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A Guide on Applying for A Housing Loan in Malaysia

“Your loan application has been rejected.” If you had this said to you when you applied for a housing loan in Malaysia, then read on.

Getting this response to your mortgage loan may be daunting and make you feel like a lost cause but don’t give up hope! There are several ways to navigate the murky waters of mortgage loan application – here are some points to look into to maximise your odds of obtaining approval for future mortgage loan applications:

1. Check Your Debt Service Ratio

This is one of the preliminary checks for financial institutions, with your debt service ratio (DSR) used to determine whether you’re able to afford the loan repayments. If the DSR is within their threshold given a range of income, it passes one stage of the mortgage loan application.

The formula to calculate DSR is:

DSR = Total monthly liability commitments / total monthly nett income

Monthly Net income = Gross Income – Total Deductions (EPF, SOCSO, tax etc)

Monthly Commitments = new loan application amount + car loan + personal loan + credit cards + mortgage loan

Once the DSR has been determined, each bank will have their respective guidelines for the maximum allowable DSR threshold given a range of incomes.

It’s typically determined by income level, but it may also be affected by your net worth and even things as arbitrary as educational background, age and nature of employment and sector.

For example, some banks may recognise 100% of investment property rental income, and some may only consider 50% of the rental income.

The calculation may differ also when it comes to variable income earners and the nature of the job. For instance some banks may take 80% of the six-month average income of an insurance agent, while others may take only 60%.

2. Get Your Documents in Order

Banks always look for a clear and complete set of documents for assessment. For any bank to process any mortgage or loan application, they require supporting documents including proof to validate your income sources and employment.

For a salaried employee, the banks would like to see that you contribute to EPF and your income taxes via your payslips and tax submissions.

For variable income earners, do keep a record of at least six months’ worth of income/payout statements and supporting transactions into your bank account(s).

For the self-employed or business owners, ensure that your business documentation and accounting of bank balances are up to date as this will assist the loan officer to get any loans approved. In most cases, the bank would like to see a business with at least two to three years of operations supported by audited profit and loss and bank statement transactions to evaluate the ability to service the loan.

3. Don’t Apply for Loans Immediately

If you are a fresh graduate looking to submit a bank loan application, don’t apply immediately for a mortgage or credit facility once you receive your first payslip.

While it may be tempting to get on the credit ladder, banks typically want to see a minimum of three to six months of permanent employment supported by your salary payslip, along with EPF and tax deductions (if applicable).

In the case of the self-employed or commission earners, banks look for stability in income and usually need to see a minimum of six months of payments to be certain that you can service the loan.

4. Don’t Go Bankrupt!

It goes without saying but if you are declared bankrupt, you won’t be able to secure any loans or credit facilities with any financial institution. Your status of bankruptcy can be obtained by checking the Malaysian Department of Insolvency (MDI) or searching on CTOS.

5. Issuing Bad Cheques

If cheques that you issue bounce back three times, this is a huge red flag. A bad cheque is commonly referred to as a bounced cheque, and refers to a cheque issued by an account holder, dishonoured and returned by the drawee bank when it is issued from an account with insufficient balances or a blacklisted account under the Credit Bureau by Bank Negara Malaysia.

Banks usually view this as a precautionary signal and will reject the mortgage loan application and other pending loan applications.

6. Maintain a Good Credit Score

Maintaining a good record and positive status in CCRIS and CTOS is essential. Banks use CCRIS and CTOS as a reference to evaluate credit pattern behaviours and adverse reporting that will illustrate credit payment ability and servicing financial commitments.

The Central Credit Reference Information System (CCRIS) is a system created by Bank Negara Malaysia that maintains the repayment track record for the last 12 months of all credit facilities of participating financial institutions in Malaysia.

Any late payment or prolonged late payments of over six months will be flagged as a “Special Attention “ account in CCRIS. This indicates a red flag for banks.

CTOS is a privately-owned credit reporting agency that provides credit reporting and also has access to information such as bankruptcy, legal action and case statuses, individual’s business ownerships, shareholding and directorships.

They can also retrieve information from utility and telecommunication companies if you have outstanding bills (even if it’s only RM50!) and which can be a cause for banks to reject your loan application!

7. Ensure your Quantitative Elements are Solid

In this day and age, every bank has its own algorithm and software to calculate an individual’s score. This can be a subjective matter as software calculates the scoring according to quantitative and qualitative elements, which may not be the same as the algorithm and systems used by other banks.

The quantitative elements include DSR calculation, the net worth of an individual or profit and loss of a company and also refers to CCRIS records. Qualitative elements include factors such as age and educational background.

Your score will differ across each bank as they use different algorithms and systems. As a mortgage loan applicant, you can improve your profile by ensuring the quantitative aspects are covered and within their requirements.

8. Not Having Any Credit History

A poor credit score is not the only reason lenders reject mortgage loan applications. Having no credit history makes banks uncertain of your ability to pay.

It’s advisable to build up a clean credit history, and it’s normally best to start this by applying for a credit card application or taking up a small loan.

With a smaller credit card facility or loan (that is consistently paid!), this may create a higher approval rate for your mortgage loan in the future because the perceived chances of defaulting on payment are lower.

9. Late Payment of Instalments

A poor track record of loan repayments gives a bad impression to potential lenders and might impact your future application. So try your best not to be late and settle your credit card bills, car loan instalments and other commitments on time.

One way to do this is to set a payment reminder on your calendar or other forms of reminders on your mobile devices.

10. Bank Risk Appetite

Lastly, it is important to note that all banks have different risk appetites. There are instances where a bank has their own non-preferred segments; this could include people working in a niche industry, not meeting the minimum age, or not having a strong educational background requirement.

You may get rejected for holding too many credit cards and you may also get rejected for not holding any credit card. In addition, a rejection could also be due to the mortgage financing not being within their particular area, developer, property type or market segment.

Treat applying for any mortgage or loan like you’re going for a job interview. With a little financial planning help in money management, preparation of supporting documents and maintaining a clean profile in CCRIS and CTOS you stand a better chance of getting your mortgage loan approved by the right bank.

