Critical trends to watch in 2018

There are many issues on a fast and slow boil and some of them could reach a tipping point in the new year

ANOTHER new year has dawned, and it’s time to preview what to expect in 2018.

The most obvious topic would be to anticipate how Donald Trump, the most unorthodox of American presidents, would continue to upset the world order. But more about that later.

Just as importantly as politics, we are now in the midst of several social trends that have important long-term effects. Some are on the verge of reaching a tipping point, where a trend becomes a critical and sometimes irreversible event. We may see some of that in 2018.

Who would have expected that 2017 would end with such an upsurge of the movement against sexual harassment? Like a tidal wave it swept away Hollywood producer Harvey Weinstein, film star Kevin Spacey, TV interviewer Charlie Rose and many other icons.

The #MeToo movement took years to gather steam, with the 1991 Anita Hill testimony against then US Supreme Court nominee Clarence Thomas being a trailblazer. It paved the way over many years for other women to speak up until the tipping point was reached. So, in 2018, expect the momentum to continue, and in more countries.

Another issue that has been brewing is the rapid growth and effects of digital technology. Those enjoying the benefits of the smartphone, Google search, WhatsApp, Uber and online shopping usually sing its praises.

But the “Fourth Industrial Revolution” is like Dr Jekyll and Mr Hyde. It has many benefits but also serious downsides, and the debate is now picking up.

First, automation with artificial intelligence can make many jobs redundant. Uber displaced taxis, and will soon displace its drivers with driver-less cars.

The global alarm over job losses is resonating at home. An International Labour Organisation report warning that 54% of jobs in Malaysia are at high risk of being displaced by technology in the next 20 years was cited by Khazanah Research Institute in its own study last April. TalentCorp has estimated that 43% of jobs in Malaysia may potentially be lost to automation.

Second is a recent chorus of warnings, including by some of digital technology’s creators, that addiction and frequent use of the smartphone are making humans less intelligent and socially deficient.

Third is the loss of privacy as personal data collected from Internet use is collected by tech companies like Facebook and sold to advertisers.

Fourth is the threat of cyber-fraud and cyber-warfare as data from hacked devices can be used to empty bank accounts, steal information from governments and companies, and as part of warfare.

Fifth is the worsening of inequality and the digital divide as those countries and people with little access to digital devices, including small businesses, will be left behind.

The usual response to these points is that people and governments must be prepared to get the benefits and counter the ill effects. For example, laid-off workers should be retrained, companies taught to use e-commerce, and a tax can be imposed on using robots (an idea supported by Bill Gates).

But the technologies are moving ahead faster than policy makers’ capacity to keep track and come up with policies and regulations. Expect this debate to move from conference rooms to the public arena in 2018, as more technologies are introduced and more effects become evident.

On climate change, scientists frustrated by the lack of action will continue to raise the alarm that the situation is far worse than earlier predicted.

In fact, the tipping point may well have been reached already. On Dec 20, the United Nations stated that the Arctic has been forever changed by the rapidly warming climate. The Arctic continued in 2017 to warm at double the rate of the global temperature increase, resulting in the loss of sea ice.

These past three years have been the warmest on record. The target of limiting temperature rise to 2°C above pre-industrial levels, a benchmark just two years ago by the UN’s top scientific climate panel and the Paris Agreement, seems outdated and a new target of 1.5°C could be adopted in 2018.

But it is much harder to meet this new target. Will political leaders and the public rise to the challenge, or will 2018 see a wider disconnect between what needs to be done, and a lack of the needed urgent response?

Another issue reaching tipping point is the continuing rise of antibiotic resistance, with bacteria mutating to render antibiotics increasingly ineffective to treat many diseases. There are global and national efforts to contain this crisis, but not enough, and there is little time left to act before millions die from once-treatable ailments.

Finally, back to Trump. His style and policies have been disruptive to the domestic and global order, but last year he seemed unconcerned about criticisms on this. So we can expect more of the same or even more shocking measures in 2018.

Opposition to his policies from foreign countries will not count for much. But there are many in the American establishment who consider him a threat to the American system.

Will 2018 see the opposition reach a tipping point to make a significant difference? It looks unlikely. But like many other things in 2018, nothing is reliably predictable.

Global Trends by martin khor

Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.


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Building more homes, the only long term-way to bring house prices down

Building more homes may be one of the most practical ways to bring prices down

WHILE flipping through a business magazine, I saw an interesting chart illustrating the average household size of various countries including Malaysia.

At one glance, our number of 4.4 people per household is among the highest in the world, even in the Asia Pacific region with many developing countries.

We are far behind compared to developed nations such as United Kingdom and Australia, which have 2.3 and 2.6 people per household respectively. Our number is also higher than two nations with high population in our region, China and Indonesia, which recorded 3 and 3.9 people for their average household size respectively.

