Effective 2 January 2015, the Base Rate (“BR”) has replaced the Base Lending Rate (“BLR”) as the main reference rate for mortgages and loans.
The Base Rate is touted to be more transparent and allows customers to easily identify banks that are offering the best rates for loans. According to Bank Negara, the new reference rate will comprise two elements, which are the Base Rate and the “spread”.
The Base Rate is determined by banks’ cost of funds and will differ marginally from one bank to another. Typically, banks that are able to attract cheap long-term fixed deposits will be able to offer lower Base Rates as opposed to banks that depend on the more expensive inter-bank market for funding.
The “spread”, meanwhile, essentially comprises elements such as the bank’s overheads and the credit risk profile of borrowers. This effectively means that banks that are less efficient and incur high overheads will not be able to offer competitive rates.
However, the new framework will not bring about any changes in the cost of borrowing for consumers or impact the profitability of banks.
Before this, the BLR was the standard benchmark used by banks to determine the loan rates for consumers. The more efficient banks that enjoy a lower cost of funds offer rates as low as 2.4% below the BLR that is now pegged at an average rate of 6%.
However, it sometimes becomes difficult for customers to differentiate the rates between one bank and another because there is no breakdown in the cost of obtaining a loan.
The land laws of Malaysia are governed by the National Land Code, 1965 (Act 56 of 1965). Section 40 of the National Land Code, 1965 mentioned that all states land belongs to the state authority. There are several major differences between a leasehold and freehold property.
When state land is disposed off by the state authority to an individual in perpetuity for an indefinite period, this land is now granted as freehold title. When a buyer purchases a freehold property from a developer, the developer will execute a Memorandum of Transfer (“MOT”) to transfer the property to the purchaser.
Nevertheless, the government can still take back any freehold land under the Land Acquisition Act 1960 to be developed for public purposes (infrastructure projects such as the MRT) or for economic development. The term ‘economic development’ is a gray area and the government has the discretion to take over any private property at any time. If such acquisition occurs, the property owner will have to be compensated at the market value of the property.
When the state land is disposed off by the state authority to an individual for a term of years, by virtue of law, not exceeding a term of 99 years, this land is now granted as leasehold title. An owner of a leasehold property is not the ultimate owner of the land upon which the building is erected, but is a lessee of the land only.
Upon expiry of the period of the lease, the land should be reverted to the state authority. The owner will then have to either apply for a renewal of the lease before its expiry, or apply for a fresh alienation if the lease has expired. These will involve the payment of a hefty conversion premium which would be between 15%-30% of the land’s market value at the time of conversion.
The Klang Valley MRT project, which together with the existing rail and bus networks, will strive to complete the long-awaited public transportation masterplan for Greater Kuala Lumpur. The objective of the MRT project is to achieve the target of 50% of all journeys in the Greater Kuala Lumpur region to be made on public transport.
The first MRT line, or MRT Sungai Buloh-Kajang Line (MRT SBK) project was approved by the Government of Malaysia in December 2010 and the construction of the first line was officially launched on 8 July 2011 by Prime Minister Dato’ Sri Mohd Najib bin Tun Abdul Razak.
The MRT will integrate with the Klang Valley’s existing rail transport network, namely the LRT, Monorail, KTM Komuter and ERL, as well as intra and inter-city bus routes. The end result will be better connectivity for Kuala Lumpur and its surrounding cities, while reducing the number of cars that enter the capital.
The Pusat Bandar Damansara elevated MRT station will provide park and ride facility, along with 13 other stations. – Pic by MRT Corp.
The first line, totalling a distance of 51km, will start from Sungai Buloh which is located to the north-west of Kuala Lumpur, runs through the city centre of Kuala Lumpur, and finally ends in Kajang, a fast developing city in Selangor located to the south-east of Kuala Lumpur.
The line serves a corridor with an estimated population of 1.2 million people. Phase 1 of MRT SBK from Sungai Buloh to Semantan will become operational by the end of 2016 while Phase 2 from Semantan to Kajang will become operational by July 2017, allowing trains to serve the entire line.