About the Author

Rozanna Rashid is a Licensed Financial Planner (CFP, IFP) that has an MSc in Real Estate Economics & Finance from the London School of Economics & Political Science. Her background is in corporate banking and Islamic finance and she can be contacted at rozanna@alpine-advisory.com

13/01/2021
Morningstar: Setting the Stage for Investment Opportunities

It’s certainly difficult to imagine a more dramatic year for investors than the year 2020, with the Covid-19 pandemic sending markets worldwide on the wildest of rollercoaster rides.

In fact, what has become clear in the past few months is that even if investors had known a year ago that the world would be in the grips of one of the most severe pandemics of the century, very few would have accurately predicted where the market would end up.

Key Drivers to Stock Market Recovery

For much of 2020, Morningstar’s Asian coverage universe reflected a discount to their fair value estimate, and despite the fact that this discount had been narrowing since the March market bottom, it reflected a fairly wide gap between the Technology, Healthcare and Consumer sectors and the rest of the market.

According to Lorraine Tan, Director of Equity Research, Asia at Morningstar, that discount has narrowed in the equity markets with the rotation into the cyclical sectors since November, but the sectors that are still showing the largest discounts remain Energy and Real Estate.

“I think what this implies is that investors have already factored in an economy recovery from the pandemic but it’s still far from reflecting any market top. We think the rotation out of Tech and Consumer discretionary stocks that have outperformed will continue,” she tells Smart Investor.

“The pandemic recovery remains the key driver – we continue to have a base case view that the vaccine will be available by mid-2021 and activity to start normalising in the second half of 2021. Our valuations reflect this view. So, the main risk is obviously any delay because it could raise prolonged debt problems,” she continues.

“For the first half of 2021, we think holding onto some industrial automation companies for exposure to a manufacturing recovery makes sense,” says Tan.

She opines that the recovery in capital expenditure by companies is likely to take place only in late 2021 and into 2022, given the pandemic disruptions, so the positive news flow to drive the rotation should continue in 2022.

Being in Asia, another key driver to look out for is the Sino-US relations. According to Tan, outgoing US President Donald Trump’s penchant for executive orders has added uncertainty to the region, “but getting rid of him only solves half the equation” and “the question becomes how pragmatic President Xi Jinping is.”

“I would imagine that Biden would be keen to establish his China policy but with a greater multilateral approach and to be within the World Trade Organisation (WTO) and other global platform frameworks.

“We suspect that a clearer and consistent policy will help reduce market swings but the relationship, regardless, is
going to remain challenging. Policy clarity will undoubtedly help those companies impeded by the trade tariffs and exclusions,” she comments.

In any case, Tan’s long-term view on China’s economy is that growth will be on a slowing downtrend as much of the development is done, and with ageing demographics, the only growth driver in the country is likely to be consumption from wealth effect.

“Regardless of Sino-US relations, fixed asset investment growth is likely to be quite flat which implies slow growth for the infrastructure-related segments. In this regard, the longer-term view continues to favour companies dialled into domestic China consumption,” explains Tan, citing that companies like Alibaba and Tencent will be in their buying recommendation if they reach more attractive price levels.

On the broader investment themes, Morningstar’s Director of Manager Research Practice, EMEA & Asia, Wing Chan, favours China onshore markets and sustainable investing.

China Onshore Markets Opportunities

China currently ranks as the world’s second-largest equity market and second largest fixed income market.

Highlighting the immense opportunities for investors in the China onshore markets, Chan says, “The gradual opening of China’s financial markets means that its weighting in global equity and fixed income indices are rising, and this is likely to lead to continual and structural inflows into China onshore assets.

“Many asset managers have spent the last several years building their onshore investment capabilities and we are beginning to see compelling investment propositions that are well-equipped to take advantage of these mispricing opportunities,” Chan explains.

However, fund selection is critical, as the best fund managers can outperform mediocre ones by a meaningful margin, he reminds.

Sustainable Investing Turns Mainstream

Against the backdrop of what has been described as the worst recession since the Great Depression, interest in sustainable investing strategies and instruments continues to grow.

“We consider sustainable investing a structural theme that is turning mainstream as investors become increasingly aware of Environmental, Social and Governance (ESG) issues,” comments Chan.

Assets in sustainable funds globally hit a record high of US$1.3 trillion in the third quarter of 2020, up 23% from 2019-end, according to Morningstar data.

Asset managers, he adds, are ramping up their efforts in rolling out sustainable investment products, which are supported by continually positive and growing flows despite the pandemic’s impact on the broader fund market.

Meanwhile, regulatory developments are also gathering pace to support this structural shift. For perspective, over 170 ESG-related regulatory measures were proposed globally in 2018 – more than the last six years combined.

“In Europe, the wide-ranging Sustainable Finance Action Plan is actively seeking to change investing behaviour and direct more investments to long-term sustainable investment products – many of which are Undertakings for the Collective Investment in Transferable Securities (UCITS) that are widely distributed across Asia,” informs Chan.

“Locally in Asia, the Securities and Futures Commission in Hong Kong launched a website showing ESG-related funds that meet the necessary requirements,” Chan reveals.

Quest for Income to Continue

Meanwhile, global central banks’ commitment to keep interest rates low along with the return of quantitative easing implies that investors’ demand for income is set to continue despite unattractive yields from developed fixed-income markets.

“In comparison, Asian and emerging market bonds continue to offer a reasonable yield for income-seeking investors who are comfortable with taking slightly more risk,” he concludes.

By Bernie Yeo

12/01/2021
Charting the Path to a Synchronised Global Recovery

If all goes according to plan, the new year is expected to usher in the distribution of a Covid-19 vaccine, along with the great promise of a return to normalcy and a global economy that is on the mend. Cautious optimism seems to be the way forward, and things are finally looking up for investors.

This follows a grim year rife with tragedy and heartbreak over the Covid-19 pandemic, which spread with alarming speed, infecting millions and bringing economic activities around the world to a near stand-still.

“There is a synchronised global recovery in the horizon, with all regions bouncing back from the pandemic-induced recession in 2020 and heading onto a path of recovery. What’s more, global GDP is expected to rebound from -3.9% in 2020 to +5.2% in 2021 based on a survey of forecasters on Bloomberg,” says Kenanga Investors Berhad Chief Investment Officer Lee Sook Yee.

The deployment of a vaccine is expected to help global recovery of economic activity, while extensive support from both fiscal and monetary policy provides a further boost.