What do these numbers tell us? Other than giving us information on our demographic structure, it also offers an important insight which could address the issue of home prices in our country.

The Governor of the Bank of England (BoE) Mark Carney once said, the only long-term way to effectively bring home prices down is to build more homes. This may be one of the most practical ways for us to address the issue too.

According to National Property Information Centre(NAPIC), we had 4.9 million homes in the fourth quarter of 2015. As NAPIC does not track rural homes, we assume that only urbanites were taken into account in the survey. This accounts for about 70% of our 31 million population or 21.7 million people. Therefore, on average, there is about4.4 people per household in the urban areas of our country.

The above figure is a poorer ratio than Australia in 1927. If we are to match the same ratio as Australia today, we need 8.3 million houses instead of 4.9 million houses. It means we need additional 3.4 million houses to meet the standard in Australia.

With our current rate of housing production, which is about 70,000 new units launched a year according to NAPIC, we need 48 years to build 3.4 million homes, and it would still be a long distance for us to catch up with UK and Australia, given the rapid growth of population and urbanisation in our country.

Our Statistics Department estimates that our population will reach 38.5 million by year 2040. If we maintain the ratio of 70% urban population by then, we would need another 5.5 million houses to reach the ratio of 2.6 people per household in 2040. This literally means we need to build 230,000 houses per year for the coming 24 years!

Basic economic principle says, when demand is higher than supply, prices will go up. And when supply exceeds demand, prices will go down. Equilibrium is met when demand equals supply.

This is well reflected in the world oil market. From 2010 until early 2014, oil prices had been fairly stable at around US$110 per barrel. However, since mid-2014, prices have dropped by more than half due to a surge in production and a drop in demand in many countries.

United States production has nearly doubled over the last few years. Saudi, Nigerian and Algerian oil that once was sold in the United States have to compete for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising every year. Russians also manage to keep pumping at record levels. All these contribute to the oil prices which are hovering around $50 per barrel today.

It works the same in the real estate market. Imagine if we are having 8.3 million houses today instead of 4.9 million, our house prices would be much more affordable due to sufficient supply.

The key factor here is, we need more houses, especially affordable homes. The relevant authorities need to streamline the delivery system to encourage the number of homes built every year. Government and various local authorities should also pool resources together in filling the gap by speeding up approval process, and building more affordable homes.

Rick Jacobus, an expert in affordable homeownership in United States shares his view in his article “Why we must build?”– the answer for hot-market metro areas is simply to build. Build more. Build now. Build anywhere. Even when we build high-end housing for the rich it adds to the overall supply and pushes rents down.

I particularly like a quote in his article, “We can’t build our way out of the housing crisis but we won’t get out without building.”

It is an interesting point for us to ponder when it comes to the challenge of housing the nation in our country, especially the need for affordable homes.

 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, email feedback@fiabci-asiapacific.com.

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What household debt means and how to manage it ?

The difference between ‘healthy’ and ‘unhealthy’ loans

I have received queries about what household debt means and the best ways to manage it.

Household debt is basically all forms of loans with interest rates taken from entities that provide financing. The loans can be secured with assets such as real estate loans (housing and commercial properties), or without any collateral such as personal and credit card loans.

Residential and commercial property loans have capital appreciation potential over the long term. According to statistics from National Property Information Centre, the annual appreciation rate for house prices has averaged 9% in the past five years.

Even if we assume the average house prices only appreciate 5% per annum, it is still an ideal asset which we can live in, and at the same time it grows in value.

If you refer to the chart above, the effective interest rate for housing loans is only 4.65%, which is lower than its annual appreciation rate.

On the other hand, the effective interest rates for car loans range from 5% to 7.5% depending on car model and loan term (effective interest rates are calculated from the advertised headline rates of 2.5% to 3% depending on the tenure of the car loan).

On top of higher effective interest rates, the value of private vehicles depreciate about 10% to 20% per year based on car insurance calculations and accounting practice.

In fact, everyone knows that the day you drive the car out of the showroom, its value drops by 15% to 25%!

The effective interest rate for personal loans is 9% to 10%, while credit card effective interest rates can go as high as 18% to 24% (again, like car loans, the effective interest rates per year are much higher than the advertised rates).

If these loans are spent on items that do not appreciate over time and on perishable items, then the depreciation rates are high and there are no returns to speak of.

The real estate loans (housing and commercial properties) that will appreciate in the longer term, can be deemed as “good debt”.

Car, personal and credit card loans, which have higher interest rates repayment and do not generate value in the future, and are considered as “unhealthy debt” or “bad debt”.

The chart above illustrates the effective interest rates on different household debt components. It also reminds me about the household debt I shared in my last article. What does our nation’s household debt really mean to us? How much of it impacts us if we include its interest rate, appreciation and depreciation values?

