Not wise to sell property or house to shore up ringgit Malaysia

ON Thursday, at a seminar organised by Malaysia Property Inc, the Employees Provident Fund (EPF) said it would continue to seek “opportunistic” investments abroad.

There are various reasons why EPF and the other funds absolutely need to do so if they are to provide a steady dividend stream to contributors over the longer term and to diversify risk.

As we have seen the last year or so, the ringgit has come under tremendous pressure and year to date, it has weakened against most currencies, especially the US dollar, the British pound and the Singapore dollar.

Had EPF not made forays abroad in 2009, its 14 million odd contributors would not have received dividends ranging between 6% and 6.75% between 2011 and 2014 and in the interim years of 2012, 6.12% and 2013, 6.35%.

Prior to this, EPF declared dividends of 5.8% in 2007, 4.5% in 2008, 5.65% in 2009 and 5.8% in 2010.

The Asian financial crisis in 1997/98 and the 2008 global financial crisis were costly lessons for EPF and the other funds.

Before its move to buy property abroad in 2008, less than 1% of its total funds were invested in real estate. Today, it has the mandate to invest up to 4% of its total funds of about RM700bil in local and foreign properties. It can also invest up to 26% of its available funds in non-ringgit denominated investment instruments including bonds, securities, properties and other others.

So far, EPF has invested more than £1bil in UK and more than 1bil euros in France and Germany. It also has properties in Japan and Australia.

Its core investments in Europe, excluding UK, are in the office and logistics sector. In UK, it has offices, logistics and 12 hospitals under the Spire brand. It also has a 20% stake in Battersea Power Station mixed used project. According to its head of global real estate in the private markets department Kamarulzaman Hassan, EPF would like to add retail hypermarket chain to its stable.

It is prudent and logical for EPF to seek opportunities in mature markets because although it knows the home market well, it is already in every sub-segment of the local real estate market - logistics, retail, office, residential.

As Kamarulzaman aptly said, EPF is “a big fish in a small crowded pond.” Other big fish in this small pond include Permodalan Nasional Bhd, Retirement Fund Inc (or KWAP) and Lembaga Tabung Haji, Perbadanan Hartanah Bumiputra among others.

There are several reasons why EPF has made forays abroad. It was badly hit in 1997 and 2008. Prior to this, it invested only in Malaysia. It had all its eggs in one basket.

Earlier this year, as the ringgit was weakening, certain parties in the government called on the various funds to bring their money home to shore up the ringgit. They were to curb investments abroad.

EPF subsequently sold 1 Sheldon Square, UK for £210mil (RM1.14bil), which it bought in 2010 for £156.7mi, giving EPF a net gain of £54 mil. Whether it made that decision to sell based on that call to bring the money home is a moot point. That property was tenanted out to Visa Services Europe until December 2022, with a 5.75% annual yield.

So far, KWAP and Felda have said they will not be selling their investments which gave them a good yield.

The thing is, if there is better yield to be had, and forex to earn, why dispose of them?

And why curb funds from investing abroad if they have done proper due diligence and are able to manage these investments well.

As it is, according to Kamarulzaman, London properties are so hot today that investors are willing to get 3.5% to 4% in annual yield.

Selling overseas real estate which were purchased when the pound was low, when it is offering a good yield, just to shore up the ringgit does not seem to be a wise call.

It is like killing the goose that lays the golden egg just to provide food for a day. Yes, London’s property prices are frothy now, but these property investment have long leases.

Besides, the markets it has invested in are mature markets with high liquidity. There is interest in these markets from around the world.

Because property sector is cyclical, the timing is important. EPF entered UK when the it was about RM5 to a pound. These investments came with long leases, which fit into EPF’s need for a steady income flow as it needs to pay dividends to contributors.

In short, going abroad gave it a much needed new investment platform which was not available at home.

These mature markets offer transparent legal and tax structures and clearly, governance was well established.

There is a clear exit option and this was demonstrated when it sold 1 Sheldon Square earlier this year.

UK properties have gone up in value considerably since. Whether EPF will continue to liquidate depends on various factors but to liquidate just to bring home the money to shore up the ringgit should not be one of them, especially when its investments are yielding good returns.

Property is today the biggest alternative asset class for institutional investors and forms the largest allocation for pension funds, insurance companies and sovereign wealth funds.

It is also not homogenous but in today’s volatile environment, it is more tangible than most other asset classes.

Comment by Thean Lee Cheng The Star/Asia News Network

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Bad guys, gangster contractors exploit home owners for renovation works

Gangsters corner condo jobs, 'In-house contractors force buyers to accept their services

Runners for the ‘in-house’ contractor manning their counter near the elevator entrance of a newly completed apartment project in Penang. 

GEORGE TOWN: Contractors, some with links to triads, are forcing buyers of high-rise property here to carry out renovation works.

Many of them charge a premium, sometimes up to 20% more than normal contractors.

If the buyers insist on hiring contractors from outside, they are compelled into buying materials such as sand, bricks, cement and steel cages.

Alternatively, the buyers can pay a “settlement” to bring in outside contractors.

Most buyers dare not lodge complaints with the police for fear of retaliation from triad members.

With developers turning a blind eye to the issue, the so-called “in-house” contractors have become more brazen in intimidating buyers.

Although such practices could be traced back to the 1990s, the mushrooming of condominium projects in Penang has made matters worse.

It has been estimated that more than RM10bil worth of projects had been undertaken on the island over the past 18 months.

During a check by The Star at several newly completed apartment blocks in Relau, a man was seen manning a makeshift counter near the lifts.