“Interest rates remain at decade lows worldwide, while the Federal Reserve (FED) and European Central Bank (ECB) continue to expand their balance sheet with various asset purchase programmes. Hence, we should see a positive environment for risk assets in the first half of 2021 at least,” she tells Smart Investor.

Opportunities Ahead for Global Recovery

On investments bright spots going forward, Lee says that 2021 is expected to be the year where risk assets will outperform defensive assets, with “equities likely to outperform fixed income and gold”. She adds that “Within equities, higher beta sectors and countries such as commodities and emerging markets are expected to outperform defensive and developed markets.”

Lee highlights that monetary and fiscal policies are expected to remain supportive in 2021 as global recovery remains slow and uneven, and is highly dependent on the successful roll-out of the Covid-19 vaccine.

As such, interest rates are expected to remain low and accommodative, although a bottom is likely to have been reached, reckons Lee, adding that “against this backdrop, risky assets can largely be expected to outperform.”

On the sectors that will do well, Lee remains overweight in sectors that offer secular growth such as technology. “The tech sector will see various drivers such as the rising adoption of 5G technology, electric vehicles and artificial intelligence in 2021. This will boost the demand for semiconductors and related components and services across the value chain.”

“On the other hand, we are also overweight on the cyclical/value sectors that might have suffered in the past, but will benefit from the global recovery. This includes sectors such as commodities, industrials, financials and consumer discretionary,” adds Lee.

Indeed, we will come out of 2020 stronger and the market is looking forward to a better year with earnings anticipated to bull-doze ahead.

“In line with the synchronised rebound in global economies, corporate earnings are expected to recover strongly in 2021. Sectors that are hit the hardest by Covid-19 such as consumer discretionary, industrials, retailing, gaming and construction are expected to enjoy the base effect of above-average rebounds in earnings.

“Consensus expects 2020 KLCI earnings to contract 18.8% on the back of Covid-19 virus outbreak in 2020, before rebounding 32% in 2021,” Lee informs.

Where to Put Your Money

On the strategy that investors can adopt to stay on top of their investment performance, Lee offers this advice: “In our assessment, the ‘mobile barbell strategy’ is the most suited investment option under the current economic climate.

“The barbell strategy is an investment concept that suggests that the best way to strike a balance between reward and risk is to invest in the two extremes of high risk and no risk assets while avoiding middle-of-the-road choices.

“Although the growth sector is expected to continue performing well, investors should also consider shifting their weight to value and cyclical stocks as a balancing act.

“Above all, stay diversified and focused on your personal financial goals. It would also be beneficial to have a side of supplementary savings such as Private Retirement Schemes (PRS) which can help cushion inflation or unexpected emergencies such as today’s situation,” Lee advises.

By Bernie Yeo

12/01/2021
Asian Market Recovery: Light at the End of the Tunnel

There has not been a more dramatic rollercoaster ride for investors than the year 2020. From the global outbreak of the Covid-19 pandemic to subsequent economic lockdowns and geopolitical tensions, it has been a year that many investors would probably like to forget. With that 2021 is expected to be a year for Asian market recovery.

A highly volatile year for financial markets, the year started off with cautious optimism as the global trade war between the United States and China began to thaw. Come February, global markets were hitting new highs.

And then came the Covid-19 pandemic, which caused markets to sell-off by 34% (as measured by the MSCI World Index) within a short span of just six weeks.

“However, as quickly as the market sold down, the recovery was swift. In early April, we saw benchmark gauges retracing back their losses induced by the pandemic as stimulus optimism buoyed market gains,” Affin Hwang Asset Management deputy managing director and chief investment officer David Ng tells Smart Investor.

Policymakers were seen doing whatever it takes to shelter the economy through a swathe of stimulus measures ranging from relief packages to loan facilities and asset purchases.

“All the losses were finally recovered at the beginning of November, which coincided with the initial release of Phase III clinical trial data for the vaccines. So, there is light at the end of the tunnel in every cycle,” he adds.

Opportunities for Asian Markets

There is an emerging bullish consensus that 2021 will be a recovery year. While current estimates suggest that global gross domestic product (GDP) is expected to fall by around 5% in 2020, this is expected to rebound by 5.4% in 2021 as growth returns and more economies open up.

“So far, economic growth has surprised on the upside and there are positive revisions to corporate earnings. These will be supportive of risk assets. Effective vaccines will be key in providing a boost for markets,” Ng remarks.

However, as the vaccines will take time to produce, the recovery will be prolonged into 2022 and 2023, thus making this a multi-year theme.

Being a recovery year, the expected key investment themes are normalisation/rebound plays that include banks, insurers, materials, consumer discretionary and tourism and hospitality.

“Stocks that were trading at low multiples are now coming back in flavour as we see a rotation to value,” says Ng.

However, he stresses that the shift in value does not signal the end of the upside for technology and growth stocks. After all, while valuations are expensive, it is also one of the sectors that has the ability to grow profits consistently and exhibit secular growth, and not many sectors can claim as much.

According to Ng, Affin Hwang Asset Management is adopting a barbell approach for their portfolio positioning.

“On one end, we are tilted towards a basket of secular growth names with multi-year prospects that would continue to grow beyond the development of the vaccine. On the other end, we are also weighted towards cyclical and value-plays that would benefit from a re-opening of the economy,” he says.

On the flipside, there are also risks that could derail this recovery theme.

“Firstly, we would be closely monitoring president-elect Joe Biden’s approach to dealing with China. Asian markets and Asian foreign exchanges have reacted positively to the recent election results. An antagonistic approach would certainly bring downside risks,” Ng explains.

Another key risk the team is monitoring is whether corporate earnings can recover as strongly as expected given the rising Covid-19 cases globally. Market valuations are high and good earnings are thus required to anchor them.

As it will take time to produce enough vaccines on a global scale, Ng also expects the economic conditions in the near term to stay muted. “Growth may stay tepid until various countries and/or sectors can fully reboot,” he says.

Investing in the New Normal

But while 2020 may be a year that investors would like to forget, it was also one filled with important lessons.

“If anything, the year has emphasised yet again the importance of diversification. Staying diversified across different asset classes is crucial; geographical and sector exposure can help minimise volatility and smoothen returns. In turn, this will induce investors to remain invested and help them stay the course,” Ng opines.