According to Bank Negara, our household debt was at RM940.4bil or 87.9% of gross domestic product (GDP) as of end-2014.

Large burden

Residential housing loans accounted for 45.7% (RM429.7bil) of total debts, hire purchase at 16.6%, personal financing stood at 15.7%, non-residential loan was 7.7%, securities at 6.5%, followed by credit cards and other items at 3.9%.

Our household burden is larger if we include the servicing of incurred interest rate for loans. Much of it comes from the higher interest rates to service hire purchase, personal financing and credit card loans.

It reinforces my belief that if we take a debt to invest or secure appreciating items such as housing and other valuable assets, they will eventually provide a higher return in the longer term which more than compensates for the interest rate paid on the loans.

My belief is substantiated by Bank Negara’s Financial Stability and Payment Systems Report 2014.

The report states that properties remain an important investment for many households to finance children’s education, provide a form of financial security for the next generation and preparation for retirement.

Our government can help us achieve higher investment on housing and other valuable assets by looking at ways to reduce our dependency on other types of loans.

Reducing dependency

Example, to provide a comprehensive public transportation system by aggressively expanding mass rapid transit, buses, mini buses, and taxi service to cover more areas.

This will reduce the dependency on private vehicles which in turn help us to divert our financial resources to more fruitful areas or secure a roof over our heads.

As shared in my previous article, housing loans in advanced countries comprise an average of 74% of total household debt compared with ours at 45.7%.

This tells me that we, as a nation, are spending too much of our already high household debt (87.9% to GDP) on high interest/high depreciation “bad debt” such as a car, credit card and personal loan.

Now is a good time to relook into our debt portfolio and the interest rates incurred, and check whether we are having a healthy or unhealthy debt burden.

FIABCI Asia-Pacific Regional secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

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Right move for the planned car prices reduction 20% ~ 30% in Malaysia

 

The Government's plan to reduce car prices gradually by between 20% and 30% within the next five years is the best mechanism for consumers and the automotive industry without disrupting the ecosystem, said an industry expert.

“Five years is the right timing to reduce car prices because a sudden reduction would impact the second-hand car industry,” Malaysia Automotive Institute chief executive officer Madani Sahari said.
He said although the car price cut plan had recently received wide publicity, the exercise itself started last year with some popular car brands reducing their car prices by 2% to 5%.

“The Government has had the car price reduction plan in the yet-to-be-announced National Automotive Policy since 2011 and had started to implement it since last year in a silent way,” he said on the sidelines of a forum on “Business Time Insight The National Automotive Policy” here yesterday.

On Tuesday, Prime Minister Datuk Seri Najib Tun Razak reiterated the Government's commitment to gradually reduce car prices by 20% to 30% within the next five years.

Madani said the car price reduction did not involve a cut in the excise duties, as Malaysian companies in reality were only paying about 40% of excise duties, even though it hovered at around 65%-105%, depending on the segment, due to value-added activities undertaken in the country.

“Completely-knocked-down (CKD) cars which are assembled in Malaysia basically have value-added activities, and are therefore receiving the privilege of lower excise duties. “Based on our calculations, most of our CKD cars enjoy excise duties in the range of 40%,” he said. Meanwhile, Volkswagen Group Malaysia managing director Dr Zeno Kerschbaumer said the car price reduction policy showed the Government's effort to put consumers into the focus of their attention.

“This perfectly matches our (Volkswagen's) policy to continuously bring the latest technology to customers at the best price possible. I think it's a big message to consumers and gives them the confidence that the Government was giving the consumers interest in the focus of their policy,” he said.

He said the move was also in line with the principle that the customers had to drive the policy. “We need to leave all our options to the customers, and the customers in the end need to decide what better fits their requirements,” he said. - Bernama

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Car prices in Malaysia will be reduced gradually 

Car prices in Malaysia will be reduced gradually

Car prices will be reduced gradually until 2017, says International Trade and Industry Minister Datuk Seri Mustapa Mohamed.

As outlined in the 13th general election of the Barisan Nasional manifesto, Mustapa said the government had promised to trim car prices between 20 per cent and 30 per cent over five years.

“Infact, since October last year, the price of 10 popular models in the country have come down an average 7.3 per cent,” he told reporters yesterday after attending the ministry’s monthly gathering, the first after Mustapa was re-appointed to the Cabinet.

He said the price reduction was part of the market process as a result of more efficient and competitive players in the automotive industry.

Mustapa said the price reduction exercise should be done in an orderly manner so as not to affect the industry’s growth and existing jobs in the automotive and related industries.

“As such, we have had discussions with automotive manufacturers and they are aware of ongoing negotiations to conclude a free trade agreement which would be implemented soon,” he said.

JF Apex Securities in its research note on Monday said the ruling coalition will likely take some time to implement car price reduction considering the potential outcome which would dampen the national carmaker, Proton’s market share.