The Tun Razak Exchange underground MRT station will become the largest underground station. – Pic by MRT Corp.
The line will have an underground section for a distance of 9.5km. There will be 7 underground stations (out of the total of 31 stations) within downtown Kuala Lumpur providing seamless connection and a hassle-free travel experience to nearby plazas and walkways leading to the nearest offices, apartments, shopping malls and tourist attractions.
Each train serving the line will have four coaches having a total capacity of 1,200 passengers. Each train will be driverless. The daily expected ridership is about 442,000 passengers. The train service is expected to run at an interval of 3.5 minutes.
Since 30 May 2013, the world’s first Variable Density Tunnel Boring Machine has been tunnelling beneath the city of Kuala Lumpur. It was commenced at the Cochrane Launch Shaft. – Pic by MRT Corp
Proposed Line Colour : Green Total Length : 51km (9.5km of which are underground) Total No. of Station : 31 stations (7 of which are underground) Total No. of Station with : Park & Ride Facility 14 stations Total No. of Station with : Feeder Bus Facility 25 stations Largest Station : Tun Razak Exchange Station (Underground) Provisional Stations : Another 3 proposed stations to be built in the future (RRI, Teknologi and Bukit Kiara) Total No. of Train Depot : 2 depots (Sungai Buloh and Kajang) Full Operation : Phase 1 – December 2016 Phase 2 – July 2017 Project Delivery Partner : MMC Gamuda KVMRT (PDP) Sdn Bhd Tunnel Works Contractor : MMC Gamuda KVMRT (T) Sdn Bhd Train Supplier : Siemens AG-SMH Rail Sdn Bhd Consortium Train Designer : BMW Group DesignWorks, USA Train Body Manufacturer : CSR Nanjing Puzhen Rolling Stock Co. Ltd, China Train Rolling Stock Model : Siemens Inspiro Train Driver : Driverless Train Assembly Plant : Rasa, Hulu Selangor (to be assembled by SMH Rail Sdn Bhd) Train Orderbook : 58 sets Train Configuration : 4 cars per train Train Capacity : 1,200 passengers or 300 passengers per car (equivalent to 12 bus loads) Train Frequency : 3.5 minutes (17 trains per hour) Train Average Speed : 40km per hour Train Travelling Time : 30 minutes from Sungai Buloh to Muzium Negara/KL Sentral 40 minutes from Sungai Buloh to Bukit Bintang Train Operator : Prasarana Malaysia Berhad Operational Hours : 6.00am to 12 midnight Expected Ridership : 442,000 passengers daily Finalisation of Station : Names 26 November 2014 Completion of Tunneling : Works 21 April 2015
#Station NamePark & Ride FacilityInterchange LineDevelopment with Closeby Access to MRT Station 1 Sungai Buloh Yes KTM Komuter, KTM Intercity, MRT Line 2 2 Kampung Selamat
14 Pasar Seni (U) Kelana Jaya LRT 15 Merdeka (U) 16 Bukit Bintang (U) Monorail 17 Tun Razak Exchange (U) MRT Line 2 TRX Lifestyle Quarter (future) 18 Cochrane (U)
myTown Shopping Centre
19 Maluri (U) Yes Ampang LRT
20 Taman Pertama
Dupion Island (future)
21 Taman Midah Yes 22 Taman Mutiara EkoCheras 23 Taman Connaught Yes Cheras Sentral (completed) 24 Taman Suntex Yes You City and Atria Cheras Shopping Mall 25 Sri Raya Saville@Cheras 26 Bandar Tun Hussein Onn Yes The Netizen SOHO & Serviced Apartment 27 Bukit Dukung 28 Taman Koperasi Cuepacs Yes 29 Sungai Kantan Yes 30 Bandar Kajang 31 Kajang Yes KTM Komuter, KTM Intercity
Malaysia’s Goods and Services Tax (“GST”) is a form of value-added, consumption-based tax. In the past, the sales and services tax were applied only at the end user’s final purchase price. With the GST, the tax is structured to a more comprehensive approach whereby tax is chargeable throughout the entire supply chain.
