Too good to be true? Think twice


 

HAVE you ever grabbed an offer without any hesitation, simply because the price is too cheap to resist?

Many of us have this experience especially during sales or promotional campaigns. We tend to spend more at the end or buy things which we are uncertain of their quality when the deal seems too good to say no.

It may be harmless if the amount involved is insignificant. However, when we apply the same approach to big ticket items, it can cause vast implications.

Recently, I heard a case which reinforces this belief.

A friend shared that a property project which was selling for RM300,000 a few years ago is now stuck. Although the whole project was sold out, the developer has problem delivering the units on time.

The developer is calling all purchasers to renegotiate the liquidated and ascertained damages (LAD), a compensation for late delivery.

One of the homeowners said he is owed RM50,000 of LAD, which means the project is 1½ years late. When we chatted, we found that he purchased the unit solely due to its cheap pricing without doing much research in the first place.

The incident is a real-life example of paying too low for an item which can leave us as losers, especially when it involves huge sum of investment, such as property.

To many, buying a house maybe a once-in-a-lifetime experience, a decision made can make or break the happiness of a family.

A good decision ensures a roof over the head and a great living environment, while an imprudent move may incur long-term financial woes if the house is left uncompleted.

Nowadays, it is common to see people do research when they plan to buy a phone, household item, or other smaller ticket items.

Looking at the amount involved and implication of buying a house, we should apply the same discretion if not more.

It is always important for house buyers to study the background of a developer and project, consult experienced homeowners regarding the good and bad of a project before committing.

I have seen many people buy a house merely based on price consideration.

In fact, there are more to be deliberated when we commit for a roof over our heads. The location, project type, reputation of a developer, the workmanship, the future maintenance of the property etc, are all important factors for a good decision as they would affect the future value of a project.

Beware when a discount or a rebate sounds too good to be true, it may be just too good to be true and never materialised. If the collection or revenue of a housing project is not sufficient to fund the building cost, the developer may not be able to complete the project or deliver the house as per promised terms. At the end of the day, the “price” paid by homeowners would be far more expensive.

In general, the same principle applies elsewhere. It is a known fact that when we pay a premium for a quality product from a reliable producer, we have a peace of mind that the product could last longer and end up saving us money. Some lucky ones will end up gaining much more.

For instance, when we purchase a car, we should consider its resale value as some cars hold up well, while others collapse after a short period. Other determining factors include the specifications of the car, the after sales service, and the availability of spare parts.

Quality products always come with a higher price tag due to the research, effort, materials and services involved.

In addition to buying a house or big ticket items, other incidents that can tantamount to losing huge sums are like money games, get-rich-quick scheme, or the purchase of stolen cars or houses with caveats.

When an offer or a rebate sounds dodgy, the “good deal” can be a scam.

Years of experience tells me that when what is too good to be true, we should think twice. I always remind myself with a quote from John Ruskin (1819-1900) who was an art critic, an artist, an architect and a philosopher. “It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money – that’s all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

“The common law of business balance prohibits paying a little and getting a lot – it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

Food for thought by Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

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Bitcoin must not in your retirement financial planning portfolio


Bitcoin investments have undeniably become a trend among savvy investors in search of the golden goose, but one financial planner is against the use of it as part of the financial planning portfolio for retirement.

Max Growth Wealth Education Sdn Bhd managing director Nicholas Chu said one should not use bitcoin as part of the retirement portfolio and the public must be well aware of the risk in bitcoin trading before getting in.

“It is not asset-backed, it is very unsecure. It is, basically, you want to participate in the future changes. It’s not a proper financial planning way. It is just an experimental thing that you want to go through in this era, but it is not a proper investment product,” he told SunBiz.

“I definitely don’t agree if they use this for their financial planning. But for those who are able to try new ventures, they can go ahead provided they have extra money. If this doesn’t affect their existing financial planning, then I’ll leave it to them. We need to tell them the pros and cons of this investment. It’s up to the clients to do the final decision,” he said.

Chu cautioned on the uncertainties of bitcoin trading, which is driven by market forces.
“It is beyond anybody’s control, all the participants contribute to the bitcoin value. From that, I can say that there are a lot of uncertainties in the future,” he said.

