quality of the materials that were used to construct the pedestrian bridge.
Whatever the cause, the relevant authorities and the public need to be aware that this is just history repeating itself.
If the incident did truly happen because of a structural defect, then it needs to be made clear that nobody can plead ignorance.
DOSH safety officers and onsite safety inspectors should have known about the structural defects if they did exist.
This begs the question of whether or not proper safety inspections were done at the appropriate stages by the relevant parties.
We ask that the results of the investigation into the latest incident be shared with the general public.
CAP would also like to know what happened to the findings from the investigation of previous incidents.
Why has this information not been shared with the public when their lives are also put in danger by the conduct of those at construction sites?
In view of this, CAP calls for penal action to be taken against all parties who have been involved in the project. They should all be held accountable even if they were not directly involved.
By S. M. MOHAMED IDRIS President Consumers Association of Penang
KUALA LUMPUR: A Vietnamese construction worker was killed and five others were injured when a 70m yet-to-be-completed bridge near Jalan Kampung Haji Abdullah Hukum and Mid Valley Megamall collapsed.
The victim was buried in the rubble of the collapsed pedestrian bridge.
As of press time, rescue workers were still searching for a Bangladeshi worker believed to be trapped in the rubble.
The authorities have since mobilised the K9 unit to locate him.
The firemen and paramedics were seen changing shift as the rescue mission continued into the night. Some were heard saying that locating the victim would be challenging.
However, all the rescuers were resolute in their attempt to find the last victim, never once giving up hope.
The five injured workers – two Vietnamese, two Bangladeshis and an Indonesian – were sent to the Universiti Malaya Medical Centre for treatment.
Brickfields OCPD Asst Comm Sharul Othman Mansor said the bridge was 80% completed when the incident occurred.
“We are still investigating the incident.
“We were alerted at about 4pm of the incident and quickly mobilised a search-and-rescue team,” he said at the scene.
Four roads were also affected by massive jams due to the incident.
According to Star Media Radio Traffic, the affected roads were the Federal Highway from the arch, the Kerinchi Link after the Pantai toll plaza, Kerinchi Intersection from Bangsar South or Pantai Medical Centre and Jalan Syed Putra from the Kuen Cheng School till the Robson Intersection.
While the main reason for the traffic congestion was due to certain road closures to make way for rescue workers, traffic was backed up near the mall due to many motorists slowing down to see the collapsed bridge.
Mall patrons, construction workers and curious onlookers were seen crowding the area near the bridge, where it was cordoned off for safety precautions.
By Farik Zolkepli, Jastin Ahmad Tarmizi, and Austin Camoens The Star/ANN
KUALA LUMPUR: The Government would like to take over the job of monitoring safety at construction sites away from developers following a string of deaths as a result of mishaps in the last three months.
Those duties, said Works Minister Datuk Seri Fadillah Yusof, may be entrusted to third party organisations that will be given autonomy in the planning, execution and supervision of workplace safety at construction sites.
Usually, these jobs are handled by contractors hired by the project developers but Fadillah said that this would mean the monitoring process was not independent.
Speaking at the launch of the Sustainable Construction Excellence Centre (Mampan), the minister said the suggestion for independent monitoring was brought up by the experts at the centre.
Mampan is headed by the Construction Research Institute of Malaysia (Cream), a subsidiary of the Government’s Construction Industry Development Board (CIDB).
Fadillah said the proposal to appoint third party safety monitors would be implemented first in Government construction projects.
He added that he hoped the private sector construction industry would do the same.
Currently, the Department of Occupational and Safety Hazard (DOSH) monitors government projects but it is reportedly too understaffed to keep track of every project.
For now we will have to make do with existing laws. This is why we need a commitment from the industry players,” he told reporters after the launch.
For now we will have to make do with existing laws. This is why we need a commitment from the industry players. Datuk Seri Fadillah Yusof
He said that Mampan would be a key organisation under the Government’s environmental sustainability initiative for its Construction Industry Transformation Programme.
The centre will undertake research with Universiti Teknologi Malaysia, Universiti Kebangsaan Malaysia, Universiti Sains Malaysia and the Rehda Institute to instil better industry practices, certification and awareness in the construction industry.
“We don’t want to build bridges that have no resilience and collapse when there is a flood.
“Our short-term goal is to position Malaysia as a regional leader in sustainability in construction and to raise the perception of sustainability in construction here,” he said.