The research house said that a feasibility study needed to be done on the overall impact so as to avoid disruptions to the automotive ecosystem.

“We do not foresee changes for months to come while awaiting update from the revised National Automotive Policy,” said JF Apex.

In the meantime, Mustapa said industry players must now be ready to step up their competitiveness edge in tandem with the industry which was becoming more competitive in Malaysia and abroad.

Besides bringing down car prices, the government was also reducing traffic congestion by setting up a more efficient transport system in the country, he added. — Bernama

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Is having a car still a symbol of freedom?

HAPPY 2113! Rest assured there is no typo error on the intended year of the greeting. I am wishing everyone a Happy 2113 at the beginning of 2013, to invite you to an adventurous ride to see the world 100 years ahead.

Imagine yourself embarking on a flying public vehicle that can carry you almost anywhere without the hassle of traffic jams. Late and missed appointments will be a thing of the past.

With an effective and efficient public transportation system in place, using your own vehicle other than for leisure or emergencies would seem unnecessary.

Imagine that the highways, car lanes and open car parks that once filled the landscapes are now replaced with parks, pedestrian friendly streets, public halls, malls, cafés and restaurants.

Travelling far to enjoy a good meal or watch a movie at the cinema becomes a distant past.

With ample time at hand, you can even catch up with colleagues, friends or family members at these easily accessible and beautiful sites or if you prefer, indulge in your favourite sports such as jogging, cycling, etc.

Now, that is creating true work-life balance.

This scenario sounds like a fantasy but it may become a reality in 2113, a hundred years from now. A hundred years ago, the sky was the limit.

Today, outer space is the limit. With the advancement of technology nowadays, there is no limit to our imagination.

However, we do not need to wait a hundred years to enjoy such a lifestyle. We can have a city with a hassle-free public transportation system if we start planning and building it now.

Efforts must be made before we can move towards a world-class city where the citizens can travel freely despite the growing population.

To achieve this, one of the areas that everyone can contribute is to reduce the usage of private vehicles which is currently the main mode of transportation in our country.

Every year, we have more than 600,000 new vehicles joining the traffic league.

Imagine what will happen to our traffic condition 100 years later if this number keeps increasing?

The strong demand for cars is understandable as cars have long been associated with the symbol of freedom and independence. This symbol is further hyped in many movies such as the James Bond series and associated with many famous celebrities including James Dean.

Today, we are still embracing a vehicle-centric culture. Given a choice to pick between a self-owned vehicle or a self-owned property, the vehicle always gets the thumbs up especially for the younger generation. The young ones plan for the wheels they ride in but give less attention to the homes they live in.

According to the 10th Malaysia Plan, our public transportation usage has only reached 12% in 2009. Our government aims to increase it to 30% by 2015. In other vibrant cities such as Hong Kong and Singapore, their public transportation modal shares are about 90% and 60% respectively. In terms of car ownership,

Malaysia has a ratio of 200 cars for every 1,000 people, compared with Hong Kong’s 59 cars per 1,000 residents, and Singapore’s 117 cars per 1,000 residents.

With the number of vehicles rising significantly in our country, there is little room left for a car to continue being a symbol of freedom as portrayed in James Dean’s movies. Where is the freedom in owning a car if it is common to have long queues on our roads and our car is caught in traffic congestion?

Even in America, where the population is traditionally obsessed with cars, the Frontier Group and US Public Interest Research Group found that, Americans between 16 and 34 years old have in fact drove 23% fewer miles in 2009 compared with 2001. Meanwhile, they increased bicycle riding by 24% and their mileage on public transport by 40%.

To effect these similar changes in our country, a comprehensive and efficient public transportation network must be provided. One of the notable efforts made is the the Mass Rapid Transit (MRT) project.

The Sungai Buloh-Kajang line which is expected to be completed in 2017, is purportedly able to serve a population of 1.2 million people and attract 400,000 passengers per day.

The announcement on the alignments of Line 2 and Line 3 next year is a good move to transform our transportation landscape.

As we wait for the completion of the MRT networks, other alternatives such as providing more feeder buses and taxis, or extending the current number of our LRT coaches should be considered.

The 2113 scenario with all its sophistication and engaging living environment is a lifestyle worth pursuing. Best of all, we do not need to wait 100 years to enjoy this lifestyle if the public transportation projects can be expedited. It is done in many great cities, why not our own cities?

Today’s infrastructure is built for decades to come, it is meant to support the demand and growth of our future generation. A comprehensive public transportation system will be the answer to the challenges posed by a world class and people-oriented city. And the true symbol of freedom is captured when you are able to speed on an MRT which bypasses the cars stucked in the traffic below. ·

 Food for thought  By DATUK ALAN TONG

FIABCI Asia-Pacific regional secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

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