Nonetheless, with the setting up of a few bitcoin exchanges, Chu noted that there will be demand and supply with tradeable markets available.

Bitcoin was the best-performing currency in 2015 and 2016, with a rise of 35.8% and 126.2% respectively.

Year to date, bitcoin prices have leaped more than three times. It stood at US$2,840 (RM12,140) as at 5pm last Friday.

Bitcoins are by the far the most popular cryptocurrency, which exists almost wholly in the digital realm and has no asset backing it. Bitcoin generation, known as mining, while open to anyone with a “mining application” on their computer, needs a great deal of computing power to solve complex algorithms which are later verified with the entire bitcoin network.

Colbert Low, founder of bitcoinmalaysia.com, said the recent spike in bitcoin prices could be partly due to the legalisation of bitcoin by the Japanese government.

He is unsure if the sharp rise in bitcoin prices will create a price bubble, but stressed that one cannot judge its price movement based on the “old economic theory”.

“This is a new economy based on a different model. It’s very hard to say,” Low opined, noting that there has been a growing number of retail outlets that accept bitcoin.

He foresees the usage of bitcoin propagating, especially in different types of payment methods.

However, Low opined that there will not be any “big movement” in the local market if the regulators do not regulate bitcoin.

“Our new Bank Negara governor is forward thinking and he is very much into fintech, technology and innovation. So there would definitely be improvement,” Low said.

The positive development of blockchain will be a catalyst for the growth of bitcoin, he added.

“Blockchain is a real thing that will change the way the IP system is architectured. We need to go down to a deeper level to see how blockchain can change the current problem and solve it.

“There are a lot of projects right now, over 500 companies are looking at this (blockchain) right now. Even IBM, HP and Microsoft are looking at it.”

Blockchain refers to distributed database that maintains a continuously growing list of records, called blocks, secure from tampering and revision. Bitcoin is just an application or software that runs on blockchain technology.

“If you look at blockchain technology, government agencies like the United Nations, the World Bank and the International Monetary Fund are looking at it. This is the best way to secure your data,” Low said, noting that the usage of bitcoin will help reduce operating cost.

Currently, there are about 16 million bitcoins in the market and the number is capped at 21 million.

Bank Negara has said that it does not regulate the cryptocurrency and advised the public to be cautious of the risks associated with the usage of such digital currency.

Source: By Lee Weng Khuen sunbiz@thesundaily.com

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Penang properties: security for homeseekers, location for foreigners, increased value for investors


 

Security ranks high for the homeseekers

GEORGE TOWN: Security is a key feature sought after by property buyers at the StarProperty.my Fair 2017 at Gurney Plaza and Gurney Paragon Mall here.

Eco World Development Group Berhad (EcoWorld) sales executive Andre Lim Han Lin said potential buyers approached the company due to the security features of its projects.

“We stress a lot on security in our projects. Take for example the Eco Meadows gated and guarded mixed development project in Simpang Ampat on the Penang mainland.

“Each housing unit comes with intercom system and alarm system to provide enhanced safety for our customers.

“In cases of emergency, homeowners can contact our well-trained security guards for assistance,” he said at the fair yesterday.

Hunza Properties (Penang) Sdn Bhd head of sales and marketing Karen Thein said the company’s Alila2 project in Tanjung Bungah comes with a top-notch security system to ensure the safety and security of its homebuyers.

“We have layers of security from the guardhouse, to the car park, lobby area and to the home unit.

“The project is equipped with security tags, access card control system and CCTVs,” she added.

She said Alila2 was also equipped with smart home panel that allows owners to view their visitors who are at the lobby.

“Owners can open the door to the lifts at the lobby from their home after confirming the identity of the visitors through the smart panel.

“Aside from that, each unit is equipped with a panic button for owners to alert the security guards during emergencies,” she said.

BDB Land Sdn Bhd sales executive Mohd Zaidi Md Jasmin said potential clients who came to their booths were also concerned about security.

“Security is one of the important factors we stressed in our Darulaman Perdana township in Sungai Petani.

“The project is a guarded community, crafted to meet the needs of those who seek comfort and safety in their homes.

“We have our security guards patrolling our project to ensure safety at all times.

“Besides safety, we are also into building a healthy and environmental-friendly community,” he said.