Fadillah witnessed the signing of a Memorandum of Understanding between Cream chairman Tan Sri Dr Ahmad Tajuddin Ali and academics from the four universities and research institutes which will be a part of the new centre.
By NICHOLAS CHENG The Star/ANN
Global debt has jumped alarmingly to RM631tril and as capital flows out from developing countries, some are facing new debt crises.
DEBT worldwide has grown to unprecedentedly high levels and has to be brought down to prevent another financial crisis.
This was highlighted by the International Monetary Fund at its annual meeting in Washington last week.
Other problems facing the global economy include the stagnation in world trade, a decline in commodity prices and the reversal of capital flows to developing countries.
A recently released United Nations report has analysed the situation as a third phase in the global crisis that began with the United States in 2008, then spread in a second wave to Europe, and is now moving on to the developing countries.
The IMF said that world debt had reached US$152tril (RM631tril), a record level. It was 200% of the value of global gross domestic product in 2002, but has risen to 225% in 2015. The private sector holds two thirds of the total, but government debt has also risen fast, and the IMF warned about the risk of another financial crisis.
“Excessive private debt is a major headwind against global recovery and a risk to financial stability,” said Vitor Gaspar, IMF director of fiscal affairs. “Rapid increases in private debt often end up in financial crises.”
Most of this global debt is concentrated in developed countries. The huge jump there has been due to policies of easy money and low, zero or even negative interest rates, and especially to quantitative easing in which Central Banks bought bonds and pumped trillions of dollars into the banking system.
It was hoped that this massive infusion would cause the banks to increase lending to consumers and businesses and thus stimulate economic growth.
However, the real economy did not benefit much. Instead, most of the money went into the equity markets, boosting prices, and to the developing economies as investors searched for higher yield, and this helped to fuel the growth of their debt.
The debt of non-financial corporations in emerging economies jumped from US$9tril (RM37tril) at end-2008 to over US$25tril (RM104tril) by end-2015, or from 57% to 104% of their GDP.
Foreigners now own unprecedentedly high shares of bonds and equities in developing countries, which have become vulnerable to investor-mood swings and funds, resulting in financial crises.
When market sentiment or conditions change, the massive inflows can turn into equally large outflows. Indeed, the boom-bust cycle of capital flows has gone through many turns through the years.
Huge amounts left developing countries in the fourth quarter of 2015, and for that year as a whole there was a net outflow of US$656bil (RM2.7tril) or 2.7% of their Gross Domestic Product, according to the UN Conference on Trade and Development (UNCTAD).
This was a big change from a net inflow of 1.3% of GDP in 2013. This turnaround of 4.4% is much larger than the reversals of capital flows in 1981-83, 1996-98 and 2007-08.
But in recent months the cycle turned again, with the return of fund investors to emerging economies. For example, in Malaysia, after suffering large outflows in 2015, there have been net inflows of funds into the equity and bond markets in the past few months.
Going through these cycles, the debt of developing countries has grown. “Easy access to cheap credit in boom times has led to growing debt levels across the developing world,” says UNCTAD’s Trade and Development Report 2016.
Developing countries’ external debt rose from US$2.1tril (RM9tril) in 2000 to US$6.8tril (RM28tril) in 2015. Overall debt (foreign and domestic) jumped by over US$31tril (RM129tril) with total debt-to-GDP ratios reaching over 120% in many countries and over 200% in some others.
Now a nightmare scenario is emerging. For many countries, the tide is turning and access to cheap credit has begun to dry up. Says UNCTAD: “Against the backdrop of falling commodity prices and weakening growth in developed economies, borrowing costs have been driven up very quickly, turning what seemed reasonable debt burdens under favourable conditions into largely unsustainable debt.”
In some countries, the problem is compounded by currency devaluation (which increases the value of external debt) and lower commodity prices.
These countries are thus hit by multiple whammies – lower commodity prices and export earnings, net outflow of funds, devaluation (which causes their foreign debt to increase), a higher cost of servicing debt, and economic slowdown.
More and more low-income countries are in a downward economic spiral that has led them into a new debt crisis. They have had to turn to institutions like the IMF and World Bank for bailouts. UNCTAD lists Angola, Azerbaijan, Ghana, Kenya, Mozambique, Nigeria, Zambia and Zimbabwe as countries that have already asked for financial assistance or are in talks to do so.
This points to a shortfall in the international financial system – the lack of an orderly and fair debt mechanism which countries facing a debt crisis can have recourse to.
At the national level, the developed countries and some developing countries have corporate bankruptcy laws, aimed at helping companies to recover from a debt crisis through an orderly debt workout.
