Tuesday, July 24th, 2018

 

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Be prepared for property bubble burst, Ideas tells govt

PETALING JAYA: The government must be ready for the property market bubble to burst, and the risk of it leading to an economic crisis, said the Institute for Democracy and Economic Affairs (Ideas).

Ideas senior fellow Dr Carmelo Ferlito (pix) in his policy paper titled “Affordable Housing and Cyclical Fluctuations: The Malaysian Property Market” recommends that the government respond with market-oriented solutions and pay special attention to the household financial exposure.
“Second, the government needs to downplay its role in the property market by reducing the number of government agencies and encourage the private sector to get involved in the affordable housing market.

“Third, the government must enhance Malaysian financial literacy, with an orientation toward the value of saving and the possibilities offered by the rental market,” Ferlito said in a statement today.

He said the government may also open and ease up the regulation in the property market for foreigners who are in possession of a regular working visa and are paying taxes, to help the industry.

Ferlito's policy paper highlights the evolution of the Malaysian property market over the past decade, which has resulted in a high number of unsold properties, especially in the high-end segment, and a partially unsatisfied demand for affordable housing.

He said the spectacular growth of the high-end property segment was ignited by rising profit expectations supported by a growing demand and, at a later stage, by a supportive credit market.

The mix of these elements has generated a bubble which, following the property transaction dynamics, reached its peak between 2012 and 2013, and that bubble is now expected to burst.

Ferlito noted that the focus on the high-end segment was justified by high demand and it is therefore natural that investment expanded in that sector.
“However, now that it appears clear that unexploited profit opportunities are disappearing, a capital allocation restructuring appears necessary.”

He added that the high involvement of government agencies in the affordable housing market risks crowding out private initiative and prevents the necessary restructuring from taking place.

“It is important to let the bubble burst; too much credit will only delay the bursting, keeping prices artificially high and putting at risk the financial solvency of buyers. Without credit support, the crisis will happen faster and force both capital restructuring and prices to move downwards,” Ferlito said.


MAHB: We’ll continue to support low-cost travel growth

PETALING JAYA: Malaysia Airports Holdings Bhd (MAHB) said it has been playing a crucial role along low-cost carrier AirAsia Group in supporting and boosting the growth of low-cost travel in Malaysia and will continue to do so.

“While Air Asia, the home-grown carrier, has been the principal driver for this growth, the Malaysian government along with MAHB have both played crucial roles as enablers by fully supporting low-cost travel for the benefit of all Malaysians. This not only emphasises our commitment and support for low-cost travel, but more so our conviction that this will take us to the next level of growth in air travel demand,” MAHB's acting group CEO, Raja Azmi Raja Nazuddin, said in a statement today.

From the onset, he added, MAHB understood what it took for low-cost travel to be successful and would continue to support it.

The airport operator noted that it has implemented three incentive programmes, namely Airlines Recovery Plan to assist airlines to recover from the global financial crisis between 2009 and 2011, Airlines Incentive Programme (I), and Airlines Incentive Programme (II) between 2012 and 2017 to reward airlines for growth.

Up until 2017, AirAsia had benefited some RM367 million from the incentive programme in tandem with the significant growth it had enjoyed.

According to MAHB, low-fare travel in the country has increased by leaps and bounds over the last decade, constituting 25% and 50% of total travel in Asia and Malaysia respectively, and is expected to increase further.

AirAsia has experienced a compounded annual growth return of 11.6% over the last 10 years.

At the time when the true growth potential of low-cost travel was still uncertain, MAHB said, it took a bold step of investing close to RM360 million in building and expanding the first low-cost terminal in South East Asia from 2006 up till the opening of klia2.

The government had also given special consideration in terms of lower passenger service charges for the old LCCT and klia2 up until recently when it was fully equalised this month.

Noting that klia2 was the ultimate embodiment of MAHB's pro-growth approach to support and enable the growth of low-cost travel, it said the LCCT, the former base of AirAsia, was meant to be a temporary solution to meet the immediate requirements of AirAsia then, and to provide the airline ability to grow to its full potential.

MAHB said it not only took into consideration the significant evolution of the low-cost carrier's business model, but also catered to any anticipated changes that may occur in the coming decades while developing klia2.

With budget airlines evolving from the initial point-to point-destinations using narrow-bodied aircraft to multiple destination transfers with bigger aircraft, it stressed that airport infrastructure must be enduring in its design and capacity to ensure that it can cater to the ever-changing variants of airline business models while also being able to cater for long-term growth and effectively meet the needs of all its stakeholders.


Malaysia Airlines said to be tapping banks for financing Boeing 737 MAX planes

KUALA LUMPUR/SINGAPORE: Malaysia Airlines Bhd is tapping banks to fund about nine Boeing 737 MAX planes in what will be the carrier's first jet financing with lenders since it was restructured more than three years ago, sources familiar with the situation said.

The financing represents a key test for the airline, which was taken over by Malaysian sovereign wealth fund Khazanah Nasional Bhd in December 2014, months after MH370 disappeared and MH17 was shot down over Ukraine.