The StarProperty.my Fair 2017, organised by the Star Media Group, is open from 10am to 10pm daily until Sunday.. Admission is free.

By Christopher Tan The Star

Foreigners eyeing Penang properties

FOREIGNERS were among the early birds who visited the StarProperty.my Fair 2017 in Penang on its first day, looking for properties to invest in.

Couple Wallace Ng and Minnie Yip, both 50, from Hong Kong, said they were looking for a property with sea view and good facilities to invest in.

“Good location will be an added value to the property,” Ng said while checking the City Residence project in Tanjung Tokong by Ivory Properties Group Bhd at the fair yesterday.

Another couple from Shanghai, Liu Jun and Hua Wen Xin, both 49, were checking out Ewein Zenith’s City Of Dreams project in Gurney Drive.

“We are interested in having a property at a bay on Penang island. It would be a good investment for us. Location plays an important role,” Liu said.

New Zealander Brad Harman, 31, echoed similar sentiments, saying suitable location would be his first preference while looking for property in Penang.

“I understand that investing in the property market in Penang is profitable as it’s growing rapidly. This may be a good time to look for one but it will be a better choice when it has a good location too,” he said.

Henry Teoh, 29, and his girlfriend Jesslyn Tan, 24, both insurance agents from Penang who are searching for a second property in the state, said they were looking for a landed home since their first property is a high-rise.

“We prefer to have the house on the island as we think that the land value on the island is higher and it will be a good investment too,” Teoh said while checking the properties offered by IJM Land Bhd.

Sales and marketing executive Marie Kam, 37, who was eyeing Sentral Suites by Malaysian Resources Corporation Berhad (MRCB) in Kuala Lumpur Sentral, said the development attracted her due to its location.

“KL Sentral is a prime location in Kuala Lumpur,” she said.

At The Star’s booth in Gurney Plaza, retiree Ho Kam Hoong signed up for a one-year standalone ePaper subscription for RM180.

“I prefer The Star ePaper since it is more convenient as I can surf the news from anywhere.

“I like the lifestyle, social event and sports sections,” said Ho who received a complimentary RM20 Starbucks card, three free spins in the fair’s Spin & Win Contest and two additional months of free ePaper for signing up for the package.

More than RM50,000 worth of prizes are up for grabs in the Spin & Win Contest during the four day fair which is being held at Gurney Plaza and Gurney Paragon Mall.

The fair also offers visitors the opportunity to win a one-bedroom serviced suite worth over RM550,000 at PJ Midtown in Section 13 of Petaling Jaya, Selangor, under the Win A Home (WAH) campaign.

Simply like and follow the StarProperty.my Fair Facebook page, then register online at wah.starproperty.my or at the WAH booth in Gurney Paragon Mall, to get one entry.

Finally, complete a creative slogan in English.

Those who buy properties during this and all subsequent StarProperty.my Fairs until Dec 31 will be entitled to multiple entries.

Visit http://fair.starproperty.my for details and the terms and conditions.

The public could also sign up for the Penang Starwalk 2017 on Sept 10 and Fit For Life Fun Run on Nov 19 during the fair at The Star booth in Gurney Paragon.

The fair, organised by the Star Media Group, is open daily from 10am to 10pm until Sunday. Admission is free.

RM78,000 house four decades ago now priced close to RM1mil

PROPERTIES are a hedge against inflation as their value increases with time, said full-time property investor Kaygarn Tan.

Citing a single-storey house in Island Glades in Penang as example, he said the price doubled from RM78,000 in 1977 to RM158,000 in 1988.

“In 2015, it was priced at RM900,000,” Tan said in his talk titled ‘Creating Wealth Through Property Investment’.

He described the current property market as soft where purchasers hold much of the power in negotiations.

“This sentiment is shared by many business analysts and experts. It is now the buyer’s market.

“The people should grab the opportunity as sellers will be more flexible in their pricing,” he added.

Lawyer Khaw Veon Szu, in his talk titled ‘A Landmine-free Roadmap to Property Ownership/Investment’, said buying a property was arguably the biggest investment for ordinary people.

He advised buyers to equip themselves with basic knowledge of property purchasing and trust nobody.