2020 has also underscored the perils of market timing and investing according to one’s emotions. When the markets plunged in March, for instance, many investors may have panicked and resorted to shifting all their allocations to cash.

According to Ng, the market began to recover and recouped back its losses a few weeks after the drop, and not wanting to miss out on the surge, many investors have shifted back their exposure into equities.

“Timing the markets can prove to be more costly than the actual correction itself. That being said, investors should periodically reassess their risk capacity to see if they are comfortable with the level of risk in their portfolio.

“If investors are taking on more risk than they can handle, this might cause jitters and lead to making impulsive decisions that do not benefit them,” concludes Ng.

By Bernie Yeo

11/01/2021
Global Economy Set for Recovery Phase

If anything, 2020 has taught us that opportunities for investors can arise in the midst of uncertainty, and that market sentiments can change within a short span of time.

The pessimism during the first quarter, according to FSMOne research analyst Shawn Low Tian How, has been quickly replaced with a bullish rally up to the point of writing as demonstrated by the benchmark for global equities, which is represented by the MSCI All Country World Index.

Performance-wise, Low reveals that most unit trust funds have come out of 2020 in the green despite the difficulties during the first quarter of the year.

“86% of the 341 equity and 84% of the 136 fixed income funds on the FSMOne platform have clocked in positive gains on a year-to-date basis (see Figures 1 and 2). These two asset classes have had stellar performances largely due to the immense liquidity injected by major policymakers of the world,” he tells Smart Investor.

Figure 1: Equity funds have performed decently over the year.

Figure 2: Similar occurrences can be seen in fixed income funds.

“This event has once again reinforced a timeless quote by Warren Buffett — ‘Be fearful when others are greedy, be greedy when others are fearful’.

“Investors who had invested during the Covid-19-induced March sell-off would have benefitted greatly on the following run up in asset prices. On the other hand, investors who exited the market in the midst of the selloff in fear of further drawbacks have lost out on potential returns during the subsequent recovery.

“This also strengthens our belief that investors should not be shrouded by short term noises and should stay invested at all times with a long-term view,” he reveals.

Investment Outlook for 2021

The conditions going ahead is likely to be constructive for equities, according to Low.

“Looking at the business cycle, we may have just witnessed a trough in 2020. Given that most leading indicators such as Purchasing Managers’ Index (PMI) or exports have begun bottoming out, the global economy could be positioned for a recovery/expansionary phase in 2021,” he explains.

“However, a resurgence in Covid-19 cases could force many economies to reimplement lockdown measures, much like how European countries are doing. Should this threat be prolonged, it will overshadow any chances for a global recovery,” warns Low.

That said, positive progress surrounding the vaccine such as the slew of efficacy test of around 90% in recent weeks have shed some light on the pandemic.

“We expect more positive news to follow suit as other vaccine developers catch up to the final phases of testing, providing more options for countries to combat the coronavirus,” he points out.

Meanwhile, the United States presidential election – which was the key risk event in 2020 – has mostly come to an end. The world will see a Biden presidency, alongside a bipartisan Congress in 2021, which is ideal for the market, reckons Low.

Foreign policies firstly are likely to be more predictable, to which actions taken could be more bilateral instead of unilateral.

“In terms of the bipartisan congress, some of the more extreme bills such as raising taxes could face some challenges in being passed, or at least being downsized. Given that extreme changes are unlikely, the probability of increased volatility coming from new legislations are likely to be low.”

While the tensions between US-China may be a recurring theme going ahead, that president-elect Biden’s stance towards China is less aggressive compared to President Trump, he adds.

Bright Spots Aplenty

Given that most markets have experienced depressed earnings in 2020, many markets should register decent earnings growth in 2021 due to the low base effect.

“Amongst the many markets we cover, emerging markets such as China and Asia Ex-Japan will lead their global counterparts. China, being one of the first countries to successfully curb the pandemic, is expected to clock positive GDP growth.

“Coupled with tailwinds such as growing middle income and high population, the country is one of the more fundamentally sound markets and could remain so for many years to come. In extension, given that most Asia Ex-Japan countries export mainly to China, the recovery of China could also serve to boost its neighbours’ growth,” opines Low.

Closer to home, Malaysia’s recent announcement of the 2021 Budget sets the tone for the year ahead. Budget beneficiaries include the property and construction sectors as the government focuses on providing support to low-income housing and the continuation of infrastructure projects.

The local technology sector, mainly the semiconductor players, are also expected to do well, benefitting from secular trends such as Internet of Things (IoT) and 5G technologies.

“In addition to the key risk posed by the Covid-19 pandemic, other risks are likely to be implementation risks as infrastructure projects historically have faced pause orders.

“However, we deem this risk to be relatively low given the high multiplier effect of the sector which is used to support the economic growth of the country. In terms of the technology sector, while high valuations could be a concern for many, the decent growth potential of the sector is likely to bring valuations to more palatable levels,” says Low.

Strategies to Ride through Market Uncertainties

Due to volatility being part and parcel of investing, the strategy of investing through a diversified portfolio (incorporating different asset classes, geographies and sectors, among others) has been proven to help lower overall portfolio volatility and give investors better peace of mind in times of market distress.

To illustrate his point, Low draws attention to the start of 2020 where global equities (represented by MSCI AC World Index) suffered sell-offs of -8.2% and -13.7% in February and March respectively due to Covid-19 induced fears.

Global bonds (represented by Bloomberg Barclays Global Aggregate Bond Index), on the other hand, were up 0.7% in February and only down -2.2% in March (see Figure 3).

Figure 3: Global equities and bonds monthly returns in 2020.

The deviation in price movements is because equities and bonds are different asset classes and have a low correlation with one another, he explains.

“A mixed asset portfolio with 50% allocation in global equities and 50% in global bonds would evidently have much lower volatility than global equities over the same period.

“For example, during the Covid-19 induced sell-off, the portfolio was down -3.8% and -8.0% in February and in March respectively. The annualised volatility of the portfolio is 17.4%, significantly lower than the 30.6% that of global equities.

“As such, investors should adopt the strategy of investing through a diversified portfolio to help them ride through any market uncertainties in the future as just as it would have in 2020,” he explains.