But there is no such debt workout mechanism, with fair burden sharing between debtor and creditors, when countries fall into a debt crisis.
In its absence, indebted countries often face many years of austerity and recessionary conditions imposed by the creditors and rescuing agencies, and with no guarantee that their debt level will even decrease.
With the present level of worldwide debt and the emergence of a new debt crisis in several countries, especially poor ones, it is time to consider smarter policies that prevent debt crises, and to manage them properly when they happen.
Martin Khor (firstname.lastname@example.org) is executive director of the South Centre. The views expressed here are entirely his own.
INTEREST rate is the price of money.
It sets the benchmark as it serves to oil the financial system’s engine, helping capital to flow freely and effectively in the global economy. Rates have been positive for the past three centuries despite world wars and the Great Depression. The system is not designed for a world of ultra-low, let alone negative rates.
The traditional business of banking, as we know it, is to take money from savers (in the form of deposits – representing banks’ liabilities) and lend it, at higher rates and over longer periods, to borrowers (investors, whose loans become their assets). Essentially, banks borrow short and lend long.
So the shape of the yield curve (chart of interest rates reflecting their term structure) is critical as it drives profits. The smaller the margin (gap) between short and long-term rates (i.e. the flatter the yield curve in economists’ jargon), the tighter banks’ profits are squeezed. The problem becomes even more difficult as interest rates or bond yields move near or to zero or worse, get negative.
Negative rates invert the norms of banking. Strangely, borrowers are paid for taking money, while savers pay to hand over their deposits. Banks already face resistance from depositors who won’t pay to save with them. Even as the return on their assets falls, banks find it hard to reduce the cost of their liabilities. When central banks impose rates on the reserves kept by banks with them – as is done at the European Central Bank (ECB) and Bank of Japan (BoJ) – it’s difficult for the banks to pass on this cost.
Indeed, negative rates act as a tax on bank profits. Banks also own government bonds, partly because regulators require them to keep a portfolio of liquid assets. Revenue here is a handy source of income. But as the older, high-yielding bonds mature, their replacements are now much lower yielding, thus eating into banks’ profits.
So banks look for other ways to re-coup, resorting to fees for services. Indeed, wealthy clients of private banking are starting to wake up to the impact of fees.
Insurance companies are also badly affected. They buy bonds to match assets with their long liabilities. But insurance companies in Germany and Switzerland are stuck with savings products they had sold in happier times, which guarantee returns well above current yields. A similar problem hit Japan in the 1990s and 2000s. Those with asset management arms have some protection, where returns are linked to the markets. But the impact of low returns is slowly but surely squeezing them too.
The underlying economic problem today remains inadequate global demand. In response, ECB has since stepped up its stimulus activities, joining BoJ and others in breaching the “zero lower bound” (inability of interest rates to get negative). So far, the impact on growth and employment has been dismal – simply because there is so much excess capacity worldwide.
Lower rates (even going negative) don’t appear to work. Lending has become more risky and banks today, as I see it, have neither the appetite nor enthusiasm to lend. Negative interest rates (NIRs) hurt banks’ balance sheets.
Other problems: NIRs (i) encourage investment in capital-intensive and disruptive technologies; (ii) perversely encourage savings – as fixed, interest-dependent income earners dampen consumption; (iii) curb a bank’s ability to lend; (iv) distort financial markets; and (v) shift portfolios to riskier assets in search of higher yields. In the longer run, NIRs compel businesses and individuals to disengage from a financial system that now taxes their saving.
Short-term rate and government bond yields represent the risk-free rate that forms the basis of return in finance. The expected return on equities comprises this risk-free rate plus a premium to allow for stock volatility and risk of capital loss. A good chunk of income of service providers is the “cut” they take. Today, there is simply much less return to go around.
Global trading in government bonds had exceeded US$10 trillion, a testament to just how hard central bankers are pushing yields down to spur households and businesses to spend. US 10-year Treasury now yields below 1.7%. Returns on comparable bonds in Germany and Japan are negative. Falling rates promise limited relief for consumers and businesses because inflation is falling too. For many in Europe and Japan, even record low rates don’t translate into easier borrowing terms on a real, or inflation adjusted, basis. For example, 10-year Japanese bonds return a -0.07%; but consumer prices fell 0.3%, yielding a +0.23% at 10 years, a key rate for most Japanese. NIRs don’t appear to have helped boost inflation in Europe either. The real case against NIRs is the folly of relying on monetary policy alone to rescue economies from depressed conditions.