“They should exercise due diligence, especially on the background of lawyers or real estate consultants before they engage their services,” he said.

In another talk, feng shui master Stephen Chin provided feng shui tips on selecting the right home.

The property education talks were brought to the fair by BDB Land.

Source: The Star/ANN

Educating the young urbanites

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GEORGE TOWN: Well-known developer BDB Land Sdn Bhd has launched its Property Education campaign at the StarProperty.my Fair 2017 organised by Star Media Group, in Penang.

Aimed at providing valuable insights into home ownership for the public, it includes informative talks at the four-day fair which ends today.

There will also be radio segments on 988 and Suria at prime time daily starting Aug 2, and digital content on The Star Online, to reach out to a broader audience.

The radio segments encompass topics like current property trends, upcoming developments, sub-sales market information, property investment, legal aspects, first-time buyer tips, foreign property news and more.

For the digital segment, there will be videos on various aspects of property ownership.

First-time buyers should benefit from the buying guide 101 that includes budget planning, things to prepare for, payment procedures and renovation costs, among others.

For experienced home buyers, there are also topics to look out for, such as refinancing a property, selling a property without making losses, who to approach if defects are found with the property, questions to ask the developer, and the importance of real estate management.

Izham presenting a momento to bin Yusoff, June Wong, Chief Content Officer of Star Media Group and her colleagues in Penang.
Izham presenting a memento to Wong. With them are Liong and Hwang.

BDB Group managing director and the BDB Land Sdn Bhd executive director Datuk Izham Yusoff said the campaign was in line with their EZY Home programme for young urbanites.

“Our track record of successfully delivering homes in self-sustaining townships in Kedah for over 30 years puts us in good position to give advice.>

“This reflects our long-standing commitment to help individuals own a home,” he said after the launch which started with an ice-breaking session by Suria Cruisers who engaged visitors in games and a quiz.

Also present were the company’s sales and marketing head Anneta Hassan, marketing and product development head Fadzil Amidi Ahmad and sales head Mohd Shukry Shuaib.

Joining them were Star Media Group Content Development chief operating officer June Wong and regional operations general manager (north) Simone Liong, as well as Star Media Radio Group general manager of sales Erin Hwang.

The public forums, themed “Let’s Talk Property”, continue today with sessions on “Attacting Wealth by Applying Vasthu Sastra (Indian Feng Shui)” at 11.30am by T. Selva, and “How Incredible i-Ching Helps Boost Prosperity in Your Home Fengshui” at 1.30pm by Mak Foo Wengg.

Popular with the masses: Visitors checking out The Light City project at the IJM Land’s booth during the StarProperty.my Fair 2017 at Gurney Plaza, Penang.

Completing the line up are talks on “5 Trends That Will Change the Malaysian Property Market Forever” at 4pm by Ahyat Ishak, and Penang Property Outlook at 5.30pm by Leon Lee.

The StarProperty.my Fair 2017 is organised by Star Media Group.

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Dengue app bad for aedes, can get updates, report dengue concerns


The ‘Predict and Beat Dengue’ app is now available on Google Play Store and Apple App Store.

Predict and Beat Dengue – Android Apps on Google Play

App for updates on dengue

PENANGITES can now download a mobile application (app) which allows its users to be part of an effort to combat dengue in the state.

Known as the ‘Predict and Beat Dengue’ app, it will alert users when they enter a dengue hotspot.

The users can also report dengue-related concerns in their areas and get the latest updates on dengue cases as among its other features.

State Health Committee chairman Dr Afif Bahardin said the app is now available on Google Play Store and Apple App Store.

He said the app could help to predict a possible dengue outbreak in an area within the next 30 days.

“From there, we can carry out prevention by removing all possible Aedes breeding grounds.

“It quickens the process of detection and identifies places that require dengue preventative measures such as fogging, larvae-ciding and gotong-royong,” he said during a briefing session at Komtar yesterday.

Dr Afif said the state spent RM200,000 on a pilot study for the project which was carried out between May 1 and July 1 by the app creator, a US-based company known as Aime Inc.

“I’m proud that Penang is taking this proactive approach. We are working hand-in-hand with the Health Ministry and they are very supportive of this idea.

“We hope that it can also be carried out nationwide,” he said.