He said his “company” was selling sand, bricks, cement and steel cages, and providing other services such as hacking and electrical wiring.

When told that the unit owner wanted to bring in his own contractor to carry out tiling works, the stern-looking man said: “You can still buy the steel cages or other materials from us. We will handle your waste as well.”

Another in-house contractor, who declined to be named, claimed that he could offer better prices for construction materials.

“We get bulk discounts from suppliers. If we buy 100 steel cages and you buy only one, who will get a better price?

“Besides, we also know the unit layout better than anyone else. We know where the electrical wiring is hidden in the wall. We also know where to hack inside the house,” he said.

Ideal Property Development Sdn Bhd managing director Datuk Alex Ooi said his group had encountered numerous cases of such triad activities in its projects in the South-West district over the past few years.

“This is because the district is a hot spot for the development of reasonably priced properties.

“Whenever we have such problems, the police are very quick to come in to arrest the culprits.

“We have also tightened the security for our projects in the district and this has reduced such incidents,” he added.

SP Setia Bhd property (North) general manager Khoo Teck Chong said the group’s projects in the South-West district had never faced such problems because of its tight security system.

Penang police chief Deputy Comm Datuk Abdul Rahim Hanafi urged unit owners to lodge reports or call the police hotline at 04-269 1999.

“We do not condone such actions. We need unit owners to provide us with information so that we can act.

“Everyone has the right to choose their own contractors or material suppliers,” he said.

DCP Rahim gave his assurance that the identity of whistle-blowers or affected victims would be protected.

Buyers must pay ‘toll’ to bring in own contractors

GEORGE TOWN: Lecturer W.C. Lim, 35, who bought a high-rise unit in Bayan Lepas, said he had to pay off the so-called “in-house” contractor so that he would be allowed to engage his own builder.

“I knew I could not win them over, so I paid them off just to reach a win-win situation,” he said.

Lim said that although he was forced to fork out extra money, he was glad the issue was resolved amicably.

“I have heard some horrible stories about these contractors, including harassment for not taking up their services.

“Besides, these contractors also dish out shoddy workmanship,” he said.

Another unit owner, Ethan Tan, 31, said he got several quotations when he wanted to renovate his condominium in Sungai Pinang, including one from the in-house contractor.

However, he was told that “external” contractors must buy cement, sand or tiles from the in-house contractor, believed to have links to a secret society.

The materials were about 20% more expensive compared to legitimate dealers.

“To save all the trouble, I ended up engaging the in-house contractor. I knew that if I had brought in my own designer and contractor, there would surely be disruption of work.

“And if my contractors needed to buy the materials from these guys, the exorbitant charges would be passed on to me,” he said.

Tan said he had no regrets, as the workmanship of the in-house contractor was good.

“A plus point is that they will be around for at least a year in case there are defects,” he said.

Clerk Tan Chua Ting, 40, said she had initially wanted to hire her relative to carry out renovation at her newly completed apartment in Bandar Baru Air Itam.

“But he turned me down, saying that he had already been chased out by the in-house contractor,” she said.

Tan then decided to go with the in-house contractor and was satisfied with the work done.

“The quality is there, from the flooring, built-in cabinet, kitchen and the living room.

“I checked with other contractors and they told me the price was reasonable, considering the work done. They even threw me a few upgrades. I have no complaints,” said Tan, who moved into her new apartment early this year.

Triads have been harassing contractors for ages

PETALING JAYA: Triad members have been harassing contractors in the building industry by demanding protection money and asking for jobs, according to an industry insider.

He said such illegal practices had been going on for years and they were common in the Klang Valley and Johor.

He said if contractors did not pay protection money, some triad members would negotiate to be given sub-contract work such as supplying building materials or steel bar bending service.

“These gangsters will approach contractors and claim that the construction site is sitting on their ‘territory’.

“Some ask for monthly payments while others will leave the contractor alone if a lump sum is paid,” he said.

He said that although contractors were uncomfortable with the situation, most were already used to the practice and knew what to expect from the triads.

“We have learnt to manage them and try to speak to them nicely.

Normally, they do not threaten us with force such as by brandishing weapons.

“They will tell us that the area is ‘theirs’ and we have to pay to be ‘guarded’ by them,” he said, urging the authorities to solve the problem and beef up enforcement.

“If contractors refuse to pay gang members, will the police protect us? What will they do about contractors who have been bullied?” he asked.

Higher-end property has no room for triads to exploit 

GEORGE TOWN: There are now fewer cases of triads monopolising renovation works of high-rise buildings in the state, said Penang Master Builders’ and Building Materials Dealers Association.

Its president Lim Kai Seng said many high-rise units were already partially furnished and were priced from RM400,000 onwards.

“This makes it unnecessary for high-rise property owners to engage contractors to do renovation. It also reduces the opportunity for the triads to provide renovation services,” Lim said when commenting on triad-linked contractors who compel high-rise property owners to engage them for renovation works.

He said the triads usually targeted low and medium-cost projects priced at around RM72,000 because these units were sold without any basic renovation package.

He said this allowed them to offer their services at a higher cost, usually at about 20% more.

According to Lim, the triads begun to control renovation works for high-rise buildings in the 1990s when the construction industry in Penang was booming.

“Before that they used to collect ang pow from developers and contractors. They muscled into development projects to broaden their revenue base,” he said.

“Over the years, police have worked with us and the developers to bring down such activities. So far, the authorities have proven to be very cooperative and efficient in arresting triad-linked contractors.”

Lim denied allegations that contractors were in cahoots with the triads to monopolise renovation jobs.

“We have always lodged police reports whenever we received complaints from buyers,” he added.

- The Star contributed to the stories

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