Article by Michael Tan
I can sum up in 2 words what will be tabled in the upcoming 2014 budget review.
“Not Good”
I have a gut feeling that this upcoming 2014 budgetary review will be a “working” budget. And guess who needs to work harder?
Yup, you guessed it - “us”.
I am going to present my “two cents” worth of opinion on how next years budget is going to be like. Please understand that these opinions are only my own personal views based on my personal research.
Here goes. It is only logical that the government focused on making things economically right again, after “investing” so much to ensure their victory in the last general election.
Let’s face it; the government has given out a lot the goodies in the past years budgets, prior to the elections. They have taken a shallow stand in withholding policies for better economic reforms, replacing them with campaign friendly policies; focusing on nationwide spending and investment initiatives, despite years of ongoing budget deficits.
Though they succeeded in painting a picture of a robust economy with positive growth figures for the past 3 years or so, most of these exhibitions of growth came at a steep price.
As of the 2nd quarter of the 2013, a global rating agency, Fitch Ratings cut its credit outlook on Malaysia’s A-minus sovereign debt to negative from stable in July, citing a lack of reform to tackle rising debt.
This is a wake up call for the government to look at things under the hard light and take steps to better ensure the stability of the nation on a mid to long term basis. The ultimatum given to our government to regain a neutral standing (-A) were to correct 3 areas of focus:
a) Reforms to fix it’s budget deficit,
b) Have the country perform better in the next 12 – 24 months, with revenue exceeding expenses; and
c) Reduce the current national dept to GDP ratio, from a regional high of 81% to 55%.
Therefore, it is my prediction that the following 3 key areas of reform will take place, within the immediate interim, if not already implemented.
1) Rationalization of nation building mega projects
There are indications of the government to slow down on big budget projects, such as rescheduling of the high speed railway (HSR) from Kuala Lumpur to Singapore and the refinery and petrochemical integrate development (RAPID) in Pengerang, Johor, from initial 2016 to 2017.
There are also reports stating the government’s initiative to space out infrastructure development in Malaysia as well as to privatize as many of these projects to reduce the nation’s burden.
2) More cooling down measures for the property market
There is already two cooling down measures introduced after the elections. The first, debt to service ratio (DSR) is reduced from 70% to 60%. With a DSR of 70%, an individual with a RM10,000 nett income, can take a loan with an installment up to RM7,000. So, if this individual were to use his credit line to take a home loan, with a 30 year tenure at 6% interest rate, he could potentially loan up to RM1,167,000
However, with a DSR of only 60%, the same individual can take a loan with a only a RM6,000 monthly installment, which means, his home loan value is now a mere RM1,000,000 instead of RM1,167,000.
The second cooling down measure introduced is the limitation of property refinancing up to only 10 years, from 30 years. This means, if you have an existing property which you would like to refinance , the maximum tenure for repayment of the refinanced amount is only 10 years.
Let’s take a look at the effect of this measure if an individual were to refinance a RM100,000 property at an interest rate of 6%. Under the old guidelines of 30 year tenure, the installment is only RM600. However, under the new guidelines of 10 year tenure, the installment is a whopping RM1,110 per month!
All these measures are focused on reducing the debt to GDP ratio and rest be assured that there will be more measures introduced in the near future, to directly curb the borrowings in real estate market.
3) Increase in revenue generating policies by the government
Our government is very sensitive when it comes to revenue-generating policies directly impacting the livelihood of the common man of the street
While many countries implement long term, gradual introduction of such policies, our government has a far more efficient way of introduction in the short term tenure.
It’s called, “Shhhh… don’t tell the public we’ve already increased prices!”
Quietly but surely, the government will be implementing subsidy reduction strategy almost immediately. Already, petrol prices have increased by 20 cents for RON95, which is a significant 10.1% overnight. Cigarettes prices have seen 14% increase in excess duties. Both were implemented in September. More of such stealth increases are scheduled within the year.
The introduction of GST is imminent.
The transport ministry has announced no uplifting of import car duties; something, which was promised during the election campaign, within the next 5 years. Reason cited - the country’s budget deficit status.
Double digit inflation growth rates are set to follow, in similar fashion as the government’s method of implementation – quietly but surely.
Does this signal the end of good times?
No. We are still fortunate to be in the “right” side of the globe at the moment. The illusion of an economic robust future is still largely painting the skies blue for the time being. However, dark skies are emerging from the horizon and one would need to be more cautious in their investment moves.
So, why still invest in property?
What other choice do we have?
With the government busy working on their own economic well-being and the world economic downturn at hand, the worst thing you can do is to sit and wait out the storm. Strong DIY investment habits must be cultivated to make us better prepared for the potential stormy seas ahead. I have been saying this for the longest time, the men on the street needs to know how to protect their own financial well being, and work together with like minded people to make our own nest eggs.
If I am right, you will safeguard your savings and nest eggs, if I am wrong, you will end up being a very wealthy person and retire rich. So, what is the worst that can happen?
Happy investing,
Michael Tan
Michael is Property Coach and Lifechanger from FREEMEN will be in Penang on 9 Nov 2013 (Saturday) to share his views on the Post Budget 2014 and the impact to the property market. In addition, he will also guide you in knowing your personal financial freedom number and from there design your property portfolio.
Come and join us on the 9th Nov, 2013 in Vistana Hotel, Penang. Book early as we will be expecting a full house.
About Michael Tan:
Michael has been sharing with many since 2008 how to invest into properties safely and profitably through the FREEMEN™ courses, coaching classes and investment club (Real Estate Tycoon Club; RTC).
From bankrupt business owner to a self made millionaire, Michael has built his property empire up from zero, making his first millions with no money down. He now has a portfolio of commercial and residential properties from apartments, to offices and shoplots.
Michael’s passion now is to share with others how to achieve financial freedom through property investments. His unique coaching methods and intensive, down to earth and personalized workshops through his company, FREEMEN™, has made him the best* and most successful real estate investment coach in Malaysia and Asia.
Penang has seen a 100% success rate for participants who have went through an intensive 3 months coaching on how to buy properties with no money down.
*SPECIAL OFFER: 1st 17 people to register and pay online for this event will receive a Ho Chin Soon’s Book for FREE.