Among Scandinavian nations, Denmark already has four years of NIRs. Its central bank benchmark rate now stands at -0.65% (mortgage rate, excluding fees, being at negative 0.0562%). Neighbour Sweden’s is -0.5% (below zero for 14 months). In Norway, rates can go negative to prop-up an economy hard hit by low oil prices. ECB and BoJ are using sub-zero rates to stimulate growth with little success.
Meanwhile, Switzerland, Sweden and Denmark are trying NIRs to keep their currencies in line with the struggling euro. Their experience points to concerns about undesirable side-effects, including: (i) savers pay the price of getting no interest; even so, bank profitability is squeezed; (ii) excessive investment in real estate; (iii) households gorging up mortgages they can’t afford to repay when rates rise or real estate values fall.
Sweden’s household debt to disposable income ratio is at an unsustainable 175% (90% in mid-1990s); and (iv) run to physical cash by savers. The flip-side points to success in keeping the currency in check, holding steady against the euro to protect euro-trade and competitiveness.
In Denmark, despite NIRs, private saving is rising (26% of GDP, against 21% before 2012 when rates were positive) to protect future purchasing power. But, investments fell (16% of GDP against 18.1% in 1990-2012). So, NIRs appear to be counterproductive. This chorus of discontent is spreading to other parts of Europe.
NIRs have pushed up savings and done little for corporate investment, while eviscerating pension plans. Politically, in Europe’s sclerotic economy, in the face of high unemployment (double the US rate) and an uncertain outlook, NIRs can be even more toxic, driving voters to support populist causes.
BoJ took radical measures for 3½ years to reflate the country’s sagging economy, resorting this January to NIRs. Yet growth and inflation remain elusive. Core-inflation is at minus 0.5%, far below BoJ’s 2% target. Prices today are still lower than they were in 1997. BoJ’s primary method to raise consumer expectations has been buying assets, mostly government bonds but also real estate and equities.
As a result, Japan’s monetary base tripled to US$4 trillion (80% of GDP). Investors’ patience is fraying. In a bold move to deepen the yield curve, BoJ on Sept 21: (i) capped the 10-year government bond rate at 0%, vowing to overshoot its 2% inflation target; and (ii) maintained its existing policy to purchase 80 trillion yen (US$78bil) of assets a year. Both these goals are incompatible. They pose a dilemma – in the event demand for government bonds collapses, BoJ will need to buy more and more to keep yields at zero. Similarly, strong demand may even make it unnecessary to buy any.
As I see it, the new approach is a sensible response to market realities. BoJ had conceded real difficulties in shifting price expectations towards the inflation target. Besides, the flattening yield curve is eating into banks’ profits.
By targeting its future purchases at the shorter-end (rather than buy longer bonds as now), BoJ is expected to tolerate a steeper yield curve. The yield cap should make NIRs more effective. Indeed, it allows BoJ to further test the bounds of its NIRs policy. In essence, the new approach shifts focus to interest rates, a retreat from the unpopular quantitative easing (QE). For investors, there is no longer a willing buyer. Instead, a price setter – adding uncertainty. Its pledge to overshoot the inflation target as soon as possible is designed to raise future price expectations more forcefully.
Whether BoJ can shake off deflation depends on whether domestic demand can revive to rekindle the still elusive price expectations. QE needs to be accompanied by more purposeful fiscal stimulus – including even a last ditch effort to issue “helicopter money” – to directly underwrite government spending by BoJ.
In search of yields
With NIRs, some of the world’s un-venturesome investors – the Japanese – are going abroad at an unprecedented rate this year: up to US$500bil being invested so far in foreign securities. For the risk taker, Venezuela bonds earned as much as 27% return over the past year. However, most prefer to just take “duration” risk: measured on when the investor gets his money back.
Longer bonds have higher duration risk – as do bonds with low coupons (more waiting time). Rule of thumb: 1 percentage point change in the rate changes the bond price equal to the duration. The price of 25-year bonds will jump 25% if rates fell by 1 percentage point; and falls 25% if rates rose 1 percentage point. As duration gets longer, risk mounts. For example: last year, 40-year Japanese bonds carried a 1.4% coupon. Rates have since turned negative; so the price rose by as much as 34%.
What then, are we to do
It is startling that the total volume of sovereign and corporate bonds with NIRs now exceeds one-half of all western debt. It’s equally amazing how investors continue to gobble up these bonds even though they are likely to get back less than what was invested.