Aime president Rainier Mallol explained the workings of the app and its many features during the presentation.

Also present were Pulau Tikus assemblyman Yap Soo Huey, Batu Uban assemblyman Dr T. Jayabalan and Sungai Pinang assemblyman Lim Siew Khim.

Source: The Star/ANN

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The ugly side of the digital economy


ALMOST everybody is addicted to the digital world of connectivity. Only a handful can dare say that they are not dependent on the Internet or the connectivity that comes with the digital age.

To those not convinced that they are addicted to technology and the Internet, they should try asking themselves a few questions.

When was the last time they accessed the computer to search for something through Google? When was the last time they accessed Facebook or Whatsapp to stay connected? How long have they gone without getting “an anxiety attack” without having their handphones with them?

If an uneasy feeling creeps into them without having their computers or mobile phones with them, then the chances of them being reliant on the digital world is high. If they are lost at work without “Mr Google” and feel handicapped, then they are hooked on the digital world.

From the hundreds of people I know, only two do not carry a mobile phone with them. One is a seasoned lawyer while the other is a retired factory manager. They are exceptions to the norm.

The digital age is here to stay and grow. The advantages of digital connectivity in terms of accessing instant information and staying in touch with others seamlessly are just too great to be without.

These days, even people in their late 50s and 60s are active users of Facebook, which they see as critical touch points of their lives with others. The instant response to their postings is a gratification of sorts.

These are new touch points that they would normally not be able to enjoy without digital connectivity. However, there is a downside to this digital addiction in both the social and economic sense.

There is a book going into the details of how more people are depressed without digital connectivity, how people have gone berserk without having access to Internet connectivity. This is one of the many social downsides of the digital age.

However, more shocking is the unconventional work ethics, sexual harassment and culture of idolising individuals that have become rampant with the rise of the digital economy.

Last week, the former chief executive of the Malaysian Global Innovation and Creativity Centre (MaGIC), Cheryl Yeoh, revealed that she was a victim of sexual assault by a venture capitalist, Dave McClure, three years ago.

The revelation only came after The New York Times reported that McClure had stepped down from 500 Startups following allegations of sexual harassment against him.

500 Startups is a Silicon Valley-based early-stage venture fund and seed accelerator. Generally, the principals of venture funds tend to exert their influence over those seeking their money.

It is rampant in the world of the new economy where funding from banks is not easily available. Banks would want to see profits and a strong balance sheet before they lend money to start-ups. Start-ups in the digital economy rarely have both financial elements.

Yeoh said that she did not come public with the incident earlier fearing that many would not believe her. She also did not want to jeopardise the business venture between MaGIC and 500 Startups.

McClure is not the only venture capitalist who has faced the brunt of unethical work practices. Travis Kalanick, the founder and prime force behind ride-hailing app company Uber, has also been forced out by shareholders after a series of scandals in the company.

Among those who complained against the work culture of Uber was software engineer Susan Fowler Rigetti, who in her blog posting stated that the company’s work environment was hostile towards women, leading to many of them leaving.

The hostility went beyond sexual harassment. It was even to the point of the women not getting leather jackets as their numbers were small compared to the men who had received theirs from the company.

Because the number of women working in Uber was small, the company, which is touted as the most valuable unlisted new economy entity, could not get the discounts required and hence did not order the leather jackets.

In a company engaged in the old economy of brick-and-mortar businesses, such reasoning would not have been tolerated. But it has happened in Uber, where Kalanick held a position so strong that the way he managed the company was not questioned.

Hero-worshipping the founders is quite common in new-economy companies. Whatever the founders decide is not questioned. It has come to the point where even when deals are concluded at lofty valuations, hardly any murmurs are raised.

No questions asked: Jeff Bezos of Amazon purchased a grocery chain, Whole Foods Market, for US14bil two weeks ago and nobody batted an eyelid or raised any questions. – AFP

Jeff Bezos of Amazon purchased a grocery chain, Whole Foods Market, for US$14bil two weeks ago.

Nobody batted an eyelid or raised any questions as to why a new-economy heavyweight was buying into a matured company in an industry that was facing huge challenges because of Amazon.

Amazon, with its online shopping platform for anything from books to groceries and even movies, has disrupted the retail industry. The likes of Wal-Mart and Tesco are reeling from the growing dominance of Amazon.