By Bernie Yeo

11/01/2021
Understanding Your Assets And Liabilities
Many of you will know the difference between assets and liabilities, but allow me to explain for those that don’t. An asset is something that potentially goes up in value over time, such as a limited edition timepiece, property, or blue chip shares. Liabilities are what’s owed to other parties such as banks or even friends and family, which can include your house or car loan, or study loans. The difference between your assets and liabilities is what’s known as your net worth.

But why does this matter? Consider this – if you stop working today, how long can you survive financially? Many people have lost their jobs or faced pay cuts during the Covid-19 pandemic, and the hardest hit are usually entry-level employees who have just started their careers. Most, if not all, would have accumulated some assets if they consistently saved and invested from their first paycheck, while others may have car loans or credit card loans to settle.

Some may have filial responsibilities and need to support their family and loved ones with their entry-level pay. According to a Jobstreet salary report, the minimum income level for fresh graduates before the pandemic was between RM1,949 to RM2,836, which is very low considering the time-cost requirements to get an education. No matter the situation, you must repay your commitments, and if you’re unable to, the worst case scenario is being declared bankrupt and forfeiting your assets to the bank! It’s crucial for fresh graduates to have basic financial knowledge, and take proper action to safeguard their own finances.

Good Assets vs Bad Assets

Although your net worth is your true wealth, this isn’t the be-all and end-all. There are many other financial areas we must look at; assets and liabilities are only one part of the equation. Generally, there are good and bad assets but of course, whether or not it’s a good asset depends on the owner’s perception, so there are no hard and fast rules to judge whether an asset is good or bad.

For instance, an investment property that has been successfully rented out for the past 10 years might be deemed as a good asset, but when it loses its ability to be rented, then it suddenly becomes a bad asset. Impatient or desperate owners may try to sell the property before finding out the underlying reason for the failure to secure a new tenant.

Another common example is a car, which many perceive as a liability. However, this has changed since technology revolutionised the taxi industry, with the emergence and eventual merger of the Uber and Grab ride-sharing platforms. For many gig workers, the traditional perception of a car being a liability changed as it became a tool to generate active income instead of solely required for travelling to work. As you can see, what can be considered a good or bad asset is somewhat subjective, but all it takes is a little assessment to judge for yourself.

Understanding Various Forms of Debts

Apart from assets, you also need to review your debt. In the market, there are numerous forms of debt, such as personal debt, corporate debt, or even government debt, and so on. Let’s focus on some of the debt that fresh graduates are more likely to carry, which may include student loans, credit card debts, hire purchase (car loans), and mortgages (housing loan).

These four types of loan are common among fresh graduates, and are typically the type of debts that people start acquiring in their 20s. Of course, the ideal scenario is not getting into these but it’s more likely than not! As these loans come at different costs to the consumer, you must fully understand the respective terms and conditions before taking on these debts.

Managing Money by Understanding Assets and Liabilities

Once you’re mindful of what assets and liabilities are available, you can start learning how to maximise opportunities. For example, if you love shopping, get a credit card with cash-back or rewards points and use them when purchasing daily necessities. Needless to say, you should be conscious of your budget and settle the bill in full before the due date! In the long run, not only does timely credit card repayments build your credit score, but more importantly, it becomes ingrained as part of your money habits!

How to grow your net worth?

Now that you know the difference between assets and liabilities, you should start planning how to grow your net worth? As a fresh graduate, the road is likely to be long but not unattainable so do try some of these tips to speed up the journey:
- Reduce your debt
  Since debt is the major factor dragging down your net worth, it’s advisable to keep this to a minimum. As a benchmark, your total debt should be around 50% out of your total assets. If you’re at a higher debt level, consider allocating more of your income to reducing it.
- Expenses
  This may seem obvious but your daily expenses can pile up, especially if you don’t differentiate between needs and wants. Spend on what you truly need rather than what you want. If you buy too much of what you want, you may not have enough to buy what you need.
- Savings
  Once you have successfully lowered down your expenses, you’ll definitely see your savings increase. If you are working in the Klang Valley, a good benchmark to aim for is a saving rate of 30% from your gross income. Anything more than this is amazing!
- Investing
  Once you have built up your savings for a rainy day, start looking at investing elsewhere since keeping your money in bank deposits will hardly beat inflation. In the long run, you’ll potentially see your assets grow steadily if you do it right, and increase your net worth as a result.
In short, clear your debts, spend wisely and invest sensibly. Bear in mind though, it’s easier said than done!

About the Author

Wong Chee Yang is a financial advisor representative and is dedicated to promoting financial literacy amongst fellow Malaysians. He can be contacted at cywong@finwealth.com.my.
08/01/2021
10 Most Searched Areas by Malaysian Homebuyers in 2020

iProperty.com.my has revealed the 10 most searched areas by Malaysian homebuyers in the year 2020.

The list looks at data for the highest number of searches among homebuyers who visited the property site from January to December 2020. The search data is captured by iProperty.com.my, with the properties being ranked in ascending order and the popularity being displayed in terms of percentages (%).

#10: Kota Damansara

Percentage of views: 6.79%

The improved amenities and infrastructure coupled with improved connectivity make this township in Petaling Jaya a widely searched area for homebuyers to live in. Additionally, the MRT Kota Damansara makes travelling to other parts of Klang Valley much easier.

Kota Damansara offers properties from all ends of the price spectrum. The median price for a condominium is RM600,000 whereas the median rental price for a fully furnished 3-bedroom 1,237 sq. ft. condominium unit is RM2,300. This area is accessible via LDP and NKVE and is only a short drive away from Bandar Utama, Mutiara Damansara and Damansara Perdana, among others.

#9: Rawang

Percentage of views: 6.93%

Rawang has undergone nearly 200 years of change since the British Malaya era. Today, Rawang is flourishing and has never looked more promising. It has progressively developed by transforming an ordinary old town into an urbanised township. The fast-growing property development and demand has opened the residential property market in Rawang. Landed houses are in an affordable range compared to other parts of Klang Valley. According to Brickz, the median price for a terrace house in Rawang is RM289,000.

This had led to buyers becoming less hesitant to the idea of moving to Rawang. It also has the potential to attract local and foreign families who wish to own a landed property in Rawang as there are options for vernacular, national, and international schools. The nearly 60-metres-tall Rawang–Serendah bypass eases the journey to Serendah, Selayang, and KL city centre. It cuts the journey down from two hours to just 30 minutes during peak hours.