Just as astonishing is the rising demand for cash – the world’s largest asset managers now hold 5.8% of their assets in cash! Why? Points to investors and fund managers being downbeat on the ability of central bankers to raise inflation in the face of growing pessimism about growth prospects (17% of them expect a global recession, and as many as 39% expect “helicopter money” to be handed out). Most fear the policy landscape will become weirder.
QE appears broken. This playbook has limited success in US and is patchy at best in Europe and Japan. Frankly, US bankers and economists are growing increasingly uncomfortable with the cycle of QE infinity and more aware of its collateral effects, including keeping US dollar cheap.
But consumers and businesses have been saving rather than spending, with stagnant unemployment overshadowing the windfall from rising asset prices. European banks have been hit by low interest rates, tighter regulation and rising non-performing loans that have hurt profitability. Policymakers are today rethinking strategies. Mario Draghi is, and Haruhiko Kuroda has had a recent relook. The key question remains: how to regain policy effectiveness. That’s where the focus should be – adopt pro-growth structural reforms to make the economies more competitive, and to enhance fiscal creditability.
Sure, BoJ has to make people believe in inflation. Inflationary expectations won’t materialise until BoJ is credible. Credibility – that’s what makes our world in 2016. In the US, both presidential candidates have pledged fiscal stimulus. Hopefully, by next year (after elections in Spain, Germany and France), a more balanced application of softer QE and aggressive fiscal stimulus can turn Europe from a good trade into a good investment.
By Lin See Yan
Former banker, Harvard educated economist and British Chartered Scientist, Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015). Feedback is most welcome; email: email@example.com.
IT is increasingly a cause for concern to see the rising cost of living leading to a significant erosion of income. This results in more youths and job entrants unable to afford decent dwelling, be it in urban or sub-urban areas.
Therefore, it has become a pressing policy matter to find an effective solution to keep real estate prices in check. Many governmental agencies have been set up, but affordability remains a problem.
> Current state of health
From property developers to banks offering mortgages, the real estate sector supply chain has a high correlation with domestic economic performance.
According to the National Property Information Centre (NAPIC), the Malaysian House Price Index growth has been moderating since 2014.
The index had eased to 7.2% in the fourth quarter last year, down from a 7.4% expansion in the previous quarter. It is the fifth consecutive quarter of slower pace of growth.
Similarly, Malaysia’s gross domestic product (GDP) growth had tapered to 4.0% in the second quarter this year, down from 4.2% in the previous quarter.
Notwithstanding the current sluggish economic conditions, the pertinent issue surrounding the real estate segment is affordable housing.
Even though broad property prices growth have plateaued, the high absolute price to own a house continues to be out of reach for the common Malaysian.
According to the report “Making Housing Affordable” by Khazanah Research Institute, the overall Malaysian housing market is ‘seriously unaffordable’.
Using the “median-multiple ratio” standard by the United Nations Centre for Human Settlement at the World Bank, a housing market is considered “affordable” if the house price to household income ratio is below 3.0 times.
The study conducted by Khazanah Research Institute, following the latest available data by the Department of Statistics, indicated that the overall Malaysian median-multiple in 2014 was 4.4 times.
More worryingly, the median multiple ratio for Kuala Lumpur (5.4 times), Penang (5.2 times), Terengganu (5.5 times) and Sabah (5.1 times) are considered to be ‘severely unaffordable’.
According to NAPIC data in the first quarter of the year, the median residential property sale transaction price in Kuala Lumpur was within the range of RM400,000 to RM500,000.
Assuming that the property price is RM450,000, after paying the 10% down payment deposit and taking a 35- year tenure housing loan at 4.5% interest per annum, the monthly mortgage repayment comes up to slightly over RM1,900.
Meanwhile, the surveyed salary of a four-to-five-year experienced sales manager with a university degree was reportedly at between RM5,000 and RM8,000 per month, according to a local recruitment specialist report.
Effectively, this means that the manager is looking at a house-to-individual income ratio of 4.7 to 7.5 times if he or she were to purchase the Kuala Lumpur property on his or her own capacity.
Moreover, given Department of Statistics’ expectation of 1.2% annual population growth rate between 2016 and 2020, Malaysia’s demography will have to accommodate a projected 1.6 million more people by the end of the decade.
Housing is a pressing socioeconomic issue for the long term not only in Malaysia but also worldwide. It has to be sustainable and affordable.
>Focus on sustainable supply side dynamics
Fundamentally, housing affordability is an income issue.