So, why is Amazon buying into a grocery chain operating in the industry that it is destroying?

Nobody knows the answer. They only rely on the faith that Bezos can do no wrong. Blind faith is the biggest downside to the digital economy.

Digital economy companies tend not to give dividends and spend a lot on research and development under the excuse that the business is still growing and needs all the financial resources.

Investors believing that mantra follow blindly. They are encouraged by the rising share prices even though there are little fundamentals.

One day, such blind faith will lose its lustre and the price will fall. Only then will investors realise that the old-fashioned way of valuing companies is still way better.

The alternative view by M.Shanmugam

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Never-ending money games – from fixed return to split schemes


The allure of money game schemes (or money games) seems not to have diminished despite the collapse of many recently.

Instead, there has been a switch in investors’ focus from fixed-return games to split games, which are deemed “more sustainable”.

Fixed-return schemes generally refer to those that give a consistent percentage of return every month or week. However, most of them have collapsed lately.

Investors’ attention is now centred on split games, even though this means they have to wait for a longer period in order to get back their capital.

Mcoin, which is undertaken through MBI International Sdn Bhd and MFace International Sdn Bhd, is an example of a split game based on units of which the value keeps increasing and then split after a certain time.

However, with the raid of MBI’s flagship mall – M Mall in Penang – by the regulators recently, its days look to be numbered, and the sustainability of such schemes is now a big question.

Another prominent split game – Mama Captain, which has a similar business model to that of Mcoin – has also been red-flagged by Bank Negara last Thursday under the Financial Consumer Alert List. An additional 14 companies have been added to the list, bringing the total number of unapproved and unlicensed companies/schemes to 334 as at June 29.

Besides the local ones, there are several foreign schemes in the market, which investors expect to have more staying power than the fixed-return schemes. Two such schemes from China – Smart Traders Ltd and Centennial Coin of Prosperity – have been in operation in Malaysia since last year. However, it is understood that they have stopped distributing returns to their investors.

This, however, appears not to have deterred those who are lured by the promise of fast money. This is evidenced by the huge crowd seen at an event organised by a split game company a few weeks ago in Shah Alam. It was estimated that over 2,000 participants were present and most of them were Chinese investors.

A number of booths were set up at the venue, and investors were able to redeem a variety of stuff, including vouchers, health products, apparels and many more.

An investor whom SunBiz spoke to at the event said he is unfazed by the collapse of money games and is optimistic about the prospects of the split game that he is involved in.

The investor said he has been in the scheme for more than nine months and now it has started to bear fruit.

“Generally, it takes about two months to split once and we can start generating money after it splits for four times. Now I start to get money from the scheme. While you’ve to wait for some time before getting any return, I think it is still worth to join,” he opined.

It is understood that the scheme has tied up with a few product operators to increase its attractiveness.

Another investor, Alan Mu, said he was amazed by the event. “The gala dinner is so grand and there are so many products that I can redeem by participating in this scheme,” he said.

Another scheme that has caught the market’s attention is SV International (SVI), a company that Yong Tai Bhd has denied having links to. Yong Tai alleged that SVI circulated photos taken during a signing ceremony on SVI’s website as well as the social media, for which there was no official agreement entered into between the two parties thereafter.

Yong Tai also refuted speculation that SVI has a stake in its Impression City and Impression Melaka projects.

By Lee Weng Khuen sunbiz@thesundaily.com

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The Asian financial crisis – 20 years later




East Asian Economies Remain Diverse

 

It is useful to reflect on whether lessons have been learnt and if the countries are vulnerable to new crises.

IT’S been 20 years since the Asian financial crisis struck in July 1997. Since then, there has been an even bigger global financial crisis, starting in 2008. Will there be another crisis?

The Asian crisis began when speculators brought down the Thai baht. Within months, the currencies of Indonesia, South Korea and Malaysia were also affected. The East Asian Miracle turned into an Asian Financial Nightmare.

Despite the affected countries receiving only praise before the crisis, weaknesses had built up, including current account deficits, low foreign reserves and high external debt.