#8: Tropicana

Percentage of views: 7.57%

Tropicana Golf & Country Resort is an exclusive and all-inclusive gated community. This 625-acre upscale township is located in the prime suburb of Petaling Jaya and is home to residents who enjoy the convenience and comfort of resort facilities right on their doorstep. This township offers a mixture of link, semiD, and bungalow houses overlooking the charming landscape and surrounded by lush greeneries. The median price for a bungalow at Tropicana Golf & Country Resort is RM2.3 mil.

#7: Ipoh

Percentage of views: 7.71%

Ipoh is the capital city of Perak and it is one of Malaysia’s biggest attractions. This former mining town is located about 200 km from Kuala Lumpur (KL) and 150 km from Butterworth (mainland Penang). It charms its visitors with attractions like Concubine Lane and Birch Clock Tower, and it is also the gateway to Cameron Highlands.

Based on listings on iProperty.com.my, terrace houses in Ipoh are ranging from three to five bedrooms with built-up sizes within 1,200 sq ft to 4,550 sq ft. The median price for a terrace house in Ipoh is RM220,000. Ipoh is also number one for the top five areas in Malaysia for properties below RM500,000.

#6: Ampang

Percentage of views: 8.22%

Ampang has been long known for its exorbitant real-estate prices and wealthy residents. Besides Mont Kiara, Ampang is also favoured by expatriate communities due to its amenities like international schools, private healthcare facilities, and entertainment.

Ampang is also home to a large Korean community in the Klang Valley. This area is ideally located close to the KL Golden Triangle and major roads and highways such as Jalan Tun Razak, Jalan Ampang, AKLEH and MRR2 are moments away. This affluent township is also listed as the top 10 most searched areas to rent in Malaysia in 2020. The median price for a condominium in Ampang is RM1.15 mil.

#5: Damansara Heights

Percentage of views: 9.67%

The enclave neighbourhood of Damansara Heights or Bukit Damansara is dubbed the Beverly Hills of Malaysia as it is sprawling with bungalows, villas, and other luxury residences. Its immediate affluent neighbours are Bukit Kiara, Sri Hartamas, and Bukit Tunku. The median price for a bungalow in Damansara Heights is RM3.5 mil.

Other than upper-class Malaysians, expatriates are flocking to this area for its trendy nightlife and entertainment, as well as a selection of bars and restaurants. It is also surrounded by a network of highways and main roads such as Jalan Tuanku Abdul Halim, Jalan Damansara, and Kerinchi and Damansara Link. Access to Sultan Abdul Halim Highway is also seamless due to its proximity.

#4: Cheras

Percentage of views: 10.6%

Cheras has remained in the top five for the most searched areas among Malaysian homebuyers. Even though it went down one spot to the number four position in 2020, Cheras is still popular among homebuyers and potential buyers. Cheras isn’t only one of the townships with the easiest access to the main rail lines, it is also one of the most searched areas to rent in Malaysia in 2020.

The readily available public transportation services and amenities, as well as a range of houses and price spectrum, make it favourable among house hunters and investors. The median price for a condominium in Cheras (KL) is RM350,000.

#3: Shah Alam

Percentage of views: 10.66%

This Selangor state capital is Malaysia’s first planned city and known for its family-friendly attractions like i-City. The LRT Bandar Utama-Klang Line or LRT 3 connecting Bandar Utama to Johan Setia in Klang will not only alleviate travelling time to other parts of Klang Valley but will also boost the capital growth of properties in Shah Alam especially those projects nearby the train stations.

The new LRT line will be extending the connectivity of two million people in the Western Corridor to other parts of the Greater Klang Valley. There are at least 4 properties in Shah Alam near LRT 3. The median price for a condominium in Shah Alam is RM390,000.

According to the H1 2020 Portal Demand Analytics by iProperty.com.my, Shah Alam recorded a positive YoY residential property demand, standing at +7.63%. With countless public parks, shopping malls, attractions, and things to do in Shah Alam, it is the natural choice for homebuyers.

#2: Petaling Jaya

Percentage of views: 15.6%

Petaling Jaya, popularly known as PJ has levelled up from the sixth spot last year to the 2nd in 2020. It’s also one of the most search areas among renters in 2020. The reason PJ makes it into the list year after year is because of its proximity to KL and the endless amenities readily available in the area. As far as shopping is concerned, there are a few shopping malls within its vicinity. Besides the ever-popular 1 Utama, there are smaller neighbourhood malls such as Paradigm Mall, Atria Shopping Gallery, and Starling Mall in Damansara Uptown.

The LRT 3 will further alleviate the public transportation service in PJ as it allows seamless commuting to Bandar Utama, Shah Alam, and Klang. There will be five LRT 3 stations within the PJ area.

#1: Johor Bahru

Percentage of views: 16.24%

Johor Bahru tops the chart for the most searched areas among Malaysian homebuyers in 2020. Johor is an attractive residential option for many foreigners who work in Singapore. Nevertheless, the closing of the Johor-Singapore border due to COVID-19 have dampened their purchasing sentiment.

According to the H1 2020 Portal Demand Analytics by iProperty.com.my, the terrace house category is the only one that remained steady in terms of median prices. For H1 2020, the terrace house segment recorded YoY capital gains of +4.97% and the median price was RM360,000.

07/01/2021
The Importance of Financial Planning

Have you ever thought about what would happen if Malaysia’s government re-implements the Movement Control Order (MCO)? With the upward trend of Covid-19 cases in Malaysia, this is a big possibility.

Be honest for a second – are you well-prepared for the next MCO? Many seasoned working adults in Malaysia are struggling to manage their cash flow, let alone fresh graduates or youths.

This highlights the importance of financial planning and being financially literate from an early age.

A survey conducted by AKPK in 2019 shows that only 24% of Malaysians are able to survive on their savings for up to three months, while just 10% are able to sustain for six months or more!

Are you among the 76% of Malaysians who won’t be able to cover expenses for more than three months? If so, what can you do to improve your cash flow?

Differentiate between “needs” and “wants”

Many Malaysians lack financial knowledge in general, especially in the area of financial planning. A study conducted by the Financial Education Network (FEN) showed that Malaysians are not confident about their own financial knowledge.

Although 76% have set a personal budget, two out of five people were unable to stick to it.

