Tuesday, May 3, 2011

The Imbalancing of Expenditure vs Income

Three weeks ago, back home over a round of drinks, a few friends including parents have asked me why have I not buy a house in Kuala Lumpur given that I have been in the Klang Valley over the past six years and since there is the introduction of the "My First House Scheme" thing. Of course my first answer would be that most houses in Klang Valley, even an apartment is valued at more than the cap value permitted for a loan, which is at RM220K. A flat, don't say Mont Kiara, for example like the Green Project in Setapak (behind Taman P. Ramlee) costs at least RM 419,000 and given that property prices will go up between 10 to 20 percent this year, it may cost more. If you are lucky, you can buy a second-hand house, but the start price will be around at least RM 300K +.

Forget about getting a new apartment in Penang Island at very cheap price for it costs 3 times more than in the mainland due to its land scarcity. A Batu Ferringhi apartment of 1100 sq ft will cost 1/2 a million ringgit to buy but bigget ones can cost between 1 to 2 million. Straits Quay seafront houses are at start of RM 3 to 7 million, depending on square feet available. This means that it will be almost impossible to qualify for the housing scheme as houses exceed the conditions offered.  

Mainly this was the first reason. But secondly, I would imagine that if I am to buy a house on loan, the repayment rate, given of the average of middle-income individual group's income, it might take up to 30 years to repay the loan completely. Along the way, if you have already started a family, your children will start to have debt that has to be shared the moment they are born until they grow up - until your repayment period expires. So basically, a child's savings starts not at 0, but at a negative amount. This was why I didn't really think that the My First House Scheme is beneficial, but it instead is more or less a propaganda tool meant to elicit the waning support from the community, unless you are a hardcore believer who believes blindly.

Famed author Robert Kiyosaki once said - it was a valuable fact for me -  is that even if you buy a house on loan, (this also apply to all things) it is actually not an asset, but a liability unless you have the extra money to pay it off as soon as possible. Otherwise, if you get something via a bank loan and you are a job casualty, you will have problem to repay and face the coming of the repossession men, for not settling your monthly pay - which is a very dangerous risk that few are aware of.

House buying problem and the unaffordable is part of the poor purchasing power problem faced by Malaysia. In fact, many Gen Y people like ourselves, if we don't factor in parents helping out, will have a hard time of getting a good house to stay and could be pushed into buying those PPR low cost houses. 

Poor purchasing power, low salary are the most hotly debated items in the last two weeks or so, having read several coverage pieces. Australians have recently in late were bold in taking one more step ahead, by launching a house buying strike. Prosper Australia has helped written a "buying abstinence". The following is the first three paragraphs of the strike pledge:

It is economically irresponsible to expect young adults to commit to thirty years of heavy debt merely to get on to the first rung of home ownership.

The current price of land is grossly overvalued compared to take-home earnings.

Compounding this, Australia is in the grip of a housing Ponzi scheme similar to that which brought the northern hemisphere to their knees.

Malaysia is no more or less facing the same problem of being in the grip of the Ponzi scheme. And yes, the Najib administration is economically irresponsible not just on this matter but other things as well. But doing a strike will also affect those who would do property investment too. So it's a juggle job here. But almost a little more than half of people surveyed in Melbourne would surely agree to the idea of a buying strike.

The low purchasing we have here is mainly of insufficient take home pay to compensate expenditure. Trying to do that on the scale means that the scale is imbalanced, tipped to the expenditure side. Contrary to the claim that Malaysia is cheap in purchasing, the diagram seems to speak otherwise. There are also statements from Malaysians working in other parts of the world that would say otherwise contrasting to ministers or politicians that would claim that.

People can buy great cars easier in other places unlike here where AP and high import duties (double) is why people can't even get one Honda at a very low price that is new. And since the Asian Financial Crisis, the ringgit has never recovered in strength against SGD, UK pound, and even gets weaker against the AUD. When I traveled to Australia last year, the rate was around 2.80 average before departing. As of last week, the rate has shot up to 3.25 average, which is an approximately 30% devalued. 