In particular, the countries had recently liberalised their financial system in line with international advice. This enabled local private companies to freely borrow from abroad, mainly in US dollars. Companies and banks in Korea, Indonesia and Thailand had in each country rapidly accumulated over a hundred billion dollars of external loans. This was the Achilles heel that led their countries to crisis.

These weaknesses made the countries ripe for speculators to bet against their currencies. When the governments used up their reserves in a vain attempt to stem the currency fall, three of the countries ran out of foreign exchange.

They went to the International Monetary Fund (IMF) for bailout loans that carried draconian conditions that worsened their economic situation.

Malaysia was fortunate. It did not seek IMF loans. The foreign reserves had become dangerously low but were just about adequate. If the ringgit had fallen a bit further, the danger line would have been breached.

After a year of self-imposed austerity measures, Malaysia dramatically switched course and introduced a set of unorthodox policies.

These included pegging the ringgit to the dollar, selective capital controls to prevent short-term funds from exiting, lowering interest rates, increasing government spending and rescuing failing companies and banks.

This was the opposite of orthodoxy and the IMF policies. The global establishment predicted the sure collapse of the Malaysian economy.

But surprisingly, the economy recovered even faster and with fewer losses than the other countries. Today, the Malaysian measures are often cited as a successful anti-crisis strategy.

The IMF itself has changed a little. It now includes some capital controls as part of legitimate policy measures.

The Asian countries, vowing never to go to the IMF again, built up strong current account surpluses and foreign reserves to protect against bad years and keep off speculators. The economies recovered, but never back to the spectacular 7% to 10% pre-crisis growth rates.

Then in 2008, the global financial crisis erupted with the United States as its epicentre. The tip of the iceberg was the collapse of Lehman Brothers and the massive loans given out to non-credit-worthy house-buyers.

The underlying cause was the deregulation of US finance and the freedom with which financial institutions could devise all kinds of manipulative schemes and “financial products” to draw in unsuspecting customers. They made billions of dollars but the house of cards came tumbling down.

To fight the crisis, the US, under President Barack Obama, embarked first on expanding government spending and then on financial policies of near-zero interest rates and “quantitative easing”, with the Federal Reserve pumping trillions of dollars into the US banks.

It was hoped the cheap credit would get consumers and businesses to spend and lift the economy. But instead, a significant portion of the trillions went via investors into speculative activities, including abroad to emerging economies.

Europe, on the verge of recession, followed the US with near zero interest rates and large quantitative easing, with limited results.

The US-Europe financial crisis affected Asian countries in a limited way through declines in export growth and commodity prices. The large foreign reserves built up after the Asian crisis, plus the current account surplus situation, acted as buffers against external debt problems and kept speculators at bay.

Just as important, hundreds of billions of funds from the US and Europe poured into Asia yearly in search of higher yields. These massive capital inflows helped to boost Asian countries’ growth, but could cause their own problems.

First, they led to asset bubbles or rapid price increases of houses and the stock markets, and the bubbles may burst when they are over-ripe.

Second, many of the portfolio investors are short-term funds looking for quick profit, and they can be expected to leave when conditions change.

Third, the countries receiving capital inflows become vulnerable to financial volatility and economic instability.

If and when investors pull some or a lot of their money out, there may be price declines, inadequate replenishment of bonds, and a fall in the levels of currency and foreign reserves.

A few countries may face a new financial crisis.

A new vulnerability in many emerging economies is the rapid build-up of external debt in the form of bonds denominated in the local currency.

The Asian crisis two decades ago taught that over-borrowing in foreign currency can create difficulties in debt repayment should the local currency level fall.

To avoid this, many countries sold bonds denominated in the local currency to foreign investors.

However, if the bonds held by foreigners are large in value, the country will still be vulnerable to the effects of a withdrawal.

As an example, almost half of Malaysian government securities, denominated in ringgit, are held by foreigners.

Though the country does not face the risk of having to pay more in ringgit if there is a fall in the local currency, it may have other difficulties if foreigners withdraw their bonds.

What is the state of the world economy, what are the chances of a new financial crisis, and how would the Asian countries like Malaysia fare?

These are big and relevant questions to ponder 20 years after the start of the Asian crisis and nine years after the global crisis.

But we will have to consider them in another article.

By Martin Khor Global Trend

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
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