In addition, one in every five Malaysian working adults couldn’t save any income in the last six months, while three in every 10 needed to borrow money to buy essential goods.

In other words, these people had to rely on credit cards, government incentives or even loans just to buy food!

To restructure your personal finances, you must learn how to differentiate between ‘needs’ and ‘wants’. For example, food, rent, petrol and insurance fall under needs.

Conversely coffee, streaming services, the latest smartphones, and other luxury goods are not necessary to survive. If you are spending more on wants than needs, you should consider reviewing your cash flow and potentially cut down on luxury expenses.

You could explore carpooling or taking public transport, or cooking at home to reduce spending on dining outside.

Make saving a habit

The rising cost of living in Malaysia, especially in cities, has forced many young working adults to become more frugal.

Even with extra jobs, many are still unable to allocate any earnings to their savings, with a 2017 Bank Negara Malaysia survey revealing that 75% of the Malaysians are unable to raise RM1,000 in emergencies.

Due to poor saving habits, many youngsters rely heavily on credit cards to finance their needs and wants. As a result, they may fall deeper and deeper into credit card debt. When they fail to settle their balance, it becomes a debt that carries forward to the next month’s bill with compounded daily interest. In simple terms, they’re spending their future income in order to support their lifestyle.

When planning your personal finances, I strongly encourage you to set a budget and always keep track of your expenses, and avoid using a credit card if possible. Below is a rough allocation budget I would recommend:

30% Savings and investment

50% Necessities

10% Commitments

10% Insurance and protection

100% Total take home income

It is advisable to allocate at least 10% to 30% of your income to savings and investments. These savings serve as emergency funds for you to cover the cost of getting sick, accidents and more.

You should also look into exploring small investments that can help to grow their wealth. I highly recommend that you save or invest before spending so that you won’t spend all your income.

Do also allocate at least 10% of your income for commitments such as PTPTN loans to reduce the principal and compounded interest. Another 10% should be allocated for protection, as you are human and unable to foresee unfortunate incidents in your future.

By purchasing insurance, this offers peace of mind and a reduction of your financial burden during times of sicknesses or unfortunate events.

If it’s too good to be true, it probably is!

High-return investments always sound good on paper, which is why it continues to attract many people, young and old alike. However, if you aren’t able to self-engage in comprehensive and thorough financial planning, you may lack a clear understanding of financial risks and returns.

This makes you prone to errors of judgment, which leads to high-risk or unwise financial decisions.

It’s very easy to fall into investment traps and suffer huge losses. Many are also jumping into the deep end of trading in forex and bitcoin, or worse still – pyramid schemes and other scams.

Without proper financial planning or knowledge and understanding, it’s easy to be misled by shiny numbers and figures without considering the risk or feasibility of such schemes.

Don’t be susceptible to financial traps and irrational financial decisions – read and learn everything you can about investing before jumping in to avoid becoming another statistic.

In a nutshell, it’s incredibly important for you to learn how to manage your cash flow and have your own simplified financial plan.

By better understanding your cash flow analysis, you can re-allocate your income wisely.

Always remember to save before you spend and understand the financial risks and returns before investing into anything. Be sure to avoid investing in platforms or schemes that aren’t legally recognised by the Securities Commission Malaysia.

Finally, remember that it’s never too early to start your financial planning journey!

About the Author

Edmond Tang Zhen Han is a certified financial planner that is passionate about helping people achieve financial literacy in order for them to reach financial freedom. He can be contacted at edmondtangzh@genexus.com.my

06/01/2021
Why Cash Flow is More Important than Investing

My personal belief is that the money you earn should be put towards enriching your life sustainably, over the long-term, and not a short-term blast with long-term setbacks.

Ask anyone whether they would like better finances, and the answer is almost always a resounding ‘YES’.

Follow up that question with “How do you feel about your current finances?” and you’ll likely get a mix of a neutral to a negative response.

So why is there this disconnect between what people want and what is currently happening?

You could answer this with a myriad of reasons from various angles and perspectives. Today, however, we’re going to look at the one aspect of personal finance that I feel is the most important to your quality of life.

As someone who has very recently left his 20s, I look back on my youth and experience with my clients so far – and I have to say that if there’s one critical skill to pick up regarding your personal finance, it’s cash flow management.

Yes, cash flow management and not investment, contrary to popular belief!

If life is a car journey, then cash flow management is your fuel management and efficiency, whereas investment is your engine.

A powerful engine that devours fuel may only get you so far, whereas a small engine may chug along and eventually get you to your destination.

I’d recommend ensuring that you can at least get to your destination (comfortable retirement) first, then only worry about how fast to get there.

Why Is Cash Flow Important?

Someone with good cash flow will be more flexible in day-to-day expenditure like eating at a nice restaurant or treating themselves to new gadgets.

With good planning, a lot of them also have more capacity for life events such as weddings, children, holidays, or even big purchases such as cars and property.

They can build up to bigger emergency funds, sustain more setbacks (like Covid-19), make more investments, grow their net worth and so on.

On the emotional side, people with good cash flow have better peace of mind. They’re less worried, happier and sleep better. They get to focus on living life.

You might think I’m describing a rich person, but I’ve met people earning upwards of RM10,000 monthly who are struggling with crippling debt.

The effect of this financial stress really shows. On the flip side, I’ve also met people earning below RM5,000, classified as B40, who are diligently allocating money into their emergency funds, investments, their first property purchase fund, and so on.

The difference in happiness and outlook of life between them is very clear.

Your finances should positively impact your life instead of causing you more trouble, wouldn’t you agree?

I’ll say that there are more factors involved in having your cash flow provide a positive impact on your life – but my point is that you should very much focus on good cash flow first before delving into other aspects of personal finance.

Keep things simple, especially if you’re not someone who enjoys living and breathing the topic of finance.

How to Maintain Good Cash Flow

In essence, cash flow is your income versus your expenditure. At the end of the month, do you have a surplus of income after deducting expenses, and if yes, how much?

The more you have, the ‘healthier’ your cash flow.

Step 1

Recognise how much resource is available to you. How much nett income do you have on a monthly basis? This is usually your net salary, plus any business income. You must know this, and know this very well.

Step 2

Follow the simple method of deducting all necessary living expenses first.

These are things like rent, loan repayments, house bills and groceries.