A few people spoke of working in Europe or Australia is not as pushing yourself too hard and over the limit you should be entitled to. The chart above tends to illustrate the point. We work 3 times longer than in Sydney or New York to get one Big Mac really. Translate that to currency and it's more or less the same. This leaves us to the last part of minimum wage. If Najib keeps talking about ETP, high income nation, then how come we are not seeing something to start with minimum wage act? 

If the government recognizes the May day celebrations, then why the police would arrest those who would come out to celebrate Labour Day? Just because it's against the "accursed" Police Act that people gets cuffed for nothing and go to the police station?

Related piece: Malaysians Plague By Poor Purchasing Power

If I am someone who is tasked to solve the problem, the immediate solution is to make minimum wage mandatory. Statistics revealed that private sector profit margins are very high yet, they give low wages to workers despite workers working hard enough each month. This is actually a true fact indeed. The government actually can do it, but they can't do right now because they faced stiff opposition from the employers union. If they don't do that, there's the imbalance right now. So, it's really true to say that either the Human Resource Ministry or Pemandu don't have the balls to make the minimum wage mandatory while they say it's easy to cut subsidies. It's like other bases are not covered to solve the problem. 

Today, Hong Kong is the latest country to make it mandatory of having a minimum wage. The minimum wage per day is set at $3.60 USD per hour - which means that on a 5 day work week, the minimum wage can be between RM 1800 and RM 2000 per month. Therefore, the act implemented in Hong Kong has benefited 10% of people there or around 270000 workers. Thus. the so called proposal base line of RM 700 per month is absolutely a pathetic baseline mooted by Subramaniam and his ministry.

Subramaniam is also under the firing line by other people including Klang MP Charles Santiago by saying that wage is based on productivity. That's the old saying indeed but the salary scale in Malaysia doesn't reflect the current times so, Subramaniam is also caught with the pants down. Remember that the wage increment over the last decade was only 2.6% whereas it should be at around 26% or 10 times compared to 10 years ago.

Some BN MPs and politicians have also said that the Buku Jingga that PR has talked about in doing it in the first 100 days is merely a pipe dream. One of the acts under skepticism scrutiny in regards to the book that was asked was about increasing the minimum household income to RM 4000 from RM 1500 in the period of 5 years. The problem raised by them is that if they are to meet the target in the space of 5 years, the PR federal government will have to spent billions annually over the five years to meet that target. This gives the picture that the moment PR takes over, the amount in the national coffers will start at a negative, red mark. But someone from PR said that this clearly is in motion provided if the minimum wage act is implemented first because their reasoning is that most private companies have higher profit margins and even use foreign workers to even maximize their value and get cheaper labor! Could it be the reasoning of going against the minimum wage thing perhaps?

It's true that 80% of households income is less than RM3000. Some of the highlights that CPI brought up is as follows:

Malaysian workers continue to be at the mercy of individual bosses in the absence of a minimum wage act. The 8-hour workday has been insidiously converted into 12 hours in two shifts in an arrangement that benefits the bosses. Compulsory overtime to supplement low wages has become a necessary evil for workers but it deprives them of rest, and time for family and community.

The government’s low wage policy incentive to attract foreign investors continues to erode whatever rights workers enjoyed. By amending labour laws the government has made it easier to sack workers. 

Unemployment and job insecurity have been created by allowing cheap and docile migrant labour without exhausting local labour supply first.

The message is clear. The government will betray workers and pawn their rights to preserve the interests of the capitalists with whom the ruling elite are strongly bonded. This has become all the more obvious with the adoption of neo-liberal market mechanisms that are hostile to workers.

I am not very versed in economics but if the minimum wage is incorporated into it, does that mean that the present income of professionals will also be calculated to include the minimum monthly wage across the board?

It appears that Malaysia has already deviated from the strong sense of dirigism that it used to practice before. China and Singapore are clear examples of those who would use dirigisme to ensure national economy is well managed even including steering out of recession and rebounding it. I used to remember that Singapore used a fraction of the reserves of approximately $600 billion in 2009 to stimulate in the recession and look what happened then - viola. With all the politicking and obsession of the sex video over other top priorities that BN are in, Malaysia's economy is in the autopilot mode, lack of the keeping the eye on potential factors that could affect economics all over country.

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