Finance industry sources, speaking on condition of anonymity, said Malaysian, European and Chinese banks are expected to compete for financing of the planes, for which Malaysia Airlines sent out a request for proposal a few weeks ago.

The jets have a list price of around US$1 billion (RM4 billion), but airlines typically receive large discounts from manufacturers.

Malaysia Airlines said yesterday it was considering “various funding and leasing options” for its 737 MAX order, which is meant to replace older 737s coming off lease, but declined to provide more specific details.

Khazanah had no immediate response to a request for comment.

Though the aviation financing environment remains strong, the sources said Malaysia Airlines' poor operating performance and a forced haircut taken by banks and lessors on finance and operating leases during the airline's restructuring could make some banks wary of a financing deal with the carrier.

They could also be discouraged by the airline's struggle to show a meaningful recovery after job cuts, fleet changes and route adjustments undertaken as part of a five-year turnaround plan.

“The way they managed their restructuring and put pressure
on banks, that's something banks haven't forgotten. There are also no concrete signs of a turnaround,” said one source.

Sources said the request for proposal is for planes that Malaysia Airlines will take delivery over the next few years under finance leases. Airlines routinely tap banks to fund their aircraft in sale and leaseback arrangements.

The airline has taken out operating leases for widebodies since the restructuring but this is the first time it is seeking a financing arrangement with lenders, sources said. Malaysia Airlines has 25 737 MAX jets on order with Boeing.

Sources said Japanese financial institutions, once strong backers of the airline, were not likely to participate due to curbs related to the carrier having been loss-making for years.
Malaysia Airlines last month said it had underperformed against its 2017 budget and was preparing for a “tough year ahead” due to competition, exchange rate volatility and rising fuel prices. It expects an improved performance later in the year and is targeting sustained profitability in 2019.

The airline has also been struggling on the management front, with CEO Peter Bellew quitting in 2017 after a little more than a year in the job. His predecessor, Christoph Mueller, also quit before the end of his contract. Veteran company executive Capt Izham Ismail is now the CEO.

Overcapacity in its key markets and aggressive competition from the likes of AirAsia Bhd and Singapore Airlines Ltd along with high oil prices has hampered Malaysia Airlines' turnaround plans, the sources said.

“Things are clearly not working out the way they should,” said a second source. “There's lack of continuity at senior management positions, they have formidable low-cost competitors on short- and medium-haul routes and the long-haul market has still not recovered.”

But others said government backing combined with a liquid market for narrowbody jets would provide support to financiers.

“Your insolvency risk on Malaysia Airlines is pretty much zero. Malaysia would never let it happen,” a third source said.

“I don't think having been through such a recent restructuring that anyone would imagine something like that happening again in the near future.” – Reuters


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World Bank: Unique window of opportunity for Malaysia to deepen reforms, ensure growth benefits all

KUALA LUMPUR: Malaysia’s historic election that saw a change of government in over 60 years is a unique window of opportunity to deepen reforms and ensure economic growth benefits everyone, says World Bank Group Macroeconomics and Fiscal Management Global Practice lead economist Richard Record.

Describing Malaysia as a remarkable country by many metrics, he said what was apparent was there was a large disconnect between what the numbers showed and how people felt.

“What we find is that, while average growth might be robust, there is a growing disparity between Malaysians working in services versus manufacturing. Wages in the manufacturing sector, which is mostly export-oriented, are growing at four times as in services,” he said in an article entitled, “Why it’s important to look beyond averages when it comes to Malaysia’s development,” released today.

While average inflation might be low, food and housing costs have been rising at a much faster pace for several years, even more so in urban areas, where they are now a third higher than in 2010.

Low-income households spend much more of their income on food and housing, and in fact, the poorest 10% of Malaysians spend two-thirds of their income on these two items, which has seen the greatest cost build-up, explained Record.

“Coupled with stagnant wage growth for those outside manufacturing, it then becomes clearer why many Malaysians feel that growth isn’t benefiting them. – Bernama


World Bank: Deepen reforms, ensure growth benefits all

KUALA LUMPUR: Malaysia’s historic election that saw a change of government in over sixty years is a unique window of opportunity to deepen reforms and ensure economic growth benefits everyone, says World Bank Group Macroeconomics and Fiscal Management Global Practice lead economist Richard Record.

Describing Malaysia as a remarkable country by many metrics, he said what was apparent was there was a large disconnect between what the numbers showed and how people felt.

“What we find is that, while average growth might be robust, there is a growing disparity between Malaysians working in services versus manufacturing. Wages in the manufacturing sector, which is mostly export-oriented, are growing at four times as in services,” he said in an article entitled, “Why it’s important to look beyond averages when it comes to Malaysia’s development,” released today.

While average inflation might be low, food and housing costs have been rising at a much faster pace for several years, even more so in urban areas, where they are now a third higher than in 2010.

Low-income households spend much more of their income on food and housing, and in fact, the poorest 10% of Malaysians spend two-thirds of their income on these two items, which has seen the greatest cost build-up, explained Record.

“Coupled with stagnant wage growth for those outside manufacturing, it then becomes clearer why many Malaysians feel that growth isn’t benefiting them. – Bernama