Sales & Services Tax
Raw material sold to factory; Factory sells to manufacturer; Manufacturer sells to distributor; Distributor sells to end customer = Final Price + Sales & Services Tax = Y
Goods & Services Tax
Raw material sold to factory + 6% GST = A; Factory sells to manufacturer + 6% GST = B; Manufacturer sells to distributor + 6% GST = C; Distributor sells to end customer +6% GST = D
Total payable by end customer A + B + C + D = X
Ultimately the cost of production would increase due to inflationary pressure and other contributing factors. With the GST implementation, it is expected that additional costs would be passed down to consumers indefinitely.
Hedging against GST/Inflation:
Evaluate your financial health. Are you able to undertake additional commitments? How are you faring financially? Identify and differentiate between your wants and needs. Prioritise your needs.
Assuming that the above factors would lead to an estimated 30-45% increase on overall costs, it is best to adjust your savings to cater for the potential hike and other costs, such as legal fees, renovations, utilities, and etc.
Is your savings sufficient to cover for the additional increase in costs? Identify other sources of income and find ways to grow your net worth, such as investing in mutual funds and fixed deposits.
Compare between different banks on their financial products. Different banks have different financial packages that would suit your needs.
Consider investing in sub-sale property in less prime areas.
GST increases the tendency for hike in construction material costs and directly increases other development-related costs including marketing costs. You can’t really hedge on cost push inflation because it is industry wide, however, property developers may turn their primary focus in building well-demanded residential and affordable housing properties that are exempted from GST.
Global crude oil prices have dropped to almost 6-year low on concerns of a global supply glut. Oil has slumped over 50% in the last 12 months, the biggest free-fall since the 2008 global financial crisis, as the US expand its output at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries (OPEC) resisted calls to cut production.
In Asia, the plunge in crude oil and commodity prices were generally seen as beneficial, especially to major oil-importing economies. Lower oil prices would ease inflationary pressures throughout much of Asia.
Helped by lower oil prices, countries like Indonesia and Malaysia have removed fuel subsidies. Some economists mentioned this was a good opportunity for these governments to unshackle their fiscal position from the subsidy scourge once and for all. Removal of fuel subsidies were better received this time compared to the occasional occurrence of rallies and protests whenever fuel subsidies were cut in the past. Latest data has shown that real inflation has slowed in both countries.
However, low energy prices are not entirely beneficial to the region. Malaysia, for instance, derived approximately 30% of its national income from oil revenues – being a net oil exporter. Malaysia’s large infrastructure programs are expected to be financed with oil revenues, with additional pain likely to come from falling prices of other key commodity exports such as palm oil and rubber.
Drop in oil prices will renew pressure on the Malaysian currency. The ringgit fell to a 5-1/2 year low versus the greenback, continuing its underperformance amongst major Asian currencies. The cost of insuring Malaysian sovereign debt has risen the most this year compared with that of its Southeast Asian peers as state investor 1Malaysia Development Bhd’s (1MDB) financing woes grew besides the deepening concerns about the country’s account balance.
Fitch Ratings have put Malaysia on a “negative” outlook to reflect the erosion of the current account surplus amid large public sector deficits. Fiscal policy becomes more challenging as oil prices fall. Already a planned mega merger of banks was called off citing the change of economic climate that is becoming tougher due to deteriorating loan growth and worsening margins across the industry. Lower corporate earnings were signs of a slowing, moderating economy.
Malaysia is also expected to implement a Goods and Services Tax regime come April this year. The measure was announced before the slide in energy prices. Economists are pointing to a slower private consumption based on past experiences derived from tax regime changes in other countries. The GST implementation is expected to induce a slight inflation that will offset the benefits of low fuel prices.
Despite the choppy short-term outlook, Malaysia is expected to achieve a commendable, but lower GDP growth of 4.5% to 5.0% this year due to slightly better performing manufacturing exports, continued construction sector-driven growth and stabilisation of the economy towards the end of the year.