Be very honest with yourself though, as there are a lot of ‘commitments’ or monthly instalment repayments that are actually not considered ‘necessary’. For example, an instalment plan for a new smartphone is not necessary.

An argument can be made that repayment plans for the popular water filters are also not necessary. Personal loans for holidays or weddings are not necessary.

Some property purchases are also unnecessary if they’re detrimental to your personal finances (and you aren’t buying them to stay in). At the end of the day, you have to be frank with yourself as to what’s really necessary and what isn’t.

Step 3

Allocate some money towards your future. Some of you may have a bucket list of things to do, and no doubt that will require funds. A common goal for many is to provide quality education for their children.

And finally, at the end of the day, there comes a point where you’ll want to retire and enjoy life. All these need funds, so the more you have prepared, the more you can do.

Imagine yourself at age 60. Imagine the life that you want to have at that time, and set aside the finances for it.

Start as soon as you can, because every month or every year that goes by without you doing this is wasted time where you made zero progress towards building your life.

If we refer to the car journey analogy from earlier, skipping Step 3 is not moving your car at all!

Step 4

Manage your day-to-day expenses. This is where you can affect the most change, and where a lot of ‘budgeting’ is usually done.

Think about it, you can change how many coffees you buy per week, but you’ll find it much harder to change something like your mortgage repayment.

I’d suggest keeping track of your expenses in an app or spreadsheet if you prefer.

You don’t need to track every single expense if that’s not your thing, but at least know how much your total spending is.

Knowing where your money goes is very important, and doubly so when your income is smaller. Any surplus or savings from Step 4 can then be channelled into Step 2 or 3.

Admittedly, Step 4 is the most difficult. For some of us, this requires a lot of effort and willpower. But the thing is if it were easy, everyone would be living the life of their dreams and we’d have a very different world.

Please also remember not to do Step 4 before Step 2 or Step 3, because that will cause massive problems down the road.

Try your best, and seek professional assistance if necessary.

To summarise, you can visualise the steps with the following formula, worked from left to right:

Total Income – Essential Living Expenses – Savings for Future = Balance for Discretionary Expenses

Finally, remember that you don’t need to be perfectly managing your finances, but you do have to start somewhere.

What you need to do is start with something that you can handle first, both in terms of time and commitment.

It’s like someone seeking to eat healthier. He/she should change one meal at a time and not force every meal to be a salad (because the chances of giving up are high!).

Your financial journey is a marathon, so make sure you can go the distance. All the best!

About the Author

Ian Wong is a licensed financial planner with eight years of experience in the industry. He specialises in making personal finance simple, practical, and accessible to people from all walks of life. He can be contacted at ian.wong@ipp.com.my.

04/01/2021
Improve Your Personal Cash Flow
When financial planning comes to mind, most of us don’t think about personal cash flow management. It’s actually a fundamentally important process where spending is broken down and analysed if used efficiently.

Yet, it’s also often avoided or put off because it’s tedious and could even get depressing when we realise we have to cut down on expenditures!

In most cases, changing spending behaviour is difficult without sufficient motivation, emotional value, and discipline. This is where financial goal setting and prioritising goes hand in hand with cash flow management.

Once you have identified your desired goals, it then comes down to prioritising as you might not have enough resources to reach all of them.

Cash flow management will then help to ensure you allocate your income appropriately, and most importantly, maintain a positive cash flow as without one, there is no way you can begin to achieve any of your financial goals.

To kick off your financial planning journey to improve cash flow management, it would be prudent to start with creating a monthly budget. To take it a step further, start recording your expenses for comparison against your budget.

This shouldn’t be as challenging these days due to the availability of mobile apps.

Ultimately, this effort will give you insights into your spending patterns, and the amount of flexible income at the end of the day. If you find a shortfall in allocating toward your financial goals, perhaps it’s time to scale back on some lifestyle choices and try to find areas where financial fat could be trimmed.

Give yourself a simple financial health check as you review your cash flow every few months. Some basic ratios to follow are:
- Liquidity Ratio
- Savings Ratio
- Debt Service Ratio
Liquidity Ratio = Total Cash Reserves / Total Monthly Expenses

This monitors your emergency cash reserves to pay for monthly expenses in the event of unforeseen circumstances.

Typically, a liquidity ratio between 3 to 6 is recommended, which means you’ll have a buffer of 3-6 months. However, in a bad economy, it may be sensible to double this ratio to 6 to 12 (buffer of 6-12 months) in the event of retrenchment or unemployment.

Cash Reserves come from your savings accounts and assets that can be very quickly converted to cash such as money market funds.

Savings Ratio = Monthly Savings / Gross Monthly Income

This indicates if you are on track to meet your own financial goal allocations. As a rule of thumb, it’s recommended to aim for a ratio of 0.1-0.2, which means you are saving at least 10-20% of your monthly income on top of your EPF contributions.

If this seems difficult, a common tip is to set aside savings first as a mandatory commitment instead of leaving it for the balances under flexible income.

Debt Service Ratio = All Debt Repayment / Net Monthly Income

This tells you how much of your income is taken up by debt service obligations, or if you can afford to handle more financial commitments.

This is particularly useful as nowadays, it is so easy to sign up for instalment plans without considering the longer-term impact it has on your cash flow. To be safe, you should ideally keep this ratio below 0.35 (35%).

Finally, to secure your progress towards achieving your financial goals, you mustn’t forget about managing as much risk as possible. At a minimum, you should have a personal hospitalisation plan in place as a backup and for additional medical treatment options.

Without one, a major trip to the hospital could instantly wipe out your savings and you may even require financial support from other family members, which could completely decimate your cash flow management. Other major considerations are debt cancellation and income protection which will provide an additional safety net while you accumulate your wealth.

All in all, this article highlights the importance of cash flow management and why it’s a cornerstone in the financial planning process. It provides you with a spending structure to stay prepared and keeps you on track on your financial roadmap.

It’s not easy to change spending behaviours and you could even consider engaging a licensed financial planner to help you explore what motivates you and keep you accountable. A planner may help develop financial planning strategies with you but remember, change always starts with yourself!

About the author

Jon Ti is a licensed financial planner who coaches families with their financial management and helps them focus on improving their long-term financial behaviour. He can be contacted at yhti@ascendur.com
30/12/2020