Given the high absolute value of real estates, household income – at a much lower base – would have to multiply much higher to catch up to the affordability threshold.
To extrapolate it further, even with higher income growth, would real estate ever be considered ‘affordable’?
A conventional profit maximisation motive could mean that property developers would eventually price their units in tandem with income growth rates, therefore creating the ever elusive ‘affordability’.
Keep in mind that there is no lack of demand for housing in Malaysia in light of the relatively young demographic.
In 2016, the estimated age group younger than 24 years old of around 13.4 million people makes up 43% of total population.
Besides, the average household size is expected to shrink from 4.6 people in 2000 to an estimated 4.0 people by the end of the decade, according to Khazanah Research Institute.
>More residential units would be required for dwelling.
Essentially, policy makers should focus more on the supply side dynamics to tackle the issue of home ownership and also on sustainable policies to ease the cost of ownership – especially for first- time home buyers.
Under the 11th Malaysia Plan, the government has already outlined the need for affordable housing – especially for the bottom 40% of households – to alleviate the increasing cost of living.
The government targets to provide 606,000 new affordable houses during course of the 11th Malaysia Plan spanning from 2016 to 2020, introduce an integrated database to match supply and demand dynamics and also establish a land bank for future affordable housing projects.
This would be a continuation of the Program Perumahan Rakyat 1Malaysia (PR1MA), Ruman Idaman Rakyat and Rumah Mesra Rakyat initiatives.
The government looks set to establish a land bank for houses and an integrated database for all relevant stakeholders to match demand and supply dynamics.
Across the straits, the Singapore Housing and Development Board (HDB) is often cited as a success story in providing affordable and quality homes.
The HDB programme is a comprehensive nationwide strategy that aligns the government’s legal powers to acquire land for public housing purposes, act as a central authority on township development, while leveraging on the Central Provident Fund as a financing means to ensure affordability.
Moreover, there is a holistic township planning whereby the development of physical HDB flat infrastructure is complemented by socioeconomic integration that promotes a cohesive society.
No doubt there are studies that indicate Singapore’s median multiple ratio is around 5.0 times in 2015, thereby classified as ‘severely unaffordable’.
The scarcity of land in the island state limits the potential for competitive supply of land.
Nevertheless, the comprehensive central planning that the Singapore government employs allows it to have a firm grip on keeping property prices in check.
In short, the HDB programme provides the government with an effective means to ensure targeted housing supply meant for community dwelling.
Given that Singapore’s home ownership rate has increased from 29% in the 1970s to close to 90% in 1990 and a vibrant resale market for the private sector, it is a considerable success story for providing quality living standards for the nation.
While it would likely be a gigantic task for other countries to emulate Singapore’s public housing policy from scratch in light of the legal matters of land and elements of socioeconomic welfare distribution, the best practices from HDB should be carefully studied.
>Housing matter should be top on policy priority
In Malaysia, land matter is a state matter. For a comprehensive public housing plan to take off, the government would have to put up an economically viable proposal to develop new townships across the nation with a cost effective structure.
The Urban Wellbeing, Housing and Local Government Ministry is mulling over the idea of developing a ‘Youth City’ township to cater to the young population.
Perhaps that could be a platform for the government to walk the talk and deliver value-added townships for affordable housing.
On the other end of the equation, besides providing dwelling space, real estate is also an asset class that yields cash flow from rental and also capital appreciation through time.
Therefore, it is imperative that the housing market price should never be trapped in an asset class bubble.
The 2008 United States’ sub-prime mortgage crisis serves as a grave reminder of the dire consequences and the impact on the real economy.
Fortunately, Bank Negara has already in place various macro-prudential policies since 2010 such as limiting loan-to-value ratio to 70% for home financing, and increase in real property gain tax to 10% for sales of real estate within two years to stem real estate market speculation activities.
In light of these, the recent consideration to allow property developers to offer home buyers financing at a much steeper financing cost of 12% interest rate per annum should be deliberated properly.
It is one matter to provide easier credit facility to own a property but it is an entirely different matter to compromise on the people’s capabilities to service the loan in the longer run and the spillover impact on real estate prices.
In short, housing is a necessity and it is imperative for authorities to have a policy interest in the issue.
The policy challenges going forward would only be more challenging as demand for housing continues to surge. It would be interesting to take stock of the plan that government has in mind come Budget 2017 on 21 October.
By Manokaran Mottain
Manokaran Mottain is the Chief Economist at Alliance Bank Malaysia Bhd